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Why are Homeowners Walking Away?

By
Real Estate Agent with RSVP Real Estate

Brent White, A University of Arizona law professor has published a new paper, based on the personal accounts of 356 strategic defaulters and homeowners on the verge of doing the same.  "He found that people who default on their homes are not as economically rational or calculating in their decision making as widely believed" reported Kenneth Harney a syndicated columnist.  He found that people walk away from their homes because they are at the end emotionally.  They are angry at a financial system them feel is unfair.  As reported by Harney many homeowners with negative home equity are having difficulty dealing with lenders. 11.2 million homeowners across the country owed more on their mortgages than the market vlaues of their properties. 

Severe negative equity is what prompts owners to consider walking away from their homes.  Older owners worry about their ability to provide for themselves during their retirement. Harvey reported that 100% of the 356 homeowners contacted their lenders to work out some solutions before they defaulted.  Lenders refused to discuss modifications with anyone still current on loan payments.

What should we do with this difficult situation?  White recommends "a rent-based loan program that allows under-water owners the option of refinancing their balances to an interest rate that would bring their monthly payments in line with the rental cost for a comparable house."

I personally don't know what to do for homeowners that are so underwater that they don't qualify for one of Obama's administration foreclosure prevention programs.  I don't think it is the responsibility of the banks to re-set mortgage principle.  I liken this to the stock market.  When you invest in the stock market and lose money the company you invested in does not re-negotiate the terms if you loose your money.  A few years ago I think most people would have agreed that lenders lend you money to purchase a home and are not responsilbe for making sure your loan equals the value of the property.  Today, the consumer sentiment has surely changed!

This information was taken from an aricle in the Seattle Times, realestate section, entitled "Just Walk Away," dated May 23, 2010.

Anonymous
Louise

Hi Amy.  This idea of a rent-based loan is interesting.  It seems there would be many creative ways to avoid walking away. 

Is it possible - or even a good idea - to put the house in the name of an elderly relative who lives with the family, then have that relative obtain a reverse mortage?

 

Louise

Jun 03, 2010 04:25 AM
#1