This is what is scaring the big boys that are siphoning every penny out of every American citizen whether they own property or not. If the rush toward strategic defaults continues, it is quite possible that many people will get a large share of the transfer of wealth from poor to rich. The fact remains that you can’t fool all the people all the time. If they are $200,000 under water and they see the writing on the wall, they know they will NEVER break-even. They ARE walking from the property and more of them will do so. Many of them are Judgment proof and have nothing to lose and everything to gain by either renting or buying another home, either way with much lower payments and probably seller financing.
But this doesn’t mean that strategic default is a magic bullet. There are ways to do it depending upon your specific situation. Do it right. Consult with an experienced, licensed and knowledgeable attorney before you do it.
Comment from ANONYMOUS
Alina
You are absolutely right in everything you have just said! And, this is not about liberal or conservatives – it is about an establishment that converted our U.S. industrial economy to an economy focused on American consumption – and the financial means to promote that consumption.
Financial institutions were/are given everything they want in Washington. After the US gave away manufacturing in this country, they needed to promote all they could to promote consumption. It was a concerted effort to siphon every dime out of the one major household asset – homes. Wall Street knew what they were doing, Americans were targeted and lied to. And, the media, government, and financial institutions, have the audacity to blame the people.
Incredible. Yes, Alina, we must keep fighting – and help each other – what ever way we can.
Below is an article by Mr. James B. Stewart – people like this should be exposed –
By JAMES B. STEWART
Fannie Mae ignited a chorus of criticism last week when it said it would deny government-backed mortgages for seven years to borrowers who walked away from their existing mortgages, had the ability to pay and didn’t make a good-faith effort to avoid foreclosure by negotiating with their lender. The government-owned mortgage-finance giant also said it will take legal action to recoup the loan balance against borrowers who “strategically default.”
I say it’s about time. These relatively affluent borrowers should pay a price—even if it is a modest one—for walking away from a contract. As it is, reports have been proliferating about homeowners who simply stop paying their mortgages, stay in their comfortable homes rent-free for the 18 months to two years or more it can take for the lender to foreclose, then get another government-backed loan and buy a new house. Who is to say they won’t do it all over again?
Nor will encouraging people to default do anything to stem the rising tide of foreclosures and its potentially debilitating effect on housing prices.
This is a looming crisis, given that an estimated one-quarter of all home mortgages are currently underwater, meaning that the house is worth less than the balance of the mortgage. The serious delinquency rate on mortgages backed by Fannie Mae has already soared to over 5%. Imagine if that leapt to over 20%.
Since Fannie Mae and Freddie Mac became wards of the federal government, we taxpayers are footing the bill, which the Congressional Budget Office now estimates will reach an astonishing $389 billion. That is likely to be far more than the bank bailouts and dwarfs the cost of rescuing American International Group.
So I was baffled by critics who equate this new policy to things like debtor’s prison. Asking people to pay their mortgages when they can afford to is hardly locking people in a prison for the rest of their lives.
These owners chose their homes and presumably liked them. They had no guarantee that housing prices would appreciate indefinitely and never decline.
As I have argued before, walking away from a mortgage now is like selling at the bottom of the market. Houses that are underwater now may not be for long once housing starts to appreciate. And despite a recent slump in the number of home sales, home prices are rising in most areas and have been for the past year.
Nor does home ownership convey a right to immediate mobility. Buying a home is a relatively long-term commitment, and most people expecting to move soon opt to rent instead. Even renting typically requires a one-year lease.
Anyone forced to move may have to sell at a loss, but they can also buy another home at lower market prices, unless they are moving from, say, Las Vegas to Manhattan. But that’s their choice.
I asked Fannie Mae spokeswoman Janis Smith whether she was surprised by the hostile reactions to the new policy, and sounding somewhat weary, she said, “We’ve seen it all.” She stressed that the new policy doesn’t apply to “hardship cases,” and that when defaulting borrowers reapply, Fannie Mae will consider the circumstances of their earlier default and, if warranted, grant an exemption.
