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Saturday, May 10, 2008

A Skeptical Look At Walk Aways

by Tanta on 5/10/2008 10:53:00 AM

In the New York Times, too! I think we're going to have to make Vikas Bajaj an honorary UberNerd.

Millions of Americans are “upside down” on their mortgages — they owe more on their homes than their homes are worth. So far, however, there is little evidence that people who have the means to pay are walking away from their homes as values sink.

The blogosphere is full of tales of homeowners who supposedly are choosing to mail the house keys to their lenders rather than keep their depreciating homes. And yet “jingle mail,” the term for those tinkling packages of keys, appears to be far rarer than many seem to think.
I think this is my favorite part:
Jon Madux, a founder of the site, which helps borrowers leave their homes, said a majority of the site’s clients default because of financial hardships. But in the Southwest and Florida, more of its customers are investors who bought multiple condos or houses and are now not able to find renters or sell for more than they owe.
Speculators always cave in quickly in a declining market, especially when they weren't required to make a down payment and the rents were never realistic. This, we always knew. It does not constitute a "sea change" in borrower behavior, whatever the hoocoodanode crowd wants you to believe.

The interesting question is why this insistence that walk-aways are widespread is being, apparently, pushed by real estate brokers (they and some mortgage brokers seem to be the sources for most of the claims I've read in this regard).
“These markets are driven by psychology,” Mr. Barry [the real estate agent] said. “If people see that the market will continue to decline and they are already in the hole by 50 to 100 grand” they will leave.
Is it just the salesperson's preference for "psychology" as the all-purpose explanation? Classic projection? An attempt to spook the banks into negotiating with borrowers who wouldn't, typically, qualify for a workout? I'd really like to know.