Walking Away

I keep hearing about people who are underwater on their loans, and who might walk away from their homes in order to save money.   I just read this on Yahoo, where four people who are underwater discussed their decisions to stay or not stay in their homes.  It seems a bit disingenuous to me, becuase of the four people they interviewed, they found two who would not walk away from their homes, and two who are considering it, but they didn’t interview anyone who is definitely planning it.  There must be some folks out there who are walking away from their mortgages, so why didn’t they get some of them?

I’ll admit that I haven’t been looking at a lot of articles on this, but the news reports I do see and hear seem to suggest that just because someone is currently underwater, they are likely to walk away from their house.  I question this philosophy, for the simple reason that it is very short sighted.  The housing market always expands and contracts, and there are often periods when people buy at the height of the market, and then find themselves owing more than their place is worth.  If they stick it out, however, the chances that the value of their home will increase again, to more than they owe, is pretty high.

Rather, I suspect that the main factor would be whether people can actually still afford their homes.  If you are in a decent mortgage, and can still afford the payments, it’s probably worth sticking it out and hoping that the market will turn around.  Walking away from your mortgage is going to do a real number to your credit score, so it’s not a decision to be made lightly.   If you’re in a bad mortgage, hopefully you can refinance and get yourself into a better one.  This may be impossible if you’re deeply underwater, but I know that’s one thing the government is trying to do right now, get people to stay in their homes by helping them to refinance their loans.

But if you’re in a truly crappy loan, one that has ballooned or is about to, and you can’t refinance into a better one, or you’ve lost your job and can no longer afford your mortgage, then you’re probably looking at the situation a bit differently.  I know that some mortgage brokers made those crappy mortgages sound pretty good at the time, and said “don’t worry, you can just refinance before the payments go up too high”, which sounds OK, and is OK if it’s true, but if your value has dropped too much, or you’ve lost your job, you’re kind of stuck, and walking away might seem like a pretty attractive option.  And as for that credit score, if you’re in this situation, it may not be that great to begin with, and heck, renting isn’t looking like such a bad idea right now anyway, right?  I still wish we rented sometimes, because we would like to move, and we cannot.  Frustrating.

I know one person who was in this situation…one of our neighbors bought during the real estate boom, got into a loan with adjustable rates that was going up, and took a year out of her steady paying job to try her hand at real estate (bad timing).  I’m not sure if she sold any houses during that year, but I do know she didn’t make as much as she had at her last job, and finally had to go back to office work in order to pay the bills.  She’s underwater, and because of the combination of her low earnings, being single, and being underwater, she was able to renegotiate her loan to a payment she could afford.  She’s surely more in the hole than ever as far as the value of her home, but she’s not considering walking away, because she has faith that eventually, the market will turn around again, and she’ll be in the black.

That’s my real life story.  How about you, and people you know in person?  And what would it take, to make you walk away from your home and mortgage situation?