A new report conducted for a mortgage-industry trade group likens "strategic default" -- walking away from a mortgage you can afford to pay because you owe more than your house is worth -- to a contagious disease.

It's not just the idea that strategic defaulters spawn more strategic defaulters. The report's authors focus much of their attention on real estate experts -- "mavens" -- who advocate such a move and sway underwater homeowners to their way of thinking. 

"Much the same way as a disease spreads throughout a population, so too do decisions to 'strategically' default," the report concludes, adding: "Mavens are more contagious than non-Mavens because people place greater trust in their opinions. ... In fragile markets, advice by influential Mavens can result in a flood of strategic defaults, causing a contagious downward spiral of home prices and potentially a market collapse."

The report was sponsored for the Mortgage Bankers Association's Research Institute for Housing America. Last year, the bankers association's then-CEO said would-be strategic defaulters should think about the damage they would do to their neighbors' property values and their own reputations. "What about the message they will send to their family and their kids and their friends?" John Courson told The Wall Street Journal at the end of 2009.

That just before the Mortgage Bankers Association sold its headquarters building for millions less than its 2007 purchase price -- and millions less than its financing, too. The WSJ reported at the time that the association would not disclose the terms it negotiated with its lenders, but sources thought the group would be paying back only part of the $30 million that the sale price hadn't covered. Irony lovers had a field day.

Continue reading "What disease and strategic default on mortgages have in common " »

Posted by Jamie Smith Hopkins at 7:09 AM | Permalink | Comments (2)
Categories: Walking away / strategic default
        

If you're underwater, you probably can't refinance without bringing cash -- potentially a lot of it -- to the table. And you might be paying a lot more for your mortgage than it would cost to rent something similar, one of the reasons some Americans are walking away and letting their bank foreclose.

Some of you folks took two polls here this week on topics related to that trend: Would it be a good idea for the government to help underwater borrowers refinance into lower rates? And is it acceptable or not for people to walk away from their mortgages?

The government-help proposal comes from financial publisher HSH Associates. If a home is worth $150,000 but the mortgage balance is $180,000, for instance, refinancing into a $150,000 mortgage would create a $30,000 "value gap." HSH suggests that Uncle Sam promise to cover any loss the lender would see if the homeowners end up selling before rising values or payments have made up that gap.

Two-thirds of readers who took the poll gave the idea a thumbs up. Most said it would help them refinance. The rest of the supporters said they wouldn't need it personally but think it would help others and/or the housing market.

Of those who said no thanks, most are against it because they're tired of government bailouts. "No" wasn't strong enough for one voter:

Continue reading "Underwater borrowers, and what to do about it" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (9)
Categories: Walking away / strategic default