5.1 Million Homes Projected To Be Worth Less Than 75% Of Mortgage By June

[FourScore]

No Help in Sight, More Homeowners Walk Away
By DAVID STREITFELD
Published: February 2, 2010

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance...

http://www.nytimes.com/2010/02/03/business/03walk.html

[mattvermont]

1. The photo makes me very uneasy n/t

[FourScore]

2. I lifted it off HuffPo. eom

[The Straight Story]

3. When did people start buying homes to simply make money off them versus having a place to live?

:shrug:

[RB TexLa]

4. They damn sure are never going to pay off the apartment they move into.

And you are right, the housing itself has value aside from appreciating real estate value.

[npk]

5. No the person that bought that home was hoping to do the same thing to someone else

He bought that home knowing full well that it wasn't worth what he paid. But he, like many others, was hoping that in a couple of years he could fool some other dumb sucker into paying even more for his home, thus allowing him to turn a profit. It's these kinds of actions that led to the artificial escalation of home values and a ever ballooning mortgage industry that made millions off of fraud and deception. I'm sorry you (the mods) can delete my post if you like, but I don't feel the least bit sorry for this person. Like someone else said, you should buy a home to live in, instead of buying a home you can't afford simply to impress others and hope you can eek out the monthly payments until the real estate business booms again in a few years. There are too many people that bought homes they knew or damn well should have known were way over priced. Too many flippers that bought homes and sold them for exorbitant amounts of money, by taking advantage of a lending approach that made easy money available. It's a lot easier to get somebody to think of a mortgage in terms of a monthly payment rather than letting them see they just sunk themselves in $500,000 worth of debt. Like I always say if homes had to be purchased with cash, they would be a lot less expensive. The problem is that when banks started lending money, like it was candy, people quickly caught onto the fact that they could charge more for homes. What this person and others are experiencing is home prices returning to normal.

[Octafish]

6. That's just Detroit.

My home included. Things could be worse: it could be worth less than 50-percent of the mortgage. Oh. Wait a sec...

[ddeclue]

7. I have mixed emotions on this..

So many of these people bought when they shouldn't have while I sat by patiently NOT buying because I knew I couldn't afford it and it really made no sense for home prices to keep rising while people's wages remained flat.

So now they've bought a pig in a poke and the value has fallen precipitously but they should have known better.

On the other hand banks were suckering people in with ridiculous loan schemes and forcing demand up through artificial means so that they could keep milking that cow.

I think that banks ought to have to take a haircut and write down the value of these loans to the current loan value for any ARM or balloon mortgage out there and split the difference between the loan value and the home value on the rest.

[Goldstein1984]

8. Mixed emotions here, too. But...

Like the DUer above, I have little sympathy for people who bought into Growth Unlimited, Ltd. They were speculating, not purchasing a home. I struggle not to feel a little satisfaction that those who were feeding the bubble buying McMansions and "flipping" houses aren't doing as well as my wife and I, who made a conscious decision to buy a modest home intending that it be a home, not a get-rich-quick scheme.

That said, those who did buy into the pyramid scheme of Growth Unlimited, Ltd. don't shouldn't have to shoulder all of the responsibility. The economy is a complicated and chaotic system, and most of us rely on expert opinions for our decisions. The experts were preaching the gospel of growth, they were teaching us that our home equity was, as Michael Moore says, "The Bank of You." We spent what we earned, and "for everything else, there's MasterCard."

So, I have no problem with people who reach that "tipping point" and walk away from their "obligations." Those obligations are based on the false premise that there is some element of integrity in the economic system in which we function. In fact, we are prey to a class of economic parasites, and there is no moral obligation of prey to predator.

You've been sold the Voodoo Economics, Growth Unlimited model by four presidents and their economic puppetmasters. Time to stop being puppets yourselves. Cut the strings. Walk away. Live free. Feel no remorse. It wasn't a home, it was a get-rich-quick scam.

[guruoo]

9. "...they already got my money from the government, I say we're even."

"When you or I make a mistake, they say, 'Hey, tough nuts, be smarter next time, you know, bad luck,
didn't work out for ya," he says. "When the fat cats on Wall Street make a mistake, they say,
'Oh, national emergency! We've got to bail these guys out."

"The government took my money without asking me and gave it to the banks. And since I owe the banks money,
but they already got my money from the government, I say we're even."

http://www.dallasobserver.com/content/printVersion/1653972