New Orleans I have taken some heat for recommending that homeowners who are underwater walk away from their mortgage obligations in the face of totally, and now admittedly, inept response to the foreclosure crisis by the Obama Administration all facilitated by the total greenwash of the banks by Treasury Secretary Geithner. It seems according to numbers crunched by Oliver Wyman consultants from credit bureau data reported in the New York Times that an estimated “17% of owners defaulting in 2008, or 588,000” voted with their feet to walk away from shrinking values and no relief. And, that’s 2008! Wait until we see the numbers for 2009 and the march to the street, and the running stampede as this problem hits its apex in 2010.
The Wyman calculations were based on credit bureau data and derived from the number that went from being “current on their mortgage to default, rather than making spotty payments.” Accurately this is a walk away profile, abandoning any pretense of looking for remediation based on inability to pay. These are homeowners that could and had been paying, but who looked at the bottom line, read the paper, and realized it was going to be decades before they got their money back.
Wall Street continues to walk away. Big time real estate operators are walking away. The spinners are trying to say the feds won’t bail out the homeowners, but the truth is that the feds are bailing out the banks and letting them not restate the value of the mortgages that are underwater yet. Somebody’s getting paid, just not the little guy – again!
The banks are still in denial reporting on 1991 statistics that indicate that people do not walk away. Hello! They knew in 2006 and 2007 that people were paying their credit cards before they paid their mortgage. Get the message? People no longer see the mortgage as life and death when they don’t have much skin in that game and were playing for the uptick of the value to refinance on a 2-28 or 3-27 or an ARMS.
The stampede to get away from these bad deals will crush a lot of these Wall Street cowboys and push them over the cliff, as people swim hard to get back to the surface and right size their investments. Unless there is real help, which no one sees on the horizon yet.