Mortgage Underwater? Just Walk Away

No one likes a bad investment, especially when everyone has been making them. The housing meltdown was built on a house of cards called securitization, and it ruined the global economy. So why should homeowners stick with houses that are worth less than their mortgages when even banks are walking away from them, after foreclosing on homeowners and taking a fat fee for it? I covered this fucked-up trend for AlterNet, and it was most assuredly not good.

(Photo: Felipe Skroski)

House Underwater? Do Like the Banks Do and Just Walk Away

“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” — Warren Buffett

Here’s a terrible new twist to a housing meltdown tortured by too many of them. Banks are refusing to take possession of houses after the foreclosure process because of the prohibitive cost, from legal to maintenance fees, of being stuck with the same worthless mortgages with which they’ve saddled homeowners. This happens more than you think, and it affects many people around the world on a daily basis, that is why asking the right mortgage questions before making a commitment is highly important. Buying foreclosed homes is becoming more popular amongst property investors, as it can give them a good profit when it comes to buying properties, but also means that they can help people who are struggling. You can learn more about the Foreclosure process in australia to help give you a better idea as to why this can be beneficial. Giving homeowners a mortgage that is out of their reach is the main issue, and is the reason why so many homes fall into foreclosure.

It’s a problem of their own making: Foreclosures shot up 7 percent in July, and the rate is nearly a third higher than this time last year. There is no end in sight. That’s led to increased homeowner abandonment of their properties, which in turn has led to escalating blight that has depressed property values and tax revenues even further.

By 2011, around half of the mortgages in the shell-shocked United States could be underwater, which is a softball euphemism for utterly worthless. The financial industry is well known for such empty metaphors — including “class warfare,” ably dissected above by Berkshire Hathaway billionaire Warren Buffet. That’s because they are easier to stomach than the purposefully labyrinthine, fearsomely destabilizing details.

Take “jingle mail,” for instance, industry-speak for homeowners who mail back their keys and purposefully walk away from lenders who have left them to drown underwater; that is, with homes whose market value is significantly below their mortgage debt.

It’s a cute euphemism for such a fucked-up state of affairs engineered by the financial industry, and its colluders in the government and media. Greased by a thoroughly unregulated over-the-counter derivatives market that is fast approaching $600 trillion (that is not a typo) and now under investigation for antitrust trading, Bank of America, J.P. Morgan Chase, Citigroup, Goldman Sachs and other titans of Wall Street seized the opportunity to lock homeowners into unfair mortgages that could ruin their balance sheets, and the American economy, for good.

Sure, they should have known what they were getting into, but when is the last time you read your pages-long disclosure contracts on your home or credit card? Derivatives thrive on such mind-numbing complexity, which is why the financial press and industry continually lionizes bankers like Merrill Lynch’s John Thain, whose firm lost billions and had to be acquired by Bank of America to stave off a systemic economic collapse, “as the smartest guy[s] in the room.”

And even they don’t know, or are just fine with not knowing, all the details of their dense financial contracts: When Federal Reserve Chairman Ben Bernanke was asked by Rep. Alan Grayson, D-Fla., where $500 billion of American taxpayer money exported by the Federal Open Market Committee to foreign central banks went, his response was probably the same as most homeowners asked about the details of their mortgage contracts: “I don’t know.”

This is why Buffet called derivatives “financial weapons of mass destruction,” a more apt euphemism for an industry in love with depersonalized terminology.

So the argument that homeowners should intimately know the twists and turns of their mortgage contracts, most of which are designed to lock them into debt for a very long time, is disingenuous, at the least. However, some homeowners could have protection from this. If you are a physician or are an eligible medical professional, you could be entitled to physicians mortgage loans, which can help you to afford a home, as well as providing you with a way to control all of the other finances that come with this responsibility, so you are protected from debt. Unfortunately, not everyone has this pleasure.

Especially when it is the banks who locked them into those contracts, rather than the supposedly cold, calculating jingle-mailers that are walking away from houses the banks marketed, sold and then foreclosed, only to leave them with stunned homeowners who find they’re liable for tens or hundreds of thousands of dollars in city fees.

“It is just bone stupid,” the Center for Responsible Lending’s Kathleen Day told AlterNet by phone. “Banks foreclose on families, kick them out of their houses, which puts even more people underwater. And then they walk away from those same houses. It’s almost like a sitcom, but it’s a situation tragedy.”

The tragedy has gone viral. Small and large banks across the country have punted these compromised mortgages, often located in cities sundered by the housing bubble like Buffalo, N.Y., Cleveland and others.

The banks’ reason is simple enough: They’re not worth anything to them either. A sobering analysis from the Cleveland Plain Dealer calls those mortgages “toxic titles,” but the problem is beyond terminology now. MORE @ ALTERNET