CyberCJH's Blog

Foreclosure. Definition: A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.

The word foreclosure carries with it some very negative connotations. Case in point? Imagine you’re driving down a street and you see a sign on the front lawn of a vacant house. It says Foreclosure Sale. What would be your immediate judgement of the owner of this property, sight-unseen? I imagine most people would think they’re a lazy, good-for-nothin’, obligation shirker who doesn’t understand how to manage their money.

In the past, for the most part, you’d be spot on. But, times they are a’changing. Consider this person’s plight:

I am one of these people.  My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I’m not a ‘hardship’ case they’d apparently rather foreclose. I guess the only way I could qualify for loan mitigation is to get my boss to fire me, stop making payments, and wreck my credit.  In fact, my bank won’t even talk to me until I miss a couple of payments. 

I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.

I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions. 

I don’t really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions, with access to more sophisticated information than any consumer could imagine, make mistakes affecting thousands of people worldwide, they are not excoriated and vilified with the same righteous zeal.

Are you still judging this person the same way? Still think they’re a lazy, good-for-nothin’, obligation shirker who doesn’t understand how to manage their money? I do not. In fact, I think they’re using foreclosure as a bonafide financial option.

Calculated risk, a blog I enjoy reading, notes this is one of the greatest fears for lenders … that it will become socially acceptable for upside down middle class Americans to walk away from their homes. It will become socially acceptable, probably very soon.

Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: “… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…”

Deciding to opt for foreclosure is truly a last-ditch effort. It’s painful, sure. It will haunt you for a while. But, time heals all wounds. And life, in some form or another, goes on.

written by cybercjh