Well, here we go again.
Buy and bail, where people get approved for a mortgage to buy a new place, even though they still owe for the old one, never left.
Changes in government lending standards were supposed to prevent this, at least with Fannie Mae and Freddie Mac loans.
Surprise, surprise, as Gomer Pyle used to say, it didn’t work!
Strategic default is another term that defines half the deal, the bail part.
You are current, you can afford the payment, but, you just stop by choice.
The buy part is, you buy another home.
What a country!
Michigan is worse than the national average, of 20% of homes with mortgages underwater, we weigh in at over half.
One theory is, now that prices have stayed down so long, more people are giving up on a market rebound and bailing.
The problem is worse in California and Arizona, which have anti-deficiency statutes.
This means if your home is worth less than you owe, that is the lender’s problem, they cannot chase you for the difference between what they get for the home and what you owe.
Michigan does not have such a statute.
In theory, it requires the lenders to be stuck with their side of the bet when the mortgage wq made, that their appraisals are accurate, as well as their assessment that the property won’t decline below the balance at any point in time.
Yeah, right. California and Arizona were two of the big four housing bubble states, along with Florida and Nevada.
Home equity loans are illegal in Texas, so they largely missed the boat on this one.
Normally I oppose Big Brother enacting laws to protect us from ourselves.
Though it is tempting to support this for Michigan, to make the lenders eat the bad results of their lending decisions, it seems to have made no difference in other states.
Of course, this practice is prevalent primarily among high income earners, who rent out their old home, and show the rent as income, and who have little other debt.
Even more obvious, they go to a new mortgage company for the money to buy the new home.
Hey, the sharks don’t care if another shark does not get fed.
However, just because when you signed the note to pay for the house, thinking it would go up in value, just because everyone said so and real estate always appreciates, does not mean it is right for you to stop paying when the house plunges in value.
Were you going to pay the mortgage company more money if the home increased in value?
Bankruptcy is an option for those who CANNOT afford to pay their debts, a different story.
Buy And Bail Is Back?
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