YOU GOT TO KNOW WHEN TO HOLD’EM, KNOW WHEN TO FOLD’EM, KNOW WHEN TO WALK AWAY, KNOW WHEN TO RUN.
RUMSON, NJ–(Marketwire – December 7, 2009) – Over the past year, four major studies have presented evidence suggesting that the vast majority of underwater homeowners will lose their homes before the end of the housing crises. Roughly 81% of Las Vegas’ homeowners have negative equity. At the end of this housing crises, will 81% of those Las Vegas’ homeowners voluntarily or involuntarily lose title and possession of their homes?
At no time in United States history has a community ever sustained negative equity in its homes. Las Vegas is not going to be the first such community. As such, within a few years, the vast majority of this years Las Vegas’ homeowners will have lost their homes.
With an estimated 29% of all U.S. mortgages, and 81% in Las Vegas, currently in a position of negative equity, the issue of strategic mortgage default is fast becoming one of the biggest problems faced by mortgage security investors, loan owners and servicers as well as the current administration. According to a new white paper released today, however, existing solutions for the mortgage industry’s strategic default crisis can’t solve the problem because they are too cumbersome, a burden on the servicers, and ignore the consumer’s behavioral response to the problem of negative equity reported in a study called Strategic Default and The Role For Incentive Based Solutions .
The white paper, authored by Alex Edmans, Assistant Professor of Finance at The Wharton School of the University of Pennsylvania, addresses the behavioral aspects of strategic default in terms of an approach that provides incentives for borrowers to remain current on their mortgages without the need to reduce principal through a loan modification.
Professor Edmans, who is an academic advisor to LVG as well as a behavioral economist and noted expert in incentive structures, said, “The government and loan owners are currently pursuing a number of existing solutions to default. However, they have so far proven to be ineffective for two main reasons. First, certain solutions are founded on the idea that default occurs because households have no choice due to insufficient income, and thus fail to address default that is a rational choice that depends on the homeowner’s balance sheet. Second, certain solutions face substantial practical hurdles to implementation.”
The First Strategic Default Study Here, June 29, 2009.
The Second Strategic Default Study Click Here, September 18, 2009.
The Third Strategic Default Study Here, November 30, 2009.
I AM 83 YEARS OLD AND OWE $130,000 0n my line of credit to a bank. although I have assets, I can’t predict the future and may have to use my assets for a nursing home or home based care. Although I feel an ethical responsibility, I ask myself why should I be respoonsibl to the bank’s reckless behavior and the economic downturn. I am ready for forclosure and an to be sued by the bank. I do not need credit in the future. All my assets are in IRA’s. Attorneys have not been helpful–they tell me what i already know.
what is your advice?
What about the states that allow deficiency judgements. I can’t afford my mortgage payment now. If I walk, then rent a home, how will I be able to afford to pay the bank the amount that they did not recover on the sale of the home. My real estate agent tells me that the house can only be listed at about 100,000 less that what I owe. How can walking away and then being stuck with the bill anyway going to help me?
Sometimes you have to throw in the towell. Move on. Go to a new place. Its time.
Please check your facts. The major cause of this bubble was the result of a herd mentality coupled with lending standards that were non-existent.
It is also interesting that you and others believe that agents, brokers, and appraisers hold so much power over the general public. Do you think that maybe part of the rapid growth in prices had to do with the public’s desire to “not miss out”?
Based on your comments it seems as though you have had bad experiences with agents, but a rational person would not automatically assume that every agent is bad. Doing so is why we had rampant discrimination around the world. Specific bad cases are generalized to an entire group. Aren’t we beyond this ignorant mentality?
I wonder what you do for a living and also wonder if there are bad people in that profession. It would be my assumption that there are bad people in every profession and to try to pin a global problem on one group of people is ridiculous.
Very well said Sean. Could not have said any better. My sentiments exactly. Real Estate Agents screwed us grandly. They are actors their only objective is commission for themselves. Why do we need them? I wish this profession would die.
Real estate agents were a big part of the bubble and the fraud. Real estate agents picked the appraisers and blacklisted them if they didn’t say the house was worth whatever the agent wanted it to be worth. Real estate agents and mortgage brokers communicated with each other, buyer’s and seller’s agents communicated with each other all sharing information and trying to push stupid home buyers into transactions that weren’t good for them. Buyer’s agents are paid by the seller out of escrow, which is a recipe for fraud. The real estate agent has one goal only and that is to close the deal as fast as possible and at the highest price. It is not to get the best deal for his client. The real estate agent representing the buyer actually gets paid MORE if the buyer pays more rather than less. So if the buyer’s agent doesn’t negotiate a lower price — which is what is in the buyer’s interest — he gets paid more!
Real estate agents do nothing except help blow housing bubbles. Title companies and lenders do ALL of the paperwork. Agents merely pressure people to close deals at prices they are uncomfortable with (“I would never deliver that offer. You need to make a real offer, or you are going to offend the seller. Prices are soon to rise in this highly desirable area!”). Real estate agents require nothing more than a high school diploma and a 40 hour course. Manicurists undergo much more rigorous licensing and training requirements with hundreds of hours of training and education. There are few jobs that require as little education and training as a real estate agent.
To [name deleted], I say, why don’t you find a reputable job? Haven’t you ruined this country enough? It was your pandering and lies and manipulation and persuasion that caused 1,000 buyers to overpay for homes and take risky mortgages to sign on to houses they couldn’t possibly afford. You got to keep all of those commissions. You didn’t give any back even though my tax money is bailing out the banks that made the loans. I hope you leave the United States and go to some other country. We don’t want you here. You’ve done enough harm.
I think we should run all of the real estate agents out of the United States and set up an unrestricted online MLS database so people can look at whatever houses they want. Agents don’t even show you houses unless the seller puts on the MLS the “secret” information about what commission they are paying and they pay high enough. Some sellers offer to pay higher commissions and then dirty real estate agents take you to that house first and say, “Gee, I think this is by far the best house we’ve looked at. It is so “you” I mean your friends your colleagues will all really think that you’ve made it!!! You are an elegant and desirable person… I mean you will be when you have this elegant and desirable house. It will be like you’ve accomplished your life’s work!” And they are doing it because that seller is secretly offering to pay them 4% instead of 3% and they didn’t show you a few houses you would have liked where the seller was offering only 1%. They aren’t agents, they are their own actors — agents are out for themselves and no one else. Maybe that’s why they took the word “agent” out of their names. They aren’t agents. They are out to get the best deal for themselves and if there was any justice in this country, it would be a criminal offense to be a real estate agent.
go to CBSMoneyWatch.com and look for “Run, Don’t Walk away from Underwater mortgage…and read all 60 “comments”. You will be enlightened.
I have been a Realtor for 30 years. I have successfully bought and sold properties personally. I find myself in negative mortgages on my primary residence and on an investment property. The downturn in the real estate market due to short sales and foreclosures has brought the bargain seekers ready to swoop up real estate at 1/3 the value. This adversely effects our commissions and in some cases result in negative commissions. I have considered walking but it is so much against my principles. It is good to hear other comments re this dilemma.