10% of home owners 'Underwater'.

[SirNitram]

Link

NEW YORK (Reuters) - One-tenth of U.S. homeowners hold mortgages that are larger than the worth of their homes, Moody's Economy.com said on Friday.

Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.

As a result, millions of U.S. homeowners have the incentive to abandon their properties.

With an already unwieldy supply of homes for sale, more inventory could prolong a recovery of the hard-hit U.S. housing sector, suffering one of the worst downturns in history.

Zandi earlier this week told Reuters he expects home prices to drop by 20 percent from their peak in 2006.

He expects home sales to hit bottom this spring, housing starts to reach a nadir this summer and house prices to trough in the spring of 2009.

The surge in foreclosures is putting further downward pressure on the housing market because it adds to the inventory of homes for sale, already at a lofty level.

Each foreclosure on a neighborhood block reduces the value of all homes on that block by almost 1.5 percent, Zandi said.

Walk down a street. On average, every tenth house has more owed than it's worth.

And there's increasing pushes to convince people in this situation to 'walk away'.

Great job with that ownership society.

[Aaron]

Is partially a result of the "interest only" mortgage? I keep hearing it on "My First Home" (or something similar) and it's a horrible fucking idea. They should make these things illegal.

[SirNitram]

Is partially a result of the "interest only" mortgage? I keep hearing it on "My First Home" (or something similar) and it's a horrible fucking idea. They should make these things illegal.

Nope. No matter how you slice the insane-loan-pie, this is about money still owed, and house price. The loan was issued during the bubble, bubble bursts, loan doesn't come down with house price.

There are groups, particularly lenders strapped for getting -some- business, trying to convince people who've gotten in this situation to buy a new home, let the old one go into foreclosure, and just continue on, repairing their credit.

[Redleader34]

Its scary, really. My Grandparent's house, when they bought it in 1991 was worth 185K, and is about halfway paid, with plans in case they die, to have the insurance pay the rest in a few large payments. If they left now, they could make, at least enough to pay the mortgage, because it inflated to 385K. Nothing changed, but the county said its now worth that much. Funny.

[Aaron]

Nope. No matter how you slice the insane-loan-pie, this is about money still owed, and house price. The loan was issued during the bubble, bubble bursts, loan doesn't come down with house price.

There are groups, particularly lenders strapped for getting -some- business, trying to convince people who've gotten in this situation to buy a new home, let the old one go into foreclosure, and just continue on, repairing their credit.

Ahh, I had to read that a few times but I get it now. I never quite got the forclose and buy again thing. I didn't think that was possible, in my head I thought that would fuck up your credit.

[SirNitram]

Nope. No matter how you slice the insane-loan-pie, this is about money still owed, and house price. The loan was issued during the bubble, bubble bursts, loan doesn't come down with house price.

There are groups, particularly lenders strapped for getting -some- business, trying to convince people who've gotten in this situation to buy a new home, let the old one go into foreclosure, and just continue on, repairing their credit.

Ahh, I had to read that a few times but I get it now. I never quite got the forclose and buy again thing. I didn't think that was possible, in my head I thought that would fuck up your credit.

It would: You'd go from 700 to 400 in an eyeblink. The scam is in the lender insisting that having credit cards and a new mortgage will quickly repair this damage. Basically, it can be as simple as moving across the street.

Of course, this hinges on you not needing credit for the time it takes to repair your rating. When these McMansions are low-quality, corroding peices of crap in moist enviroments, that's... Probably gonna be sooner rather than later.

[Alferd Packer]

It would: You'd go from 700 to 400 in an eyeblink. The scam is in the lender insisting that having credit cards and a new mortgage will quickly repair this damage. Basically, it can be as simple as moving across the street.

Of course, this hinges on you not needing credit for the time it takes to repair your rating. When these McMansions are low-quality, corroding peices of crap in moist enviroments, that's... Probably gonna be sooner rather than later.

I think there was an article posted here about this phenomenon. From what I recall, it's actually the buyers who are advocating this. After all, the lending institutions would abhor this practice, because it essentially forces them to write off the difference between the two homes as a complete loss (assuming that A) the bank can sell the foreclosed home and recoup their lost cash somewhat and B) the homeowner doesn't get their second home's loan from another bank). In effect, the homeowners are saying, "Oh, my home's worthless now? OK, I'll buy another worthless home on the cheap and let the bank deal with my overpriced piece of shit!" It transfers the responsibility of having negative equity in a property to the lending institution.

While the penalty to one's credit is severe, it's not insurmountable. A smaller mortgage means more cash each month, which, provided the homeowner has learned his lesson, means he can have a rainy day fund of sorts, Seven years of shitty credit is a long time, but having negative equity in your home for that period (or longer, depending on the numbers) is arguably far, far worse.

[SirNitram]

Alfred.. This is Capitalism.

If there's a way to turn a profit, someone will do it.

You Walk Away LLC

Expect more like this.

[Alferd Packer]

Alfred.. This is Capitalism.

If there's a way to turn a profit, someone will do it.

You Walk Away LLC

Expect more like this.

If it weren't real, that would be some the greatest pitch-black humor I've ever read. I actually still laughed out loud when it said, "You CAN have the foreclosure REMOVED from your credit!"

...in seven years.