But.... every time the pundits cheer their Kool Aid about how housing inventory numbers are finally showing signs of bottoming out, just remember all the walk aways that will be coming. Until house prices stop falling AND the cost of living stops increasing quicker than wages; they won't stop walking away. This is what you get when you give people homes that they don't have to put a dime into. And these are the type of people most of these bailout plans will target... that's the irony. Bought at the top? Nothing down? Tax payer money coming to help you!
- When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried. In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford.
- Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
- Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender's problem. "They took the negativity out of my life," Zulueta said of You Walk Away. "I was stressing over nothing."
- In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure has changed, economists and housing experts say.
- Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home to cover closing costs.
- "I think I could make a case that some borrowers were 'renting' (with risk), rather than owning," Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.
- For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one's credit record, but not one that involves the loss of life savings or of years spent scrimping to buy the home.
- Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. "I've had people say to me, 'My house isn't worth what I owe, why should I continue to make payments on it?' " Newhouse said.
- "There's a whole lot of people who would've been stuck as renters without these exotic loan products," Sinai said. "Now it's like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren't any worse off than renting, and you got a chance to do extremely well. If it's heads I win, tails the bank loses, it's worth the gamble." (this is a GREAT explanation)
- In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.
- The value of homeownership, then, has increasingly shifted to the home's likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.
- Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Menegatti said, 20 million households will owe more than the value of their homes. (think about that for a moment...)
- When homeowners see houses identical to their own selling for much less than they owe, Menegatti said, "I wouldn't be surprised to see five or six million homeowners walk away."
- "It's not a moral decision," Maddux said of foreclosure. "The moral decision is, 'I need to pay my kids' health insurance or my car payment so I can get to work.' They made a bad decision, but they shouldn't make more bad ones just because they have this loan."
- "I know in a few years my credit's going to be fine. If I want to get another house, it's going to be there. I'm not the only one who went through this. I know I'm working the system, but you got to do what you got to do. There's always loopholes."
