The Wall Street Journal had an interesting article today authored by Stan Leibowitz entitled New Evidence on the Foreclosure Crisis
it’s an eye opener because the article identifies negative equity as the main cause for mortgage foreclosure, not mortgage rate changes or unemployment, which many thought were the reasons.
It is important to understand that foreclosure are happening because people are finding themselves in debt holes that are so deep that it would take them decades to get out of them, and rather than spend every dollar that they earn trying to make it right (pay it back), people are just walking away.
I imagined that most of the defaults were being made by individuals who were being forced into foreclosure because they could not make their mortgage payments, but negative equity foreclosures are made by people to proactively elect to default. They are simply trying to better their financial situation.
I can identify with people who don’t want to be straddled with hundreds of thousands of dollars of mortgage debt. It was fun buying the Mercedes and touring Europe, but when property values dropped and you find that you have to pay it all back, that is just downright brutal, right?
Based on this new found knowledge, I will again speculate that the American people will elect to default on their large mult-trillion dollar debt in the next several years rather than pay for it via huge tax increases. California is effectively defaulting its 24 billion budget shortfall via its I.O.U. program. They should be starting from scratch with a zero based budget, and kill progarms that they just can’t afford, but in the American tradition they would rather default that accept the fact that they simply could not afford them.
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I never really thought much about people walking away from a mortgage while still being able to make the payments. But I guess I’ve seen that strategy when people get into personal financial problems.
I remember reading a discussion online where people were trying to determine whether their current debt load was worth declaring bankruptcy… I think the amount was just around $10,000!
The people who felt safe financially throughout this downturn in the economy must have been in a state of shock to discover that their greatest debt proved to be their mortgage. I would be devastated to have come to the conclusion that walking away from my home would be the only solution to keep me solvent.
With all the negative analysis that we hear from the pundits, I don’t know if I would have the metal to stay the course with the hope that it will improve sooner than later. This article proves that everyone is affected in these economic times.
I think most people I know acknowledge that their greatest debt is their mortgage, unless they’re deeply into a financed business venture.
I know a single middle-aged mother who’s bought a house about a year ago with a forty year mortgage. Somehow her celebration of home ownership by burning the mortgage in her eighties, if everything goes well just doesn’t seem like the same dream most people had in previous economic situations.
Granted some of her conditions are of her own choice.
So that’s the main problem all along. I wonder how would company then reacts to this information being leaked out. The companies who are overcharging their clients are doing it manly just so survive right? So, does that mean that they’re not that bad?
Right. I never got the idea that they might have increased the right amount of value of the houses. Most people would always think that the mortgages are just so high. I guess besides that it so high this now would be another reason for them to have a hard time in buying a house.
It seems crazy that people are letting go of their houses because of what it is “worth”. They are losing everything they invested but just because the market is depressed now doesn’t mean that it can’t bounce back.
I’ve definitely heard of people letting go because they owe more on their mortgage than what the house is now worth.
I’ve also heard of people just assuming that they’ll always be in debt, so they just perceive it as a number. I’ve heard this about people in their 20s, as well as in middle age and older.
That is really terrible. I can’t imagine how someone would feel being in the situation where they have to walk away from everything they have invested in because they can’t make the payments. Someone walking away because they don’t want to have debt on the balance sheet of personal finances is a completely different situation entirely. Ugh.
Homes are not assets and people really need to understand that. We purchased our home in Feb of this year as an investment because it was a killer deal in an excellent rental location and after five years that’s exactly what we’re going to do with it. Might as well live in it for the meantime because a mortgage is cheaper than rent would be in the area.
well its a good option if you are financially hard up due to excessive debts and the likes..I had a friend who resulted to that action in order to at least lessen their burden..
Most of the people try to overcome the financial crisis.
They feel, they might be debt with foreclosing the mortgage.
Most of the people does not like to continue to be debt.
Hence they foreclose to manage the financial crisis now.
It’s one thing getting into debt to your credit card company for $ 5,000, its an entirely different thing when you find that you are upside down on your mortgage loan by $ 50,000 to $ 150,000. What it means is that you will be paying for the rest of your life on that debt, and you didn’t even get anything for it. That’s why people are walking away, because they have come to the realization that $ 500 or more a month for 30 years to pay debt they didn’t get anything for just isn’t what they throught they got themselves into.
I’m not talking about morality or what will happen if enough people walk, I’m just pointing out that most of us are thinking that the defaults are coming from the recently unemployed guy who just can’t pay his bills, and most of the defaults are coming from people who can pay but have decided to pull the pin on the house.
It’s true, that mortgages is cheaper than rental in an area, as daniel cited. However, because some people are delayed to pay their mortgage, this could be one reason that they can’t get it well directly. What do you think?
I don’t agree with Daniel, homes are assets. While its nice to not think of your home that way, the fact of the matter is that your home is often your biggest asset. When your home turns from a positive equity asset to a negative equity asset, all you are doing is paying on debt. You will likely never make anything on it. That’s why people are walking away, they want to invest in a home that they believe will one day make them money.
That’s right. That’s the main reason people have besides having a home to stay at.
Well, you’re absolutely right, admin. Houses are assets, but there are some house owner who failed or skip to pay their mortgages. Do you think it’s still an asset to them?