In my view, “strategic default” is too kind a phrase for breaking a promise and breaching a contract. I recognize that there are plenty of people facing genuine hardship from a housing crisis not of their making. But people who have the means to pay their mortgages and instead opt for a free ride at taxpayer expense aren’t among them.
—James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal-investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: http://www.smartmoney.com/commonsense
Comment from Anonymous —
Alina
You are absolutely right in everything you have just said! And, this is not about liberal or conservatives – it is about an establishment that converted our U.S. industrial economy to an economy focused on American consumption – and the financial means to promote that consumption.
Financial institutions were/are given everything they want in Washington. After the US gave away manufacturing in this country, they needed to promote all they could to promote consumption. It was a concerted effort to siphon every dime out of the one major household asset – homes. Wall Street knew what they were doing, Americans were targeted and lied to. And, the media, government, and financial institutions, have the audacity to blame the people.
Incredible. Yes, Alina, we must keep fighting – and help each other – what ever way we can.
Below is an article by Mr. James B. Stewart – people like this should be exposed –
By JAMES B. STEWART
Fannie Mae ignited a chorus of criticism last week when it said it would deny government-backed mortgages for seven years to borrowers who walked away from their existing mortgages, had the ability to pay and didn’t make a good-faith effort to avoid foreclosure by negotiating with their lender. The government-owned mortgage-finance giant also said it will take legal action to recoup the loan balance against borrowers who “strategically default.”
I say it’s about time. These relatively affluent borrowers should pay a price—even if it is a modest one—for walking away from a contract. As it is, reports have been proliferating about homeowners who simply stop paying their mortgages, stay in their comfortable homes rent-free for the 18 months to two years or more it can take for the lender to foreclose, then get another government-backed loan and buy a new house. Who is to say they won’t do it all over again?
Nor will encouraging people to default do anything to stem the rising tide of foreclosures and its potentially debilitating effect on housing prices.
This is a looming crisis, given that an estimated one-quarter of all home mortgages are currently underwater, meaning that the house is worth less than the balance of the mortgage. The serious delinquency rate on mortgages backed by Fannie Mae has already soared to over 5%. Imagine if that leapt to over 20%.
Since Fannie Mae and Freddie Mac became wards of the federal government, we taxpayers are footing the bill, which the Congressional Budget Office now estimates will reach an astonishing $389 billion. That is likely to be far more than the bank bailouts and dwarfs the cost of rescuing American International Group.
So I was baffled by critics who equate this new policy to things like debtor’s prison. Asking people to pay their mortgages when they can afford to is hardly locking people in a prison for the rest of their lives.
These owners chose their homes and presumably liked them. They had no guarantee that housing prices would appreciate indefinitely and never decline.
As I have argued before, walking away from a mortgage now is like selling at the bottom of the market. Houses that are underwater now may not be for long once housing starts to appreciate. And despite a recent slump in the number of home sales, home prices are rising in most areas and have been for the past year.
Nor does home ownership convey a right to immediate mobility. Buying a home is a relatively long-term commitment, and most people expecting to move soon opt to rent instead. Even renting typically requires a one-year lease.
Anyone forced to move may have to sell at a loss, but they can also buy another home at lower market prices, unless they are moving from, say, Las Vegas to Manhattan. But that’s their choice.
I asked Fannie Mae spokeswoman Janis Smith whether she was surprised by the hostile reactions to the new policy, and sounding somewhat weary, she said, “We’ve seen it all.” She stressed that the new policy doesn’t apply to “hardship cases,” and that when defaulting borrowers reapply, Fannie Mae will consider the circumstances of their earlier default and, if warranted, grant an exemption.
In my view, “strategic default” is too kind a phrase for breaking a promise and breaching a contract. I recognize that there are plenty of people facing genuine hardship from a housing crisis not of their making. But people who have the means to pay their mortgages and instead opt for a free ride at taxpayer expense aren’t among them.
—James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal-investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: http://www.smartmoney.com/commonsense
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