I, like many of you out there, have children. Children who have been of the opinion from quite a young age that-too often for my taste-they just don't want to do certain things. Like pick up the thousands of pairs of shoes that they leave around the house over which I undoubtedly end up tripping. Now, it's not that they can't do such things, but for a plethora of reasons that I do not understand, they just have made up their minds that they won't. Even when every indication is that the consequences for their inaction will be less than desirable-both to others (me) and themselves (such as being grounded until the end of time). But it has long been my hope that a) they will grow out of it and b) that they will have children of their own who will act the same way.
Given these hopes, you may understand my disappointment when I read a recent Time Magazine posting which noted that according to economists at the University of Chicago, up to 26 percent of U.S. homeowners who have stopped paying their mortgage have done so not because they can't do it but, in truth, because they don't want to. Yep, go ahead and re-read the sentence. Because they don't want to. And that decision, it appears, is largely based on whether they owe more on their homes than they are worth.
So let me understand this. These folks are employed, have money and live in a home that they apparently thought was king-dingalicious when they bought it a few years back. But because the market slowed down (like it always does) and hasn't sped up (like it undoubtedly will) according to their timeframe, they are just going to stop making payments. Like children, they're just NOT going to do it.
Now, let me point out the ramifications. When a home is foreclosed, the neighborhood in which it is located almost certainly begins to feel a little bit of downward pressure-especially if it stays on the market very long. And with each additional foreclosure, home values in the neighborhood drop accordingly. Unsurprisingly, homeowners begin to wonder how their properties will be impacted. If they decide to walk away, property values are going to continue their freefall.
Every day we're deluged with another story about home prices tumbling as a result of the bad loans and mortgage violations given by mortgage companies. Whole government programs have been proposed or implemented based on what a lot of folks believe is the inability of these homeowners to make payments on those bad loans. But if even a tenth of these foreclosures are "strategic"-not the 26 percent figure estimated-it would seem that we all need to take another, more realistic look at how to think about and solve the problems at hand.
And in this case, I really hope that these walk-away homeowners don't have kids who act just like they do. Now if you'll excuse me, I have shoes to trip over.
[UPDATE] Posted Part 2: Are you crazy? Stop paying your mortgage is "strategic"? Part 2
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I am not sure how it works in the US but in Canada the lenders can forgive bankruptcy but trying to get a mortgage after a forclusure is almost impossible.