Ugly posted this interesting LA Times article his Del.icio.us link role a few days ago. It seems that people with upside down mortgages (where your mortgage is greater than the value of your house) are voluntarily letting their properties be foreclosed on.
A homeowner who can’t sell his house tells the L.A.Times, “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.”
Banks and lenders fear this kind of thinking — that walking away from a house could be the smart economic move — appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: “… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…”
It sure makes business sense to me why homeowners are doing this, cut your losses and get out but is it the right thing to do? I don’t know if its right or wrong but I do know that the Banks need to start being more accommodative to all borrowers now. Lending has gotten so tight that our mortgage company wants to charge us $5,000 just to refinance our investment property, and we have great credit!
With all this voluntary foreclosure activity, is it time to be a foreclosure vulture capitalist? Not yet, wait till the banks are choking on supply.
Lost equity does seem to be motivating people. Some in our area are selling there homes and renting and investing in stock market instead.
It also makes business sense to me, that if there were only one guy saying this – perhaps even calling reporters to tell them this – that the “news” would publicize the hell out of it.
So I’d take a grain of salt with any estimate of how “widespread” this phenomenon is.
The “business case” for the action loses a bit of luster when the impact to future credit rating is considered; again, how many people think long-term is a matter of conjecture, but so is the number of people with the ability to do the simple math mentioned in the article …
I think a lot of Americans couldn’t care less about their credit rating. Why would they? Money was so easy to come by in the past few years.
Of course, this will come to bite them in the a$$ later when they realize the consequences of their actions.
Yes, and probably most, if not all, of those that don’t care about their credit rating also don’t have enough smarts to get as far as the guy in our feature story, here …
It’s all about thinking in marginal and distributional terms, what percentage of this does that and what’s the marginal impact, as opposed to taking one example, dipshit above, and extrapolating what might happen if everybody in trouble does what he’s doing. Think in the former method, you’re skeptical; think in the latter, you’re fearful.
Don’t forget the role the media plays, which is sensationalizing, and that is the point of paragraph 1 of my first response. The media will try to paint a picture that everybody is doing what this one guy is doing, and that picture is obviously false. Some will, some won’t. We don’t know how widespread it is from the media, other than to know that it is LESS widespread than they make it out to be, because their job is selling rags to print ads on. That could be one guy who chased down a reporter to feed them the story, or one guy that they turned up in a hunt for stuff like this. It certainly is not representative of ALL persons who have their houses up for sale …
It’s monkey see, monkey do.
How is this any different from Bush making the dollar go down the drain, then inflating the national debt endlessly so the country can shop till it literally ‘drops’.
@Bill: I agree the media tends to sensationalize it and yes one guy does not make a trend. However if you follow the link about Wachovia warning its investors about this new phenomena, you can’t help but wonder if something more sinister is happening below the surface.
Granted, I don’t have all the data and once we do we can say whether it was an outlier or an actual distribution but from personal experience when I was flipping foreclosures, the homeowners don’t give a damn about credit, they just want to know if they can get some money out of the deal.
@sherry: If you follow the link to the article, another homeowner makes a valid point:
“I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions.
“I don’t really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions, with access to more sophisticated information than any consumer could imagine, make mistakes affecting thousands of people worldwide, they are not excoriated and vilified with the same righteous zeal.”
I think it’s called double standards.
Now that I think about it, the media (which is owned by maybe just 5 big conglomerates) have totally skirted over the fact that massively leveraged derivatives are the root cause of this mess.
Buffet said it best way back in 2003,
Contracts devised by ‘madmen’
But Mr Buffett argues that such highly complex financial instruments are time bombs and “financial weapons of mass destruction” that could harm not only their buyers and sellers, but the whole economic system.
yeah, the homeowner can default and take the consequences, same’s a company can default and take the consequences. Stupid is as stupid does, esp. for getting into that situation in the first place.
I always laugh at that Buffett quote. You do realize that his company, BRK-A, SELLS derivatives? He even commented on the fact that he was selling a product he didn’t understand, and that quote came AFTER the one you mention.
