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Mortgage "Walkers"

That's what Nicole Gelinas, writing on tomorrow's Wall Street Journal Editorial Page calls them. It's an accurate, descriptive phrase, but The FDC personally prefers "foreclosure of convenience".

What Ms. Gelinas is talking about is the recent phenomenon of home owners walking away from their homes voluntarily. This is contrary to the image painted in the media of a naïve first-time home buyer victimized by some slimy mortgage predator who conned them in to a mortgage they had no business getting. As that legend continues, the victimized homeowner struggles valiantly to make the mortgage payment, doing what they have to do, getting six or seven extra jobs and working 36 hours a day, eight days a week to save their American dream from crashing in on them. But alas, despite their Herculean efforts, the large, rich, mean, and nasty bank seizes back their lovely nest, and leaves all of their hopes and dreams tossed aside like a used Kleenex. And the story must end this way, because if it doesn't wouldn't really be very convincing victims - would they?

More often it happens this way:

Many of these so-called victims obtained 100% financing, and had the Seller pay their closing costs when they bought the home. What a deal! So as they move into the house they have zero equity, and haven't spent one dime on the home - until their first mortgage payment. Next comes the credit crunch. Prices start falling, their adjustable rate mortgage rate is about to do so, they can't refinance because they are upside down, and they wouldn't qualify credit-wise anymore due to tightened down underwriting. What to do? Walk away. Let the bank have the house back. The buyer has effectively "rented" the house for the period that they lived there. Sure their credit will be toast for awhile, but that is a wound that time can heal - or perhaps a credit repair company (for a fee, of course).

Mortgage walkers are gentle creatures who are acting rationally to the incentives that have been created for them. They are not to be confused with the cold, calculating predatory borrowers (see FDC post dated 1/16/2008)who exploit and even commit fraud to take advantage of banks and mortgage lenders.