Hunting Happiness

CNNMoney is running a story headlining “Foreclosures jump 57% in March”.  The 57% jump is compared to last March.  Foreclosure rate versus Feb’08 is unchanged.

One interesting fact is that while the number of repossessed homes has gone up 129% versus last year, the number of foreclosed homes going to auction increased by only 32%.  RealtyTrac says this is because more homeowners are just walking away after a default event.  In that case, the bank takes the title immediately.  In a foreclosure proceeding, the home goes up for public auction (often a “sheriff’s auction”), and if it doesn’t sell then the title goes to the bank.

It may also be a less stressful and negative experience for the homeowner to walk away versus being forcibly evicted.  At least under the former circumstance it may feel like the homeowner is leaving on his/her own terms.

They also have a linked article that talks about the pros and cons of options if one is in over his head.  This has some interesting info and tips, particularly if any readers are in such a situation.  One that surprises me is:

Credit scores are hurt much more by missing multiple payments - on credit cards, cars and so on - than by a single foreclosure.

I would not have thought that a couple missing payments on smaller balances would be worse than one foreclosure.  They also mention that the typical minimum time to be considered for a loan after a bankruptcy is three years, versus two or less for simply walking away.  And finally, due to the Debt Relief Act of 2007, if a bank sold a foreclosed property at a loss, the borrower no longer has to pay tax on the difference.

The conspiracy-theorist side of me wonders if all this big media push to simply “walk away” versus grind out through the process is self-serving.  After all, if a borrower/owner simply walks away, the lender gets title immediately and doesn’t have to go through civil court.  This has to save a lot of time, money and aggravation for them.   Not to mention that if the owner walks away he is probably less likely to trash the property to spite the bank.

There is another trend emerging, which I think reflects the increasing attitude of extreme selfishness and lack of responsibility.  Some homeowners in areas with substantially decreased home values are buying another similar home in the same area (now at a much lower price than their current home) and walking away from their current one.   Folks who still can afford their current payments are doing this!  They take a serious ding to their credit, but that ding comes AFTER they purchase the new home and therefore wouldn’t affect their ability to get the loan on the new property.  Obviously they would have to find a way to qualify for both mortgages, although there are ways around that, too.  In effect they are trading say a $100-200K reduction in their mortgage balance for damaged credit.