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Econwatch
February 3, 2010 9:23 AM

Foreclosure Fiasco

By
Jill Schlesinger
Topics
Financial Decoder

This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.

According to a CBS News poll, most Americans believe that the worst of the housing crisis is over. I sure hope that's the case, but the numbers look grim. The New York Times cites data from First American CoreLogic that showed that almost 4.5 million homeowners were upside down on their mortgages, "with their home value dropping before 75 percent pf the mortgage balance."

Increasingly, these homeowners are considering walking away from their obligations, even if they can actually afford the monthly payments. These so-called "strategic foreclosures" have come under fire from moralists and lenders, but as the NY Times found, many of the underwater borrowers are "beginning to feel like suckers," and ask themselves "Why not let it go in default and rent a better place for less?" The traditional answer has been that walking away trashes your credit score, but many homeowners are willing to make the trade.

The foreclosure mess will continue to wreak havoc on the housing market, which brings us to the cure: (1) lenders must ultimately lop off principal balances and (2) the bar should remain high to purchase a home. I know people don't like either solution, but the first will clear out the mess quickly and the second will prevent future foreclosure fiascoes.



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(CBS)
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

  • Jill Schlesinger

    >> View all articles

    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

by Cash4Equity February 4, 2010 4:27 AM EST
"Conservative politicians?" you must mean Barney Frank and Maxine Waters who both went on record and said the banks need to lower their qualification requirements and give more loans. When the banks said they thought that lowering the credit and cash requirements for people was too risky Barney said that was a risk he was willing to take.

It started with the CRA that Jimmy Carter's administration got passed and later Bill Clinton reformed and then passed the G-L-B Act that allowed banks to change and re-designate themselves into any type of financial service entity that was most profitable, something that both Dodd and Schumer lobbied for. But I am sure it was not for their banker constituents but for the people wanting to buy homes in poorer neighborhoods.

I never thought of these politicians as being "conservative" but as being part of the problem I think it's clear. But to be fair there have been many non-conservative politicians who are to blame as well. I think they should all be voted out, or at least every Republican and Democrat. Let the people start voting for the third party and watch how much money the bankers and corporations have to start spending to lobby another party. That would be good in and of it's self. But even better, just maybe, we cold actually get some people in office who will vote issues with convictions and a morality, not unlike the un-conservatives.
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by FreeIgnorance February 4, 2010 12:38 AM EST
Foreclosure is still hard on families.. http://typobounty.com/Funny/Foreclosure.htm
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by lawrenceingalls February 3, 2010 2:49 PM EST
Chase bought WAMU for 1% of its assets. That means they bought my half-million dollar mortgage from WAMU for about five grand. Because the banks have foreclosed on so many homes in my neighborhood my home is now worth $290,000 instead of the $625,000 I paid -- but I'm still on the hook for half a million, even though it only cost Chase five grand.

Chase could reduce my mortgage from 500 grand to 100 grand and still make two thousand percent return on their investment. The extra money I would have to spend every month (for the rest of my life) would revive the economy.

I bought my home with 20% down and a 740 credit score, and my wealth has been redistributed to the super rich banks. If I walk away from this mortgage I won't be able to afford a home for at least the 7 years the foreclosure stays on my credit history, so what do I care? It truly makes the most sense for me to just walk away.
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by gthinkfrog February 3, 2010 12:08 PM EST
The borrowers did their fair share in creating this mess. I have a house that is currently worth $75,000 less than I owe on it. Guess what,thats my problem. I agreed to a price that I thought was fair, I went to a lender and ask for a loan to buy this house and I agreed to repay the money they loaned me with intrest. Okay, so it's now worth less. That isn't the lenders fault and they are not and should not be responsible for my choices. Neither should the taxpayers have to pay a single cent to bail me out. I can either hang on to it,have a home to live in & eventually the prices will go up again. Or I can try to sell it now and pay any shortfall in the sale price back myself. Either way it's my loan and my responsibility. Walking away isn't an option. Please note, nowhere did I say I am unable to pay.Obviously the inability to pay is a different matter than the unwillingness to pay.
Reply to this comment
by g217 February 3, 2010 3:08 PM EST
Why is this a maral issue? Banks and businesses default all the time and that is perfectly acceptable but as a home owner if you default you're almost viewed as a criminal.
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