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No way, say an increasing number of underwater homeowners who are voluntarily choosing to "walk away" from their home loans, a practice known as "strategic default." Jon Maddux, CEO of YouWalkAway.com, reports 10% more clients this year to his company, which advises people how best to handle the walk away process. Charles Gallagher, a real estate attorney in St. Petersburg, Fla., has also seen an uptick. And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that's up from 15% last year.
In an early 2010 report, Morgan Stanley researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks. he profile of a typical strategic defaulter is not what you'd expect, said Peter Ticktin, a Florida-based attorney, whose firm is handling 3,000 foreclosure cases. "Because they borrowed money and stopped paying their loans, you would think they're deadbeats -- but it's not like that," Ticktin said. In fact, most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.
Take Jeff Horton, an IT manager in Orlando, Fla. He stopped making mortgage payments on two homes in October 2009, a condo purchased for $140,000 in 2005, and a house he bought two years later for $265,000. He had occupied the condo until he bought the house, and then rented it out. "I would have kept up the payments, but the condo was appraised for $54,000 and the house, $135,000," said Horton. To keep paying off the homes didn't add up. He could rent a nice three-bedroom home in town for about $1,000 a month, less than half what he was paying for his mortgages, even after rental income.
For him and other homeowners, that makes up for the credit-score hit and the fact that you won't be able to get a mortgage for several years. Before he stopped paying, his credit score was an excellent 750. It dipped as low as 520, but is up to 600 again. "Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios -- in a financially ruthless manner."
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Strategic default numbers growing...
Walk away from your mortgage? Time to get 'ruthless'
June 7, 2011: Should you keep paying your mortgage on a home that's dwindling in value?
No way, say an increasing number of underwater homeowners who are voluntarily choosing to "walk away" from their home loans, a practice known as "strategic default." Jon Maddux, CEO of YouWalkAway.com, reports 10% more clients this year to his company, which advises people how best to handle the walk away process. Charles Gallagher, a real estate attorney in St. Petersburg, Fla., has also seen an uptick. And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that's up from 15% last year.
In an early 2010 report, Morgan Stanley researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks. he profile of a typical strategic defaulter is not what you'd expect, said Peter Ticktin, a Florida-based attorney, whose firm is handling 3,000 foreclosure cases. "Because they borrowed money and stopped paying their loans, you would think they're deadbeats -- but it's not like that," Ticktin said. In fact, most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.
Take Jeff Horton, an IT manager in Orlando, Fla. He stopped making mortgage payments on two homes in October 2009, a condo purchased for $140,000 in 2005, and a house he bought two years later for $265,000. He had occupied the condo until he bought the house, and then rented it out. "I would have kept up the payments, but the condo was appraised for $54,000 and the house, $135,000," said Horton. To keep paying off the homes didn't add up. He could rent a nice three-bedroom home in town for about $1,000 a month, less than half what he was paying for his mortgages, even after rental income.
For him and other homeowners, that makes up for the credit-score hit and the fact that you won't be able to get a mortgage for several years. Before he stopped paying, his credit score was an excellent 750. It dipped as low as 520, but is up to 600 again. "Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios -- in a financially ruthless manner."
MORE
Fewer people bought new homes last month, the latest sign that the struggling housing market won't rebound this year. New-home sales fell 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes, the Commerce Department said Thursday. That's far below the 700,000 homes per year that economists say must be sold to sustain a healthy housing market. The median sales price rose 2.6 percent from April to $222,600. That's more than 30 percent higher than the median sales of price of older, re-sale homes.
Separately, the Labor Department said the number of people who applied for unemployment benefits rose by the most in a month, signaling growing weakness in the job market. Applications rose by 9,000 to a seasonally adjusted 429,000 last week. It was the second increase in three weeks and the 11th straight week in which applications have been above 400,000. Housing remains the weakest part of the U.S. economy, analysts say. Sales of new homes have fallen 18 percent in the two years since the recession ended. Last year was the worst for new-home sales on records dating back half a century.
"You shouldn't expect much improvement in the single-family market in the next few months," said Patrick Newport, U.S. economist at IHS Global Insight. "These numbers are at rock-bottom by historical standards." Though new homes represent only about 20 percent of the overall home market, they have an outsize impact on the economy. Each new home creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders. Larger down payment requirements, tougher lending standards and high unemployment are preventing people from buying homes. Many people who can afford to buy are holding off, worried that prices have yet to bottom out.
Sales were uneven across the country. In the Northeast, they plunged nearly 27 percent and sales dropped 3.5 percent in the West. But sales stayed flat from April in the Midwest and rose 2.4 percent in the South. The number of new homes on the market fell again in May to its lowest level on record — 166,000 homes. At the current sales pace it would take a little more than 6 months to clear those homes off the market, which economists say is a healthy time frame. But analysts say that number is artificially low because builders, who are struggling to compete with discounted re-sales, are breaking ground on fewer homes.
More New-home sales fall for first time in months - Business - Personal finance - Real estate - msnbc.com
The S&P/Case-Shiller report posted declines in both its 20-city composite and its 10-city index, which declined 3.6% year-over-year. But housing did show some signs of life in May. Home prices ticked higher for the second consecutive month following an eight-month slide. In May the 20-city index gained 1% compared with a month earlier, while the 10-city index rose 1.1% month-over-month. David Blitzer, a spokesman for S&P, was cautious in detailing the index gains.
"While the monthly data were encouraging, most [metro areas] and both composites fared poorly in annual terms," he said. Prices are also still off more than 32% from their highs, set in July, 2006 and hover at about the same level they were in mid-2003. According to Mike Larson, a housing market analyst for Weiss Research, the market is going nowhere fast. "I like to picture it as a sailing ship caught in the doldrums," he said. "You're no longer being swept away by a hurricane but you're not moving much either."
Blitzer attributed much of the home price increase for May to seasonal effects. Spring is the hottest time of year for home buying and the added demand usually drives prices higher. Taking those seasonal factors into account, the 20-city index was flat and the 10-city showed a gain of just 0.1%.
Sixteen metro areas recorded non-seasonally adjusted month-over-month gains in May. The biggest winner was Boston, where prices jumped 2.7%, followed by Minneapolis at 2.6% and Washington at 2.4%. The nation's capital was the only place to record a gain over the past 12 months, up 1.3%. Three cities declined month-over-month, led by Detroit with a 2.8% drop, Las Vegas, with a 0.9% decline, and Tampa, where prices fell 0.6%. The biggest loser over the past 12 months was Minneapolis, where prices fell 11.7%.
Case and Shiller's takes
Ain't going to be much of a recovery until the housing market bottoms out. Don't know if crash is the right word, but prices are still going down though. Like everything else, it comes down to jobs I think. Sort of a catch-22.
