24% of all properties with a mortgage are currently underwater. The reality is that many are choosing to walk away or are getting subsidized by loan mods. It's just business. A few weeks ago I noticed that Citibank raised the rate on a credit card that I have to 22%. Since I have never missed a payment on anything, I called to find out why. The rep said "It's nothing you did. We made a bank decision." My reply was "I need to inform you of a customer decision that I have just made.. I am not paying you unless you restore my previous rate and refund my overpayments." After talking to about 6 people, my low rate was restored and overpayment credited back. Banks do not have the best interest of the consumer in mind, they are concerned about profit. Thats as it should be. I also have my best interest in mind.
As someone who always pays my bills on time, I certainly do not condone people who default on loans. However, you do raise a very good point. Banks can suddenly change the terms of an agreement by jacking up the interest rate on a loan. They do not care if it causes finacial hardship for the borrower. It is simply a business decision for their own financial benefit. However, if a borrower changes the terms of an agreement by walking away from an underwater mortgage for their financial interest, it is looked upon as a criminal act, not a business decision. The only difference is that the banks already covered themselves in the fine print whereas the consumer is breaking a legally binding agreement. Nevertheless, ill public will regarding the bank bail-outs and continued real estate weakness may lead to an avalanche of people walking away from their mortgages.
I see many foreclosures in my state that the banks are buying back for 75-80+% of the mortgage note if said note was maxed out/underwater. Why not the full? #1 it keeps the investors away who think they can get the home cheap. #2 in the recourse/judgment states, they can in the next x years (my personal guess is around 5, but could be longer) if nothing was ever indicated (especially if said homeowner just walked away) start skip tracing these homeowners, sue 'em for the balance and get a judgment slapped on them. Settled or not, they can then be sold to third-party collectors for instant revenue. $20K judgments would be bought for about 1800-2000 each by said companies (most debts are around 10 cents on the dollar)....times a few thousand....
It's quite common now to be living payment-free for long periods of time. Most states have a 90+ day moratorium before a NOD/foreclosure notice can be filed. + The fact that it takes 3+ months to file it anyway. + Paperwork backlog so it's a virtual crap shoot of who goes where. + Times for objections to said filing (30-60 days) = bare minimum of 8-10 months of not paying before foreclosure. Likely a year. Add any postponements/filings of one's own to object/stop the foreclosure and now you're in the 15, 18, 21+ month range.
You seem to be confused on a few items. First, banks can't suddenly change the terms of a mortgage loan by jacking up the interest rate. Banks are required to adher to the written terms of the mortgage. Some of those mortgages though are adjustable, meaning that the bank can raise (or lower) the interest rate usually in connection with some benchmark rate. So as much as you might like to bang on the banks, this wouldn't be the area. Likewise, the borrower can, and obviously do, walk away from their mortgages. It isn't a crime. They have simply breached their contract. This results in a) losing their home and b) in some states getting a deficiency judgment. And obviously, walking away will also cause the credit score to be hit, which will create problems for the borrower in all kinds of areas, like employment, insurance, renting houses/apartments in the future, getting credit cards, etc. One other point...when a guy walks away from his mortgage, it ends up hurting us all in the sense that it simply puts that much more pressure on home prices. So I got no sympathy personally for a guy walking away. I think he deserves what he gets in the end. He agreed to certain conditions in his mortgage, and then failed to live up to the agreement. That fact that the house is underwater really has no bearing on that agreement. It's simply a factor that is causing people to walk. Likewise, in many areas the borrower may be able to rent a house similar for less money. What's usually left out of that story is that he could have done that before he bought the house to begin with. Just another convenient factor to mention when discussing why you defaulted on your agreement. So let's all keep in the back of our minds that the bank is holding up it's end of the agreement in these situations. The banks may well be guilty of making bad loans, and in this case, obviously they failed to determine the level of character many of the borrowers had prior to making them a loan. So shame on them for that. OldTrader
Just to clarify, I realize that banks cannot raise the rates on a mortgage until the end of the mortgage term. I was referring to the poster who had his credit card interest rate increased. I agree with all of your points 100%. I own a home and am not happy about the declining prices. However, it is important to realize that the people walking away from their mortgages do not have sympathy for the bankers who got free taxpayer money to bail them out for poor business decisions, then received large year-end bonuses as well. I do not think that our government anticipated the social backlash that might occur from bailing out their Wall Street buddies. I can imagine millions of couples with underwater mortgages sitting at their kitchen table angrily questioning why they should take a big loss on their house when the banks were saved by our government.