"Any homeowners who were thinking about walking away from their homes even though they can afford to pay the mortgage: Please Don't Do It"
This is a topic that we have all debated for quite some time now, whether underwater borrowers should simply walk away from their homes. People faced with such a decision must consider the quality of the argument.
Well recently, Don Bisenius, an Executive Vice-President of Freddie Mac made his less than compelling arguments about strategic defaults, and why he thought they should be avoided. It's quite clear that his real concern was only the negative effects it will have on lenders, but he has to know that the average American is not exactly sympathetic with their plight. So he used what he thinks is diplomacy You might adversely affect the neighbors.
"When strategic defaults occur, homes go into foreclosure and sit vacant for some period of time. We know from experience that foreclosures and vacancies drive down the property values of everyone else in the neighborhood. Thus, strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical mass of strategic defaults, and broader communities and regions become affected. Indeed, Economy.com, the analytic firm, recently said that more strategic defaults could tip a fragile housing market back into one of further price declines. Even more families harmed."
So Freddie Mac thinks that Americans should consider their neighbors and keep paying more than a property is worth.
And Freddie Mac is willing to do their part to help:
If Freddie Mac owns the loan, a family might be able to refinance up to 125 percent of the current property value. In other words, if a family's home equity has been completely wiped out and the mortgage balance is as much as 25 percent more than the home is worth, we can help.
Do you get the feeling that Freddie Mac is less concerned with neighborhoods and borrowers than it is with its own bottom line?
And to add insult to injury they add:
Consider too the plight of taxpayers. Strategic defaults contribute to our losses. Remember that we (Freddie Mac) won't get stuck with them. You, the taxpayer, will.
Even if Freddie Mac was right, there is an awful lot more of non-strategic foreclosures than strategic foreclosures out there. Homeowners who graciously sacrifice their own financial wellbeing to try and help their neighbors home values are unlikely to achieve much.
Freddie Mac doesn't just want borrowers to consider the neighborhood though. They want them to think of all the other people out there who want to get a mortgage in the future:
Should strategic defaults become more common, mortgage guarantors and investors, including Freddie Mac, would need to factor this risk more prominently into their credit policies and prices. The likely impact on future homebuyers: the cost of a mortgage will go up and credit terms will be less flexible. Thus, the impact of strategic defaulters on still more families might be more expensive mortgages and loans that are more difficult to obtain. The strategic defaulter does not usually consider these costs.
Sounds like a bit of a threat, doesn't it?
Still, there's plenty of housing available out there. Former homeowners can rent and wait for prices to drop enough to compensate for the higher interest rates.
Nice try Freddie Mac, but most borrowers will find the arguments of Dr. Brent White of University of Arizona Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis much more compelling.
As a Florida foreclosure defense and real estate attorney
I educate and protect Florida homeowners, so get the legal advice you need, understand your rights, know your options and have a plan BEFORE taking action. Call me today for a FREE no-obligation consultation.