Refinance House
From the LA Times: Bankers and housing market analysts are warning of a chilling new trend in the mortgage world: Homeowners voluntarily defaulting on their loans even though they can actually afford to make the payments.
When pressed for the number of borrowers who could afford their mortgage payments, major banks and lender groups could not produce numbers figures.
Nor could the Mortgage Bankers Assn., the leading trade group for housing lenders. Spokesman John Mechem said he believed that walkaways by homeowners who could afford their payments were “becoming more prevalent.” Wachovia’s Truslow acknowledged during the bank’s conference call April 14 that walkaways were “hard to quantify.” Bank of America Chairman and Chief Executive Kenneth Lewis, whose company is acquiring mortgage lender Countrywide Financial Corp., complained about “a change in social attitudes toward default” in an interview with the Wall Street Journal in December.
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, Senior Vice President Marianne Sullivan conceded that there was growing “folklore” about residential walkaways but said that the phenomenon was more likely connected to investors than people who live in their homes, or “owner-occupants.”
“Bruce Marks, CEO of Neighborhood Assistance Corp., a Boston-based nonprofit agency that helps strapped homeowners, says flat out that the notion that legions of borrowers are simply deciding not to pay is an “urban myth” that largely reflects the mortgage industry’s desire to blame homeowners, rather than their lenders, for the surge in problem loans.
When home values fell instead, their exit strategy evaporated. “Who do you see walking? Investors, unlike genuine homeowners, will treat their purchases strictly as economic transactions; their decisions to abandon payments shouldn’t be seen as a sign that American homeowners no longer feel obligated to pay their debts, says Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA’s Anderson School of Management.
Historically, owner-occupants didn’t default on their mortgages except in a handful of extraordinary situations, such as death, divorce, illness or job loss. Their predictable behavior helped keep mortgage rates low.
In a survey issued this week of Alt-A mortgages originated in 2006 and 2007 — these are nonstandard mortgages often marketed to buyers with less-than-prime credit — Fitch Inc. analysts found that a rise in delinquencies could still be traced to “borrowers who purchased a home they could not afford or those engaged in mortgage fraud for the purpose of property speculation.” Legitimate homeowners, the analysts said, “rarely view the home as a short-term investment … they do not default based solely on a drop in value.”
One source of walkaway “folklore” may be services that purport to help homeowners skip out on their mortgages without long-term harm to their credit ratings. Among them is San Diego-based You Walk Away, which launched a website in January offering to help homeowners “unshackle yourself from a losing investment and … Walk Away.”
http://www.revver.com/video/881167/refinance-barney-franks-bill/
http://www.revver.com/video/879803/refinance-crisis-to-worsen/
http://www.revver.com/video/879806/adjustable-rate-mortgages/
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Tags: finance
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