Frustrated homeowners across the country are walking away from their mortgages. With close to a quarter of all homeowners holding mortgages that are under water, meaning their home value is less than what they owe, many homeowners do not have any other options. The surprising statistic is the percentage of homeowners who are walking away that can actually afford to keep their home.
According to Luigi Zingales, a professor who conducts research at the University of Chicago’s Booth School of Business in conjunction with his colleagues at Northwestern School of Business, almost 36 percent of the nation’s mortgage defaults this past December were homes that went into foreclosure on purpose. This startling statistic is up 25 percent from a year ago. What has prompted the change? Zingales says, “The social norms are changing. The more people hear about their neighbors doing these things, the more acceptable it is.”
People have found that staying in a home that is underwater is just not worth it. They are leaving their homes and renting elsewhere for less than half of what their mortgage payment was. Many feel this is a smarter option than making payments on a home that may take ten years of more to regain its value. Other homeowners are playing the system. With banks overwhelmed with foreclosures, many are months behind. Many homeowners are taking advantage and are not moving out. They are staying in their home for free, sometimes for several months before being forced to leave.
As people leave their homes, many are angry and frustrated – frustrated that they have not received a “bailout” like the banks have. An increasing number of homeowners, as they leave their homes, are taking everything with them right down to every fixture in the home. Still others are leaving behind even bigger messes, destroying the home and making it nearly impossible for the bank to sell.
As more and more homeowner’s bail from their mortgages, the housing market continues to tumble. The Obama administration has been pushing for more help for homeowners who cannot pay their mortgages and homeowners that are underwater. Proposed legislation would include provisions to lower principals on underwater mortgages and lower interest rates and extend loan terms for homeowners who are struggling to make payments. Banks would voluntarily participate in the programs. For now, only time will tell if it is too little too late.