Posted on: 02nd Dec, 2009 07:57 am
Brent T. White, a law school professor at the University of Arizona, has written an academic paper entitled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."
In this paper, he poses the argument that most of the homeowners in this country who are "underwater" on their mortgages ought to simply cease making payments and bolt from the home. Thus, he claims, they'd save hundreds of thousands of dollars in some cases which would be unlikely to be recovered over the years. And, he claims that the penalties for walking away are fare less dire than we think.
Controversial ideas? You had better believe that. Prof. White maintains that borrowers can be strategic in their planning of a default on a mortgage loan, making arrangements to get big ticket items like a new car or (gasp!) a new house prior to bailing out on the current home. His stance there is that despite a walkaway, consumers can maintain reasonable (660) credit scores by continuing to pay on other obligations, thereby offsetting the negativity of what would end up as a foreclosure.
He feels that all too often people allow their emotions to cloud their thinking, thereby becoming "woodheads" who choose not to act in their own self-interest. The shame and embarrassment of losing a home to foreclosure are given full credence, he says, and people lose sight of the financial benefits of walking away.
Fannie Mae and Freddie Mac have both criticized his characterization of the shortened timeframe that borrowers could find a new mortgage for the purchase of another home. Their stance is that it would take upwards of 5 years (as opposed to his opinion of 3 years).
Much controversy and upheaval in the mortgage and housing markets are in store if people begin to follow this advice.
One of the most unfortunate aspects of the financial crises we've witnessed in the past few years is the absolute explosion of so-called "experts" who throw out advice on just about any topic. Unfortunately, we Americans are so poorly educated in financial matters that we tend to follow the latest "feel-good" ideas without having done the proper homework.
I view the ideas in this treatise as potentially dangerous territory, and I hope that we don't begin to see the results, which could be disastrous.
In this paper, he poses the argument that most of the homeowners in this country who are "underwater" on their mortgages ought to simply cease making payments and bolt from the home. Thus, he claims, they'd save hundreds of thousands of dollars in some cases which would be unlikely to be recovered over the years. And, he claims that the penalties for walking away are fare less dire than we think.
Controversial ideas? You had better believe that. Prof. White maintains that borrowers can be strategic in their planning of a default on a mortgage loan, making arrangements to get big ticket items like a new car or (gasp!) a new house prior to bailing out on the current home. His stance there is that despite a walkaway, consumers can maintain reasonable (660) credit scores by continuing to pay on other obligations, thereby offsetting the negativity of what would end up as a foreclosure.
He feels that all too often people allow their emotions to cloud their thinking, thereby becoming "woodheads" who choose not to act in their own self-interest. The shame and embarrassment of losing a home to foreclosure are given full credence, he says, and people lose sight of the financial benefits of walking away.
Fannie Mae and Freddie Mac have both criticized his characterization of the shortened timeframe that borrowers could find a new mortgage for the purchase of another home. Their stance is that it would take upwards of 5 years (as opposed to his opinion of 3 years).
Much controversy and upheaval in the mortgage and housing markets are in store if people begin to follow this advice.
One of the most unfortunate aspects of the financial crises we've witnessed in the past few years is the absolute explosion of so-called "experts" who throw out advice on just about any topic. Unfortunately, we Americans are so poorly educated in financial matters that we tend to follow the latest "feel-good" ideas without having done the proper homework.
I view the ideas in this treatise as potentially dangerous territory, and I hope that we don't begin to see the results, which could be disastrous.
He is just pacifying an already entitled population of Americans who take no responsibility for their actions. Shame on him.
i certainly don't disagree with you sonja. this is dangerous thinking.
George, interesting information.
You have time to read and share with us??
Thanks
You have time to read and share with us??
Thanks
i don't think it would be a good idea to walkaway from the property. after a borrower walks away from the property, he/she will have to deal with credit issues. it can take quite sometime to rebuild his credit. one should remember that a foreclosure would reduce credit scores by 250 points. moreover, if a property is foreclosed upon, the borrower will not immediately qualify for a loan. he/she will have to wait for 3-4 years in order to get a loan.
as far as getting a second mortgage to buy a new property is concerned, i don't think most lenders would agree to it. it would be difficult to get a mortgage to buy a new property unless you have excellent credit score and income.
rather than simply walking away from the property, it would be a better idea to check out various programs offered by lenders and the government. this will not only help the borrowers to save their property but will also help them in saving their credit score. home affordable modification and home affordable refinance are some of these programs.
as far as getting a second mortgage to buy a new property is concerned, i don't think most lenders would agree to it. it would be difficult to get a mortgage to buy a new property unless you have excellent credit score and income.
rather than simply walking away from the property, it would be a better idea to check out various programs offered by lenders and the government. this will not only help the borrowers to save their property but will also help them in saving their credit score. home affordable modification and home affordable refinance are some of these programs.
Hi all,
At a time when the increasing number of foreclosures in the country is breaking all past records, such an advice can indeed be disastrous in effect. If people start walking away from their houses, it will lead to further rise in the number of foreclosures, which will in turn destabilize the entire housing market, rather the entire economy.
As Sussane has noted, a foreclosure can ruin someone's credit and spoil the chances of qualifying for a new loan for a long time in future. It is not going to be easy for a borrower, who has a foreclosure on his credit, to get approved for a loan within 3 years. It often takes about 4-5 years to repair credit after a foreclosure. With the way the economy is, it is virtually impossible for someone to get a loan until he/she improves the credit scores.
At a time when the increasing number of foreclosures in the country is breaking all past records, such an advice can indeed be disastrous in effect. If people start walking away from their houses, it will lead to further rise in the number of foreclosures, which will in turn destabilize the entire housing market, rather the entire economy.
As Sussane has noted, a foreclosure can ruin someone's credit and spoil the chances of qualifying for a new loan for a long time in future. It is not going to be easy for a borrower, who has a foreclosure on his credit, to get approved for a loan within 3 years. It often takes about 4-5 years to repair credit after a foreclosure. With the way the economy is, it is virtually impossible for someone to get a loan until he/she improves the credit scores.
clearly, your statements opposing the walkaway theory will get no argument from me. one thing i want to point out that he's recommending, though - it's not the idea of getting a second mortgage to purchase a new (different) home; it's an entirely new first mortgage on that new home. and i think he's discussing people who are maintaining their credit at this point, but underwater on the house. obviously, of course, there are plenty who are both underwater and delinquent at the same time.
i think it's dangerous, ill-considered and short-sighted advice that this professor is giving. at the same time, i can certainly imagine his advice taking hold. we see the attitude of walking away on this forum regularly, after all.
i think it's dangerous, ill-considered and short-sighted advice that this professor is giving. at the same time, i can certainly imagine his advice taking hold. we see the attitude of walking away on this forum regularly, after all.