Daily Archive

The National Association of Realtors® in their Daily News wrote that borrowers are walking away from their houses, not making any more mortgage payments and months later are sending their house keys back to their lender.

In a recent poll conducted by CNN/Money,  48% of Americans —and the number is still growing — believe that homeowners in trouble should not be bailed out.  Congress has also been split on the issue and President Bush is still promising to veto it. 

In SmartMoney Jonathan Hoenig argues, among many things, that:

“...the real reason to oppose a bailout isn’t that it’s impractical, but that it’s immoral.”

He goes on:

“In America, we have the right to “life, liberty and the pursuit of happiness,” but not the guarantee we can live in the four-bedroom Colonial that’s priced way beyond our means. It might sound cold, but homeowners who can’t pay their mortgages should not expect to be able to keep their homes.”

Where has individual responsibility gone? Why are buyers not held responsible for the financial decisions they’ve made? Some of these people who took out sub-prime mortgages should never have bought houses to begin with and over extended themselves.  Many wanted a bigger house than they could afford and bet on constantly rising home prices.  Some were, in fact, speculators hunting for a “quick buck”. During the 1980’s recession , I don’t remember having short-sales to fall back on. Nothing was “forgiven”. People had to bring money to the closing table to get their houses sold if they purchased for more than their houses were worth or if they could no longer afford to keep their house; otherwise, they went into foreclosure. We didn’t have government bail-out programs either.  Who’s going to be saved next?  Is no one responsible for their actions anymore???

I don’t care who you want to blame for the sub-prime mortgage mess, (and I know there were/are some shady lenders out there) but ultimately it was the buyers’ decision! No one forced these borrowers to take the loan…or that they had to sign on the dotted line. It was their decision, their decision alone, and now they can just walk away?  I was in the same position as these homeowner’s in the 80’s, but I didn’t get bailed out. Instead, I went and got 3 part-time jobs plus still working my full-time job as a Realtor® in order to pay my bills.

Further, there has been story after story from all across the U.S. of borrowers who are not only taking all the cabinets, toilets, mouldings, appliances with them but they are also vandalizing the properties that they are walking away from. A recent video from CNN showed pictures of houses recently vandalized in Las Vegas where walls were damaged, houses were stripped of everything and destroyed by borrowers who walked away from their mortgages. 

Those borrowers who have chosen to walk away will not be able to get another mortgage through Fannie Mae for 5 years unless there are “documented extenuating circumstances”. In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his file will have to make at least a 10% down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan. Freddie Mac, which counts foreclosures as a major credit “black mark” for seven years, is now aggressively pursuing walk-away borrowers where permitted under state laws.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated (short sales) to escape income tax liability for the amount forgiven. “Walk-away” borrowers, however, will have nothing forgiven and the Internal Revenue Service may demand taxes on the balance they never paid.

(For more local and national real estate news, click on my monthly newsletter - JUNG’S JOURNAL - on my website www.bettyjung.com).