Friday, December 26, 2008

Underwater Home Loans? Just Walk Away!

Kenny Rogers was right in "The Gambler"

"You got to know when to hold 'em, know when to fold 'em.
Know when to walk away, and know when to run.
You never count your money, when you're sittin' at the table.
There'll be time enough for countin', when the dealin's done."

7.6 million Americans are 'under water" with their home loans and owe far more than the current value of their home. One in four home loans with a mortgage are currently in this situation and another almost 3 million are heading in this direction while home values continue to fall.

"Most mortgages on personal residences are non-recourse loans, secured only by the value of the house. The lender has no recourse to any other assets of the borrower. This leads to an awkward economic truth. If homeowners were "rational economic actors," as free market fundamentalists assume they are, they would turn in their keys to the banks and walk away. They've already lost their down payment. Many are struggling to pay a loan worth a lot more than the property they own. They'd be better off cutting their losses and renting a new home. If they have savings, they can wait for prices to settle and buy in at the lower price." Read more by Robert Borosage at

Note, although real estate prices will eventually bottom and there are real bargains in the real estate market for cash buyers, homeowners in the above difficult situation would do well to consider walking away as the author suggests above. Remember, for many homeowners who have purchased in the last few years, most of your loan payments go toward interest and it could take literally decades before they are even again thus guaranteeing a lost decade or two for them while the banks already bailed out by Washington will just make higher profits on your loan.

Walking away will ruin your credit but if your credit is already ruined by late payments, what do you have to lose?

He spent 30 years in banking and the investment business.

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