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A Bad Rap

Bank Building Downtown New MilfordA bad rap, that's what I came away from this study thinking. I read a very interesting post by Liz Miller of Lake Havasu Real Estate in Arizona called "Those Who Have Chosen to Walk Away from Home Mortgages". If you haven't read it, you really should. Liz talks about a report from the LA Times concerning "Strategic Defaults", people walking away from their homes.

The surprising data that came out of a study done by Experian and Oliver Wyman showed that people with good credit were 50% more likely to walk away from their homes than people who were struggling to make those payments or who had less than stellar credit. What also surprised me that these "strategic defaulters" go from making payments on time to walking away. No struggling to make those payments, no late payments, etc.

I had two very strong and immediate thoughts to this information.

  • I have heard it said over and over again that it was the people who had bad credit that obtained mortgages that were the problem. Guess that is not true at all. The study shows more of these people apparently are trying to pay, trying to make deals with the banks, and are going to be suffering the most with this latest development.They really have gotten a bad rap.
  • How do you just walk away from a home? Does this include those who refinanced and already spent the money? In my humble opinion if indeed the home was refinanced and money was spent to pay credit card debts, etc., to purchase that new vehicle or to get bigger and better toys, how is that different than racking up huge credit card debt and just not paying? You have the items you purchased and yet refuse to pay the bill?

Bottom line, I think it is very important that the general public understand the continued problems are not the fault of those who may not have stellar credit ratings and big fancy homes, those who are struggling to hang on to what they have. What really worries me about this is that the banks are often NOT willing to work with them to help them out on loan modification programs. And yet these are the folks that are really trying to stay in their homes!

I'm just sayin....

Andrea Swiedler, Realtor, Southern Litchfield County Real Estate

2017 President, Greater New Milford Board of Realtors

2017 Connecticut Magazine 5 Star Realtor

 

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Litchfield County Regional Office,375 Danbury Rd, New Milford, CT 06776

 

© Andrea Swiedler 2009 - 2017

 Always do right. This will gratify some people and astonish the rest. - Mark Twain

Comment balloon 16 commentsAndrea Swiedler • September 27 2009 08:14AM

Comments

Andrea, I am with you. There is not a clear cut answer to who caused this melt down. Was it the good credit people who are now in a crunch because of layoffs or the low credit people??

Posted by Pat O'Reilly (RE/MAX..214-289-6176 Irving and all of Dallas Fort Worth) almost 10 years ago

Hi, Andrea. That's an interesting and very good point. I heard the term "strategic default" for the first time just the other day.

Posted by Leslie Helm, Real Estate For Trail Riders (Tennessee Recreational Properties) almost 10 years ago

Thanks for sharing your thoughts on this topic. Best wishes for continued success.

Financial distress can impact any family. The reactions reflect the character of the borrowers.

Posted by Roy Kelley (Realty Group Referrals) almost 10 years ago

Andrea:

I think some of those people in the article are chronic defaulters, perhaps even making a premeditated decision to default as good business.  Unfortunately, they make it difficult for the people who are struggling to work out something with their bank so that they can hold onto their homes.

 

Posted by Claudette Millette, Buyer, Broker - Metrowest Mass (The Buyers' Counsel) almost 10 years ago

Andrea - I think these "strategic defaults" are tied into so many different pressures the home-owner is going through.  Banks are, generally, unwilling to work with a struggling homeowner until that homeowner has reached critical mass.  Most people are not willing to go to critical mass.  It is better, in their minds, to walk away with destroyed credit and try to start a new life somewhere else.  When our unemployment rate hovers around 10% (which really means double that), critical mass is not far away.

Posted by Kent Anderson, from Schweitzer to the Lake (Coldwell Banker Realty-Schweitzer Mountain, Sandpoint, Idaho) almost 10 years ago

Andrea, there are all kinds of surprises out there as we begin to peel back the layers of this particular onion!

