Comments on: Fannie Mae Issues Warning to “Walkaways”

By: David Gordon

David Gordon — Thu, 17 Apr 2008 09:07:16 +0000

Oh Janis, you are too much! The other David is more deserving of a worldly title than me with his vast knowledge.

By: Janis Mara

Janis Mara — Thu, 17 Apr 2008 05:53:18 +0000

I concur, Mr. Gordon!

Glad to hear that you, David (you guyz need titles like “Imperial Emporer David I” and “The Magnificent Mr. Gordon,” so we can discriminate between you) think the walkees will be able to bounce back, but the scenario of deserted homes and devastated neighborhoods is scary. Squatters, crack houses, crime, remaining homeowners under siege – or am I overreacting?

By: David Gordon

David Gordon — Wed, 16 Apr 2008 22:54:05 +0000

David, you are the man.

By: David

David — Wed, 16 Apr 2008 20:48:22 +0000

2,000,000 nationwide? I think I’m being conservative.

“Negative equity” affects over 8,000,000 homeowners right now (Mark Zandi, Economy.com), nearly 9M in fact. Could less than 1/4 of them walk away? You bet.

With an additional 5-10% drop in prices nationwide, you’ll see nearly 14M of households underwater in the next year. could just 15% of those walk away?

If we return to “normal” expected price appreciation, even if you can keep making payments, if you’re down 20, 30, 40%, you’re looking at being underwater 5, 7, 10+ years. Even assuming Fannie’s new rules stick, it’s likely better for your finances to walk away, find a nice rental, save the difference and you’ll be shored up to buy again in 5-7 years…and probably at the same or even lower price than you bought at the first time.

I’m not the only one who can make that calculation. I might not have a very high opinion of overall financial literacy in the US, but I bet more than 15% of those underwater can…

By: David Gordon

David Gordon — Wed, 16 Apr 2008 18:12:20 +0000

I can’t speak for David here, and I do hope he chimes back in, but I say there is a strong case and “benefit” for at least 2M people to walk away in the next year or two. Negative equity is not a good town to be in.

By: Janis Mara

Janis Mara — Wed, 16 Apr 2008 03:15:31 +0000

David! You don’t really think two million people will walk away, do you?

By: David Gordon

David Gordon — Tue, 15 Apr 2008 02:48:28 +0000

Exactly, David. These are scare tactics, and they are understandable. But when we return to a sense of normalcy, if you will, in the lending arena, these banks are gonna need people to lend to so they can grow their portfolios and profits again. Just a predictable reaction to the current predicament.

By: David

David — Tue, 15 Apr 2008 01:48:48 +0000

These rules will change when 2,000,000+ people “walk away.” Pretty soon there won’t be anybody to lend to in 3 years if they stick to these guidelines.

They changed the rules before, and they’ll do it again to drum up business in the deep dark nadir of the housing bust.

By: David Gordon

David Gordon — Mon, 14 Apr 2008 23:42:45 +0000

Hibryd, I don’t disagree with what you are saying. Let me be clear that I don’t have sympathy for people walking away either. I am just saying they have that option.

We know that everyone got greedy – banks, agents, buyers, sellers, etc.

I wish the gov’t would stop trying to “fix” and prevent the correction by scheming to bail everyone out (except big banks – THAT is/was necessary for the well-being of our financial system). The quicker we allow things to correct naturally and rightfully, the sooner we can get on with normal business cycles.

By: Hibryd

Hibryd — Mon, 14 Apr 2008 23:32:14 +0000

I have a little less sympathy for people walking away, just because the tons of people getting homes they couldn’t actually afford drove up prices for the rest of us. Yes, the banks were guilty of a lot, and they’re getting it square in the jaw right now, but I think bad buyers should have to pay for their mistakes too. It may make “business sense” to walk away from your bad investment, leave someone else with the tab, and buy again in 3 short years, but it sure doesn’t seem fair.