Not much time now but I want to point you to this article in the Wall Street Journal. It’s about strategic defaults and the relief, not to mention improved financial wherewithal, that individuals who chose this route have discovered.
The title is “American Dream 2: Default And Then Rent”. It could easily have been titled “Deleveraging Is A Bitch” or “Why Obama Needs To Forget About Housing”
Basically, the article profiles a couple of borrowers who walked away from underwater homes and impossible mortgage payments and are now leading a better life. By switching to renting and getting a payment they can afford, they’ve found that the little things they went without are now affordable. Imagine that, no longer a slave to a mortgage payment they probably fraudulently swore they could afford, they discover that sticking the bank with the property improves their overall financial condition.
I particularly like this piece in the article:
For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.
“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.”
OK, I hear some of you gnashing your teeth. Sorry, but for every one of these defaulters who walk away someone is getting stuck with the bill. If you don’t think that this entire episode marks an inflection point in the direction of this country then you aren’t thinking through the implications. I know that there are all sorts or rationalizations for why they should abrogate their obligations but when you devalue the concept of performance for promises proffered then you open the door to chaos.
Enough moralizing, let’s get down to reality. The government is expected to announce dismal results for its HAMP program sometime this week. It will be accompanied by cries of bank recalcitrance and proposals for more money to be thrown at the foreclosure program. I have one thought to offer on that front.
Get a clue! The reason they aren’t sending back their docs is that they’ve moved around the corner and found a better house to rent. The people you want to save don’t want your ministrations, they knew how to game the system to buy into the housing market and now that it hasn’t worked out, they are smart enough to game you and the futile efforts being made to keep them in a property they want no part of.
Just give it up, admit that you will have to absorb a lot more losses, bail out the financial system a bit more and let the market work through this. Property crises always end like this and there’s no reason to assume that the government this time has a magic wand that it never was able to wield before.