In the conference call this morning, BofA's credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."
Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that's an optimistic assessment), and so there's over a year of free rent. While the banks are trying to improve the time, they're just not there yet.
31 percent of foreclosures in March were deemed to be "strategic default" by researchers at University of Chicago and Northwestern University. That's up from 22 percent in March of 2009. We already know that mortgage walkaways are more prevalent among borrowers whose neighbors or friends have done the same thing. We also learn from those same researchers that the likelihood of walking away increases by 23 percent when homeowners learn that a neighbor got some principal forgiveness.
4 comments:
Man I can not belive the banks are talking about "principal forgiveness plan".
This is a very small plan and only applies to a some of countrywide loans that BofA now owns. The losses will be covered (or partially overed) under the purchase deal that BofA made with the government when they bought Countrywide.
In other words you and me will be paying for these principal reductions......
Golfer, I'm confused. You've posted many times how it isn't immoral to walk away from your mortgage...it's a simple contract to be broken. But as you just stated, these principal reductions and write offs will be paid by our children and grandchildren through stifling future taxes and/or rampant inflation. Knowing that you were contributing to this wouldn't bother your conscience in the least?
The cost is going to be passed along to the taxpayer regardless of which happens. Whether the home owner gets a gov sponsored writedown or the foreclose or short sale. Most of these are going to be backstopped one way or another by taxpayers.
In a perfect world the banks would have to take their losses for lending ridiculous amounts of money to people that could never pay it back. Unfortunately that's not happening in most cases. Do I like it, no. But I still think families must do what is best for them. If that is walking away then so be it. I would not trade my families financial future to keep paying a vastly upside down mortgage. And if you were in that situation I doubt you would either.
There is no good solution here. If all those people were forced to keep paying they would just end up destitute when they retire. And then we would end up supporting them in their "golden years".
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