SIMPLY WALKING AWAY FROM YOUR HOME - Is It Ever OK?
SHOULD THEIR HOME FALL IN VALUE TO 50% OF MORTGAGE BALANCE OR LESS, ONE IN SIX WOULD WALK AWAY - SURVEY!
Is it ever simply OK to walk away from your home, and the responsibility of mortgage payments, if its value drops below the mortgage amount you owe?
According to a new survey just completed by the Northwestern University Kellogg School of Management, as reported by Mary Umberger in last Sunday's Chicago Tribune, the answer many gave might surprise you. And it seems dependent on how much a home borrower might owe compared to the home's current market value.
Most people do think walking away from a mortgage is walking away from a serious contract, and a big financial responsibility, and is morally wrong. In the survey, 80% of all respondents simply picking up and leaving a mortgaged home is wrong.
However, many of these same respondents said they would themselves walk away - under what they consider to be "extreme conditions."
Today, many experts estimate that between 20 and 30% of all homes with a mortgage are worth less than the outstanding amount of the loan - a situation commonly referred to as being "underwater" on your house. Many are severely underwater, with home values 50% or less than the outstanding mortgage balance.
For those still able to afford to keep up with their mortgage payments, but significantly underwater, many have come to believe continuing to make mortgage payments on a property worth so much less that what is owed makes no sense. Some have resorted to "jingle mail," a new term coined for those who return their house keys to the lender, rather than continuing paying an underwater mortgage.
In many locations across the U.S., especially in places hardest hit by recent severe housing price declines - parts of California, Arizona, Nevada, and Florida, for example - the stigma attached to the walk-away behavior has softened as foreclosure has hit closer and closer to them. When your close friends and neighbors start walking away, many conjecture, it might not be as morally offensive as they once thought.
Paola Sapienza of Northwestern University, collaborating with University of Chicago Professor Luigi Zingales and European University Institute of Florence, Italy, estimates as many as 25% of all underwater mortgage defaults are not precipitated by personal economic calamity, such as a job loss, a divorce, or an illness. Rather, they are triggered by the realization by the homeowner that it just might make better business sense to simply walk away, instead of making continued payments on an asset likely to continue to decline in value.
The researchers view such action as the moral equivalent of lying to your bank - that's the root issue these underwater owners are contemplating.
Another question - "How will the parents' decision to walk from a home impact how the children would likely make similar decisions down the road?"
That question will likely take a very long time to answer!
DEAN MOSS & DEAN'S TEAM CHICAGO
