Tuesday, June 08, 2010

So You Think the Economy is Getting Better

I haven't said anything about the 400,000 plus jobs the census 'generated.' Enough other folks are covering that. Let's talk housing. Strategic Defaults Are Endangering The Real Estate Market

Strategic defaults refers to people walking away from mortgages they can afford because they no longer make economic sense.

For example.
After buying their Phoenix bungalow three years ago for $400,000, Jean Ellen Schulik and Danny Kuehn watched its value drop to just $85,000. Even though they can afford the mortgage payments, they felt they were trying to bail out an ocean with a bucket.

"No logical business person would do anything other than walk away," they told CBS News' "60 Minutes."
Given that a $400,000 mortgage will cost you more than a million dollars to pay back over 30 years, it is hard to blame them for walking away. Except I wonder if the terms of the contract will enable the banks to go after them. (Assuming Congress doesn't mess with the contracts - or at least try.)

The situation is pretty serious.
Right now, more than 10% of borrowers are 25% or more underwater on 4.9 million mortgages. The total valuation could saddle banks with as much as $656 billion of bad loans, according to the latest report from Corelogic.
Another 10 percent of mortgages going bad would be pretty hard to deal with.

1 comment:

Jake (formerly Riposte3) said...

"No logical business person would do anything other than walk away,"

And no honorable person would walk away. They made an agreement, and they can keep it, they just don't want to.

It's a disturbing trend.