May 12, 2008
Who’s Really Walking Away?
Interestingly, both the Los Angeles Times and The New York Times published stories over the weekend questioning the belief that many people who can afford their mortgage payments are choosing to walk away from their homes.
From the L.A. Times:
There’s a major problem with all this talk about the phenomenon of solvent homeowners “walking away”: There doesn’t appear to be any hard evidence that it’s actually happening.
Agrees The New York Times:
There is little evidence that people who have the means to pay are walking away from their homes as values sink.
So where did the idea that the well-off are abandoning their homes originate? Don Truslow, an executive with Wachovia Bank, has said it on several occasions. But when the L.A. Times pressed Wachovia for data to back up the claim, the bank could produce no hard numbers.
Nor could the Mortgage Bankers Assn., the leading trade group for housing lenders. Spokesman John Mechem said he believed that walkaways by homeowners who could afford their payments were “becoming more prevalent.” But he said that was based on “anecdotes we’re hearing from our members and what we’re reading in the newspapers.”
Why would lenders put that information out there if it weren’t true? Here’s one possibility, from the L.A. Times story:
Bruce Marks, CEO of Neighborhood Assistance Corp., a Boston-based nonprofit agency that helps strapped homeowners, says flat out that the notion that legions of borrowers are simply deciding not to pay is an “urban myth” that largely reflects the mortgage industry’s desire to blame homeowners, rather than their lenders, for the surge in problem loans.
Nice try, lenders. Even if it were true that well-off homeowners were walking away, no one’s going to forget that if you hadn’t doled out mortgages to anyone who could fog a mirror, we wouldn’t be in this mess.
The stories say that, as with other downturns, people who default on their loans fall into three categories: 1) investors and speculators; 2) those who took on an exotic mortgage they knew they couldn’t afford; and 3) those experiencing a job loss or other serious financial jolt.
About 10 percent of U.S. homeowners owe more than their properties are worth, but not all of these homeowners will default. Assuming they bought for the right reasons, took out a sensible mortgage, and don’t need to move, there’s no reason they can’t live in their upside-down homes indefinitely. That’s what I and millions of others had to do during the 1990s downturn.
Recent Redfin posts:
A Survey for the Highly Impatient: Just 8 Questions
More Under $600,000 in Westchester
