Walk away from your mortgage? Time to get 'ruthless'

[Scorpio]

Walk away from your mortgage? Time to get 'ruthless'

snip

The profile of a typical strategic defaulter is not what you'd expect, said Peter Ticktin, a Florida-based attorney, whose firm is handling 3,000 foreclosure cases.

"Because they borrowed money and stopped paying their loans, you would think they're deadbeats -- but it's not like that," Ticktin said.

In fact, most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.

Take Jeff Horton, an IT manager in Orlando, Fla.

He stopped making mortgage payments on two homes in October 2009, a condo purchased for $140,000 in 2005, and a house he bought two years later for $265,000. He had occupied the condo until he bought the house, and then rented it out.

"I would have kept up the payments, but the condo was appraised for $54,000 and the house, $135,000," said Horton.

To keep paying off the homes didn't add up. He could rent a nice three-bedroom home in town for about $1,000 a month, less than half what he was paying for his mortgages, even after rental income.

For him and other homeowners, that makes up for the credit-score hit and the fact that you won't be able to get a mortgage for several years.

Before he stopped paying, his credit score was an excellent 750. It dipped as low as 520, but is up to 600 again.

"Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios -- in a financially ruthless manner."

http://money.cnn.com/2011/06/07/real...gage/index.htm

[DrillAndFill]

For him and other homeowners, that makes up for the credit-score hit and the fact that you won't be able to get a mortgage for several years.

There are many reports of people who walked away two years ago getting new loans today.

Neither the banks nor Washington can stand the idea of anyone being denied a mortgage.

[Alex Lemas]

It's a business deal. My understanding is that if yours is NON-RECOURSE, they gave you the money and you said if I can't pay you get the haus. Nothing more, nothing less. They did the deal, they signed, and were happy to do it.

[Usury]

If he still has the means to pay and decided to walk away, then he's a deadbeat.

[Not Sure]

If he still has the means to pay and decided to walk away, then he's a deadbeat.

Your attempt at an "insult" means nothing to him...or me...or millions of other smart folks. The term "deadbeat" has entered the annals of meaningless terms, along with "racist."

[CiscoKid]

Your attempt at an "insult" means nothing to him...or me...or millions of other smart folks. The term "deadbeat" has entered the annals of meaningless terms, along with "racist."

When politicians begin living up to our standards, then the term "deadbeat" will have more sway. As it is, the guy who walked away is no worse than the guy who takes our money to represent us and then only represents himself at our expense.

And, no. I have never defaulted on a mortgage. And my credit score is above 800.

[latemetal]

Until enough people walk out on the mortgages, we will not get the Bankers mess unwound. Hand the mess back to the bankers...

[Merlin]

The term "deadbeat" has entered the annals of meaningless terms, along with "racist."

People who work in the credit card industry refer to cardholders who pay their balances in full each month, thus avoiding interest charges, as "deadbeats." It is just a perjorative term that gets thrown around loosely.

[Meliorist]

It's a business deal. My understanding is that if yours is NON-RECOURSE, they gave you the money and you said if I can't pay you get the haus. Nothing more, nothing less. They did the deal, they signed, and were happy to do it.

No, non recourse states protect borrowers from being pursued for deficiency in most cases. The borrower is still in breach of the contract. It wouldn't even matter if the borrower told the originator "If the market goes down, I'm going to default" at signing because the originator didn't care, it wasn't his or his company's money. Those mortgages were mostly sold to the government or the Fed or to pension funds. Some are still on banks' books who are still being floated by the Fed (or liquidated by the FDIC). The defaulter offloads his loss onto society and because the system is very inefficient the loss is magnified (foreclosures sitting for months, getting vandalized or leaks, price reduction due to stigma/no disclosure, agents' and lawyers' cuts, and on and on). These total losses are predominantly the defaulter's fault and s/he is the primary benefactor of both the act and the system.

Lending should be much more stringent and at higher rates in non recourse states but the mortgage system the government established lumps everything together into one toxic stew. Heck, in 2008 they even extended the conforming limits in expensive (non recourse) places like CA to $729,750 from $417k

[AG Stacker]

IF there were victims in any of this, they were the people with money for a down payment, secure jobs and good credit that purchased less home than they could afford.

What should someone in that situation do? They've never been late with a payment. They've always paid more than the minimum. They have a credit score nearly 800. The only debt they have is the mortgage. Their next door neighbor was a bag boy at the grocery store and was able to bid up the price of their home. They don't go on vacations. They don't buy ipads or motorcycles or jet skis or any other toys.

The bag boy was foreclosed long ago. Many others simply moved out. Now one of the most responsible families left sees a blighted area all around. Its not their responsibility to cut the neighbors grass, but they do.

They see greener pastures elsewhere. They have the money to move. They can still afford a sizable down payment on their next place.

Why would they stay where they are?
What are they supposed to do?

[Not Sure]

Their next door neighbor was a bag boy at the grocery store and was able to bid up the price of their home.

Whoa. Who's fault was that? The bag boy or the "professionals" who told him how much he "could afford"?

And as for "bidding up" property, I'm far more concerned with foreigners coming over to buy property bidding it up, than people trying to live the "American Dream."

They don't go on vacations. They don't buy ipads or motorcycles or jet skis or any other toys.

Who exactly is this fantasy family?

[Garyw]

Now that I am old and wise I remember what an elder man who went thru the depression told me. He said do not worry about your house devaluating. Just pay the mortgage payment and when the **** hits the fan the banks will renegotiate all loans. The only ones that loose is the ones that cannot pay their mortgage and walk away. The us government may never file bankrupcy as it holds too much real estate. Now that I am older I am not sure about the pay until the **** hits the fan, but the rest was probably right on.

[DrillAndFill]

... and when the **** hits the fan the banks will renegotiate all the loans.

Too early to tell.

Stalling on foreclosures is sort of like renegotiation, except the bank retains the option of seizing the property when desired.

Currently, refusing to foreclose is the best route to hefty CEO bonuses. There may be outright collusion among banks in the form of a cartel agreement to limit supply

I think cramdowns may be coming. It looks less cruel than foreclosure, but it locks wayward debtors back in, and can be used to keep a lid on supply and prolong the downward price trend in the market. Washington will love it.