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Do You Know Anyone Who is "Talkin' Walkin'"?

Aaron Auxier wrote a thought provoking post today entitled: "The FICO Forgivess Act of 2012. Principle reduction Bailouts for Homeowners. Someone better start paying attention".

Aaron's post discussed the "Talkin' Walkin'" going on in Las Vegas. Homeowners who can afford their mortgage payments, but are choosing to walk away from their homes because of the significant drop in value.

I myself have heard of couples transferring debt and assets in order to prepare to "walk-away".

Never did I think I could understand the reasoning behind this...but I do.

A home is a financial investment. What do you do if you open a business and it continues to bleed money each and every month? You cut your losses and close the business. Do you do the same thing with a home that loses value each and every month while your outlay remains the same or increases?

If a homeowner paid $400,000 for their home and now the home next door just sold for $200,000, the homeowner is looking to be making payments for 20 years for.....not? Why not walk away? Their credit will be restored from a foreclosure in less than that period of time.

Some will say that the homeowner has an ethical and moral responsibility to pay the obligation they signed up for. Well, is it more ethical and moral to pay the bank or look out for the financial well being of your family?

What more important? A FICO score or financial security? I think it's financial security.

Tina in Virginia

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Posted by Tina Merritt - Virginia Beach Real Estate on 01/12/2009 08:29 PM

Comments (14)

Foreclosure in the Real Estate Market Channel

aaron auxier, fico, investment, foreclosure

Originally posted at: Hampton Roads Virginia Real Estate: Do You Know Anyone Who is "Talkin' Walkin'"?

Post is included in group: VIRGINIA
Post is included in group: Short Sales Pre Foreclosures Bankruptcy and More!
Post is included in group: Short Sale REALTORS®
Post is included in group: Realtors®
Post is included in group: Mortgages

14 Comments on Do You Know Anyone Who is "Talkin' Walkin'"?

JAN

I agree - I'd walk away and rent before making my kids suffer over and over. My wife was sad today realizing our home is probably worth about $150,000 less then we paid less than 2 years ago. Thank God we plan to be here for the long haul. I think she's feeling a little better now. I hope. But realistically, I could fully understand walking away for a family's sake. I just don't believe one should just walk away just because.

I hope that I am never in that situation but I imagine that if it were a matter of survival and taking care of my family I would walk away too if I had done everything else that I could do first.

Tina~ I can see your point, but hopefully it will come back over the long haul. I can somewhat understand the reasoning behind it, especially now that there is a prevalent bailout mentality.

Tina,

What is it that entitles them to the banks money? This cost their stock holders, and ultimately all of us through tax dollars (which your Great Great Grand Kids will still be paying!)

Is there no honor, no self discipline, no integrity left? Isn't it bad enough that some truly have no choice?

Marks would be proud.

Bill

I just don't think that is right.

Any kind of talk about FICO forgiveness is only going to create a huge moral hazard and make things a lot worse.

If that starts to happen, we are all in big trouble. Interest rates will have to go really high in order to factor in the huge risk of so many people having that kind of attitude. Either that or the only loans available will be with 50% down payments. Who in their right mind would loan money on the terms that we have become accustomed to?

Tina: This was really an interesting post. I can see why this is happening more and more, but let's hope for a turn-around soon.

JAN

I don't know. I really just don't think it is right. Would you just walk away from your car payments because the value of your car dropped after you paid for it? I mean, I'm told that your car is worth half what you agreed to pay for it once you drive it off the lot.

It's kind of like the attitude people have toward marriage. If you walk into it knowing that you can just get divorced if it doesn't work out the way you want, then you'll probably get divorced.

If we go into things with the attitude that we can just walk walk away when the situation doesn't present itself in a positive light anymore, what sense of moral responsibility are we instilling in our children?

~Renae

Renae - i see both sides and hope i am never faced with this decision. remember years ago when having to take out a 2nd mortgage was considered a travesty? now, it's fully accepted. will a foreclosure from the financial crisis of 2008 be looked upon the same way?

Ilyce - the message relayed at Inman was that this won't turn around anytime soon.

Tim - maybe we will get back to an environment that in order to buy, you better have 20% to put down and perfect credit. who knows.

Bill - like i said, i see both sides and i hope i am never in a position where i have to make the decision.

Vickie - yes, everyone seems to want a bailout right now

Cynthia - in some markets where 80% of the homes are in some process of foreclosure, i can certainly understand this mentality.

Steve - i'm sorry your home has dropped so much in value but glad you have an optimisitc outlook!

Tina, I have had folks do both. But, ONLY if they had to move and couldn't see for what they owed. I also had a couple walk into closing with 25K on a home sale of 60K. Now that took integrity and a desire not to have their credit ruined.

Many of my sellers this past year have had to walk in with money, some up to 45K.

My advice, If you don't have to move, don't move. Gut it out.

Unfortunately, no matter how much we may agree with this practice, it's happening whether we like it or not. It is just something that has become commonplace.

Kathy

Banks will create programs for borrowers in 2012 and beyond. There will be a huge market of those with bruised credit. Capitalism will encourage the lenders to seek out this market. It will spell opportunity to the lenders. Businesses make decisions based upon what is best for that entity, not the overall economy. When homeowner's do the same, they are criticized. Shouldn't we be expecting businesses to also be "responsible"?

JAN

Tina I can agree that many families find this tatic harmless when dealing with people in a struggling economy especially families who need the money but from a mortgage standpoint I have learned the reasons behind the strict mortgage guidelines right now and the taking away from all the good mortgage products out there are from the "Buy and Bail" scam in which you pointed out to walk away and just buy the cheaper house because they are upside down. Its a catch 22, yeah it makes sense to do it but utimately its hurting the mortgage world and the banks that provide the loans in the first place, just because its a quick fix doesn't mean its right.

Kathy although pointed out a good point whether we like it or not its happening regardless.

JAN

You never know how you will react in any given situation until it actually happens to you and I am no one to judge anyone for any decision they make one way or the other. People have reasons for what they do and lessons will be learned as a result (hopefully). There are consequences of all these decisions.

I just hope I am not faced with these kinds of decisons and I pray for those that are.

JAN

Hey Tina... I have clients that emailed me jst yesterday that are "ready to walk." They've been on the financial 'treadmill' for about 3 years now, making no headway whatsoever, and it's taking a huge toll on their marriage and family life. You made a VERY good point about the amount of reduction in values. Phoenix has historically enjoyed a 5-6% appreciation rate, which at this moment seems a long off. But even we had an immediate turnaround, it would take folks 10-15 years just to regain the lost ground. It's an excruciating dilemma, and all we can do is sit by and HOPE something happens - soon. Nice post!

Randy Hooker

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