An article in the International Herald Tribune today shows that the initial wave of foreclosures in the sub-prime mortgage crisis was mostly people who couldn’t meet their payments, being foreclosed by the banks. Now people are starting to just walk away as their houses are already worth less than their loans, while prices are continuing to fall.
Take the case of Raymond Zulueta of San Francisco-
When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.
In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford. “I was terrified,” said Zulueta, who services automated teller machines for an armored car company in the San Francisco area.
Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Zulueta said of You Walk Away. “I was stressing over nothing.”
Many experts think house prices in America have a lot further to fall, as there is an excess of sellers to buyers. The numbers of foreclosures which was estimated to be around 4 million by Lehman Bros a month ago, could well be a lot higher, if the ‘walk away’ syndrome keeps growing.
Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Menegatti said, 20 million households will owe more than the value of their homes.
“Will everyone walk out?” he said. “No. But there’s been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market.”
When homeowners see houses identical to their own selling for much less than they owe, Menegatti said, “I wouldn’t be surprised to see five or six million homeowners walk away.”
Full article HERE