Some home"owners" embracing foreclosure... (incentive, mortgage, mortgages)
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The social stigma of foreclosure seems to be long gone...replaced by what appears to be a feeling of savvy at getting back at, and something back from the banks (taxpayers)...
Owners Stop Paying Mortgage ... And Stop Fretting About It - Yahoo! Finance (http://finance.yahoo.com/news/Owners-Stop-Paying-Mortgage-nytimes-4276925797.html?x=0 - broken link)
Here are some eye opening points in the article:
Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.
What makes BofA's plan so proactive is that it employs, "a principal reduction as the first step toward reaching HAMP's affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages - ahead of lowering the interest rate and extending the term."
Why are they getting more aggressive on modifications?
Because more borrowers are walking away. Yes, I know we've talked about this forever on this blog and on CNBC, and the New York Times did a piece yesterday on it, and 60 Minutes did a piece on it a few weeks ago. The fact of the matter is it's getting worse, and B of A execs are acknowledging that openly.
On the conference call to announce the program this morning, B of A's credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."
Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that's an optimistic assessment), and so there's over a year of free rent. While the banks are trying to improve the time, they're just not there yet.
31 percent of foreclosures in March were deemed to be "strategic default" by researchers at University of Chicago and Northwestern University.
Why don't new and used car buyers "walk away" from their cars...because cars also lose value after they're purchased. Why not walk away from purchases of appliances or electronics on credit too? Why pay for anything if you're going to take a loss at some point? SHEESH.
Walkers, keep defaulting on your homes, please, because it'll drive down the prices for those of us who didn't over-reach our budgets. I sympathize with people who lost their jobs or had health problems, etc., and couldn't make their mortgage payments, but not the people who just decide they shouldn't ever be held responsible for their own bad decisions.
Why don't new and used car buyers "walk away" from their cars...because cars also lose value after they're purchased. Why not walk away from purchases of appliances or electronics on credit too? Why pay for anything if you're going to take a loss at some point? SHEESH.
Walkers, keep defaulting on your homes, please, because it'll drive down the prices for those of us who didn't over-reach our budgets. I sympathize with people who lost their jobs or had health problems, etc., and couldn't make their mortgage payments, but not the people who just decide they shouldn't ever be held responsible for their own bad decisions.
Because people usually need a car to go to work (unless they live in an urban area with access to rail service).
And people need a home also. But they will milk the foreclosure process until the last possible minute.
It's sad what people are doing but it's the "mob mentality" approach. Before it was shameful to default on a home loan. Now since everyone is doing it, there's no shame. Hey if co-worker A did it, along with co-worker B, I might as well mentality. And people have dinner discussions like it's ok to do.
But the bigger picture this has revealed during the housing bust is how much Americans have relied on credit the past 20 plus years. In a way, it's loose credit card market that has "enabled Americans" to "embrace foreclosure" It's so obvious that these people are also racking up credit debt in addition to going into foreclosure. You eliminate that credit card safety net, American's won't be bragging about embracing foreclosure. They will be in for the fight of these lives just to stay off the streets.
Why don't new and used car buyers "walk away" from their cars
a) Because cars don't come with 30 year loans attached to them
b) You can't walk away from a car and get an identical one for half the price next door
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Why not walk away from purchases of appliances or electronics on credit too?
Because credit card debt is tougher to get out of.
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I sympathize with people who lost their jobs or had health problems, etc., and couldn't make their mortgage payments, but not the people who just decide they shouldn't ever be held responsible for their own bad decisions.
Making a bad decision to stay in a less affordable house is just as much of a bad decision as the initial purchase was. This may be a case where 2 wrongs don't make a right - the initial bad decision is over and done with, no need to make another one by staying in and paying for overpriced house for the next 3 decades.
"Making a bad decision to stay in a less affordable house is just as much of a bad decision as the initial purchase was. This may be a case where 2 wrongs don't make a right - the initial bad decision is over and done with, no need to make another one by staying in and paying for overpriced house for the next 3 decades"
I'll be sure to use that reasoning when I stop payments on anything I've already purchased because I can probably buy it cheaper elsewhere.
I think the problem is there isn't enough punishment for this. There should be no way in hell you can buy a house for a very long time after this and your credit should also take a major hit that would take many many years to overcome. They should also check any married person buying a house if their spouse has something like this on their record.
But I do see it as a business decision, not a moral one. It wasn't a moral decion by the bank to make the loan. The bank made a decsion to make money. The homeowner here is making a similar decision.
I think the problem is there isn't enough punishment for this. There should be no way in hell you can buy a house for a very long time after this and your credit should also take a major hit that would take many many years to overcome. They should also check any married person buying a house if their spouse has something like this on their record.
But I do see it as a business decision, not a moral one. It wasn't a moral decion by the bank to make the loan. The bank made a decsion to make money. The homeowner here is making a similar decision.
In case you didn't realize it, as part of the new financial reform, Congress is trying to make it illegal for employers to discriminate against people with bad credit.
The politicians are playing it both ways. We don't want to "overpunish" people who are already down on their luck. But at the same time, they want people to take some responsibility for their own actions.
As a small business owner, I do look at people's credit history. If I see a pattern of poor decisions (and that's often reflected by the credit report), I will probably not hire them. But with the new financial reform legislation in the works, they would make it illegal to not hire someone solely based bad credit.
Of course, background criminal checks are more important to me than someone with a bad credit history. But if they've have multiple bankruptcies, I would hesitate to hire them unless they have a clear explanation.
The "business decision" part concerns me. It's a slippery slope, in my opinion, if you take a broader view of this kind of reasoning. If it's OK to ignore contractual responsibilities just because you decide the terms you willingly signed for are now unfavorable to you, where does that lead us.
Maybe we shouldn't blame home sellers for not disclosing defects if they decide it's a good "business decision" not to disclose despite having signed agreements to the contrary. Maybe we shouldn't hold builders responsible for using shoddy materials because it was a good "business decision" despite having contractually promised to do quality work. Nobody should be held responsible for anything so long as their reason is that it's a good "business decision" not to?
I do think hardship mortgage cases deserve special consideration. But people who simply don't wish to accept responsibility for real or perceived (paper) losses for no real reason except feeling cheated by their own decision --- that I don't get. Many of the same people who are doing strategic walkaways today would still be living in their homes, paying their mortgages, and even taking out huge equity loans to buy more stuff they can't afford and usually don't need, if the economy was back to bubble levels.
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