I thought this was a good, simple explanation of the mortgage debacle and why it is fueling a crisis.
A growing trend among homeowners with upside-down mortgages is simply walking away from their homes without even trying to get a loan modification, according to local mortgage brokers.
Loan modification programs not cutting it
“People have gone from buying a house to raise their family in to buying a house as an investment,” said Eric Bowlby, president of Amerifirst Financial in Mesa. “We see customers all the time who come in and they’re letting their home go on purpose to the bank, and they act like the bank screwed them because it’s now upside down in value. But they pulled a line of credit out. They bought themselves an RV, a new truck, a new boat, and they think that it’s the bank’s fault that their house is upside down.”
People are being told simply walking away is the smart thing to do, even if they can afford to pay their monthly mortgage, he said.
“‘Experts’ tell people ‘well, if you’re upside down in your house $100,000 and you make $40,000 a year, you should walk away from your house,’” Bowlby said. “When you feel like it’s OK to walk away from something you committed to, the banks, because of the losses, have to start walking away from things that they committed to ... and the company that you work for may lose the ability to fund their own business, which means you’re now out of a job.”
Dan Huss, president-elect of the Arizona Association of Mortgage Brokers, said homeowners believe banks should reduce their loan balances because home prices have dropped so far below when they purchased their homes.
Those who do choose to walk away can expect their credit score to take a hit, rendering them unable to buy another home or obtain financing for what can be an extended period of time, according to financial experts. Still, that’s not keeping many from choosing to leave their home and rent another for far cheaper until their credit improves.
“The consumer sits back and says ‘OK, let’s look at it this way: I owe $400,000 on a $300,000 home. If my credit (score) was perfect, they’re not loaning me any more money, so what difference does that perfect credit mean,’” said Kevin Hardin, director of the Mortgage Mediation Group at Valley-based law firm Thomson Conant.