With no help in the horizon more and more borrowers have no other option but to walk away from foreclosures. Benjamin Koellmann is one of them. He bought a condo on Miami Beach in 2006. He estimated that it would be 2025 before he could get back from the house what he had originally paid for it when he sold it. Even then there was no surety – it could limp on to 2040. He is feeling like a sucker and said, “Why not let it go in default and rent a better place for less?”
For three continuous years real estate prices have been plunging even after bailing out big banks. What is visible is the revival of bonus culture. The steps taken by the Obama government had raised hopes about loan modifications but only very few were satisfied.
Research is indicating that when the value of property drops 75% below the amount due on the mortgage the owner begins to think of walking away – even if the borrower has the money to pay the monthly dues.
The situation that has arisen is one without a precedent. Millions of citizens are in this position. The problem confronting the Obama team is how to solve this so that the economy regains its health.
Herbert Allison the Assistant Secretary for financial stability in a recent briefing said, “We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale.”
When the crisis began in the middle of 2006, the number of those whose houses were worth less than the loan was zero. But about 4.5 million borrowers had arrived at a critical point by the 3rd quarter of 2009. The worth of the property had dropped below 75% of the due balance on the mortgage. These borrowers feel wronged and are dangerously angry. Recent figures showed that the housing market was again beginning to stall and poised to spike to 5.1 million by the coming month of June. This would estimate to 10% of all the mortgages in the country.
Sam Khater of First American CoreLogis said ‘We’re now at the point of maximum vulnerability. People’s emotional attachment to their property is melting into the air.”
Hitherto there was a sense of shame about going back on a promise. But under pressure this sentiment is vanishing en masse. Landlords of 11,000 residential units in Manhattan have showed no qualms about walking away from an investment that has gone deep down to the depths of the water.
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