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) almost 10 years ago

Andrea I had heard from someone in the banking system that it was actually more favorableto the banks to have the foreclosures than to try and work a short sale. Plus the major problem with the short sales is the way the paper was resold to investors, and who actually has the right to negotiate a short sale.  So much paper was sold to Deutschebank and they really don't have the best of a presence in this country.

Posted by Ed Silva, Central CT Real Estate Broker Serving all equally (RE/MAX Professionals, CT 203-206-0754 ) almost 10 years ago

Some people look at this as a business decision.  I personally feel that if you borrowed the $$ you need to pay it back!

Posted by Paul & Diane Boykin (Keller Williams Realty Greater Athens) almost 10 years ago

Andrea I think the mortgage and housing situation does reveal people's true character.  It is unfortunate that the people who really want to do what's right but hit a rough spot are not getting the needed help.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) almost 10 years ago

Hi Andrea: First - with the national unemployment rate teetering at just under 10% lots of folks can no longer afford those homes.  Your typical "bad credit" people are usually lower wage earners (read less privileged).  If you are a lower wage earner and lose your job it is easier for you to find comparable employment and replace your income stream.  Your "good credit" people are usually higher income individuals (on average).  When these people lose their jobs it is much more difficult for them to replace their income stream with a comparable job - hence they are actually more likely in this scenario to walk away from the home.

Second - loan modifications - are you aware of the landmark case from August?  Countrywide was suited by their securitization investors.  Countrywide was the servicer on a group of mortgages which they modified for the homeowners.  The investors then suited Countrywide under the argument that they did not uphold the terms of the securitization and thereby reduced the ROI (return on investment) to those who securitized those loans.  The court rules in favor of the investors and against Countrywide who now has to buy back all those loans or make the investors whole (don't forget Countrywide is now owned by Bank of America).

How many banks do you think will be trying to make loan mods or accepting short sale offers on loans they service if they run the risk of being sued by their securitizers?

:)

 

Posted by Matt Listro, Your Credit Repair Expert (National Credit Fixers - Matt Listro) almost 10 years ago

Andrea --- I ditto Pat's remark --- and with Pat O"Reilly --- great post.

       
        Mama Liz

Posted by Liz Loadholt, Realtor--Broker-in-charge - Trainer--Relocation Director Covering SC (Liz Loadholt- AgentOwned Realty- Covering SC) almost 10 years ago

Andrea - I've been saying the same thing for a long time... Quite a bit of misplaced judgement going on.

Debi

Posted by Debi Boucher, "Realtor Showcase" - Real Estate Photography/Virtual Tours ( Real Estate Showcase Photography) almost 10 years ago

Andrea, in my opinion it is nuts to do that, because they can not purchase a house again for at least three years.  If they think that it is not to their benefit to pay a mortgage on a house that is no longer worth what they paid for it, then how much more of a waste is it to pay rent and have no return on your money?

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago

Andrea, we are experiencing the worst market in real estate that I have seen in 31 years in the business. I see good people everywhere that really want to do the right thing, but the lenders asset companies will not even talk to them! I fault asset companies that do not even try to help the consumer, because they are too cheap to hire enough personnel to serve them~

just sayin'

Posted by Caren Wallace, Portland Caren Real Estate (Premier Property Group LLC) almost 10 years ago

Hi Andrea, This subject gets me a little angry. Walking away from a home and paying the mortgage is wrong. It kind of makes sense that the people who are trying the hardest to keep their homes are probably the ones who had to work very hard to get them in the first place. Those that have good jobs may see this as a temporary set back and have logically decided default makes financial sense. The morality of the decision on the other hand is subject for debate.

Posted by James Quarello, Connecticut Home Inspector (JRV Home Inspection Services, LLC) almost 10 years ago

I know a couple of people here who walked away from their homes, one couple having financial difficulty but the other not. Both of them said the primary reason for doing it was because of the stress they were under. Stress does cause lots of problems, especially when the stress is caused by money problems, sometimes even leading to suicide. I'd rather have them walk away....

Posted by Jim Frimmer, Realtor & CDPE, Mission Valley specialist (HomeSmart Realty West) almost 10 years ago

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