Some Individuals Not Walking Away from Foreclosed Homes

Posted on May 14th, 2008 by saman

As increasing numbers of homeowners are beginning to fall behind on their mortgage payments, policy makers and bankers are beginning to worry that while many of these individuals cannot pay their mortgages, several simply won’t.

There are millions of homeowners that owe more than their homes are actually worth. However, so far there is not much evidence that those who have the ability to pay for their mortgages are walking away from their homes as their values drop.

In blogs throughout the Internet, there are many stories about those who own homes who are walking away and mailing their keys back to lenders because they simply are not willing to keep the homes that are losing their value. Even so this “jingle mail”, a term used for these packages with housing keys in them, may be a lot rarer than many believe.

A big mortgage company sponsored by the government, Freddie Mac, estimates that about .14 percent of mortgages that fell into default that are in their portfolio are properties that were abandoned. Another company that deals with mortgages puts this amount in single digits. Both of these mortgage companies deal with very conservative loans so the overall rate may be a little higher. Officials in the industry say that they have no way of knowing for sure.

Despite the facts, the idea that some individuals are just refusing to pay their mortgages has intrigued many people. When Jose Canseco lost his million dollar mansion to foreclosure and moved into another smaller property, they see it as a walk away but in truth he is probably the only person in his area that did that. These types of stories may get a lot of attention but they are isolated incidents. Economists agree that the low numbers Fannie Mae and Freddie Mac show are consistent with housing busts like the ones that occurred in the 1980s in Texas and the ones that occurred in the 1990s in California and the northeast. Homeowners usually do not walk away from their homes unless they can’t pay the mortgage because of a divorce, job loss, death of a loved one, or a big increase in monthly mortgage payments. However, those who speculate in real estate do abandon properties when prices drop. Researchers say that those how are rich are no more or no less likely to abandon their homes than someone who has less money. An individual’s credit history is most likely a better indication of how they will react in the face or of foreclosure than their income. The amount of money an individual has put down on a house when they purchased it can also make a difference. Real estate investors go into default quickly but the situation is different for those who live in the homes. Those who live in the homes default more when home prices drop. The reason for this is that when they are having a problem they have fewer options. Usually when prices are going higher, a homeowner could usually sell their home for more than they paid for it. They could also refinance their mortgages. The government has stated that those who can afford to pay their mortgages but choose to walk away are not entitled to any assistance. Even so, with home prices quickly falling, homeowners who have the finances to pay their mortgages can be tempted to walk away.