Funny stuff.
Have you guys seen this? Justwalkaway.com
nice link Tom, I started laughing at seeing the smiling girl right at the top. She’s probably thinking: “I’ve made great life choices that have lead to foreclosure. I’m a winner!”
I’m not entirely cynical – bad things happen to good people – but geez, I’d love to see if Milken is the site’s registrar.
Oh yeah, I wonder how scammy that site is. They want you to pay them over $2000 just so you can live in your own house for 8 more months.
I wonder if part of the deal is that you have to sign over your deed to them?
You can easily not pay them and still stay in your house for 8 months before the sheriff hauls you out.
Actually the service fee is only $995.00 and if you read the website, you actually get a lot for that fee. The sheriff doesn’t haul you out. This is why people need our service… because people like you have wrong information. We help make the best out of a bad situation.
Jon.
http://www.youwalkaway.com
Jon,
Do you care to explain how you actually help the homeowner aside from the items you mention on your site? What’s the process?
I would think that I could save $995, shut off my phone, and still stay in my house for 8 months before Sheriff comes.
Feel free to explain on this all works because I’m skeptical.
Yes, I would like to explain how we help homeowners. First, we don’t help people who have equity. We refer them to a licensed RE Agent to try to sell there home. The same if they have not tried a short sale or loan modification. If they have no other options and they truly cannot afford to pay their mortgage payments we offer them our “Walk Away Protection Plan & Kit” This has all the state laws pertaining to their foreclosure and their rights as homeowners. But most importantly, we give them a detailed timeline showing what is going to happen and walk them through the process. We give weekly correspondence, updating the timeline and letting them know if the lender is taking longer, subsequently giving them more time in the home “payment free” There are common mistakes that people make when they go into foreclosure. One of them is to vacate the property and not pay their insurance payment. You can imagine what would happen if someone got hurt on their property or God forbid, drowned in their pool. They get a consultation with both a licensed CPA and RE attorney. Also we pay for them to be enrolled into an affiliate credit repair program. During the foreclosure proceedings there are things that happen. We know Exactly what is going to happen because that is our profession. We help bring peace of mind and Answers to many questions that people spend hours and hours trying to find. There are many other things that we provide, but I would say if you are interested to go to our website at http://www.youwalkaway.com and look at some of the testimonials on our “contact us” page. When people have to decide between paying their health insurance, car payment to get to work, gas, food (necessities) or an overpriced mortgage payment, they should do what is best for their family. You would. We aren’t here to judge, just help. There are many out there that are facing foreclosure. Regular people who don’t understand how this works need help. Similar to you can change your own oil, but you probably don’t… you hire a professional. Now if it’s your profession to work on cars, you may do it yourself. But for the rest of us, we leave it to the experts. Let’s hope the analysts are wrong and this Foreclosure epidemic gets better sooner rather than later… for all of our sake.
So you actually contact the lender and discuss with them where they are in the filing process?
Do request that the homeowner sign over their deed to you?
We DO NOT have the homeowner sign over the deed to us. There are scams out there that do that. We don’t buy properties or do loans. We check with public record to see where they are in the timeline.
Interesting business model then, How much money do you generate from referring your clients to the affiliate then?
Most of the foreclosures are due to adjustable rate mortgages(ARMs). Many homeowners who got adjustable rate mortgages (ARMs) on their properties when rates were at an all-time low. Now those adjustable rates have increased and many homeowners find themselves making payments on homes that have no equity or even have negative equity. There is still hope for homeowners in foreclosure. There is a good site where homeowners in foreclosure can get help. Home Search 4 Investors
Mark: We know that already, are you just a comment bot hawking your website?
People should take personal responsibility for their actions. I have no problem with letting the free market handle it as you suggest. Someone’s mistake is someone else’s opportunity.
I have a real problem with the government using my money to bail these people out. Most simply bought more house than they can afford. It isn’t the banks fault. People should take personal responsibility.
I also have a problem with my money being used to bail out these banks. They made the risk and stood to make huge profits. That obviously didn’t work out, so hate it for you.