Walking Away from Their Homes

Foreclosures keep on rising, and they’ve reached an all-time high. Borrowers who took out ARMs, or adjustable rate mortgages whose rates are set to reset to a higher rate, are giving up, many simply walking away from their homes prior to them having to even make one payment at the new rate. New foreclosures rose 0.83 percent in the fourth quarter of 2007, and late payments reached a 23-year high, according to the Mortgage Bankers Association.

With all of the negative press these days, as well as the assistance programs being set up for borrowers and lenders, not much seems to be changing, and there’s a good reason for that–a good many of the borrowers who are going into foreclosure couldn’t afford the loans they were taking out to begin with.

Buyers who would never have qualified for loans during tighter credit standards were able to qualify during the subprime boom, and now the sky is falling for them and the lenders who gave them the credit. Prices continue to fall around the country (except in certain areas), and a recession, if it’s not already here, is surely to arrive in all its grandiosity any moment.

Some 40% of foreclosures are a direct result of buyers simply not being able to meet the payments after their mortgages reset. Another 20+% have already received some sort of assistance to help them make their mortgage payment, be it a freeze on their rate, a reduction of their rate, or some other sort of modification. But they default regardless of this assistance.

And while it does bother many for the government to try to bail the lenders and borrowers out in these cases, eventually it will hurt everyone else as well–so the sword has become a double-edged sword. While responsible buyers and borrowers were avoiding the exotic loans because they’d thought the terms out and knew that they’d likely not be able to make the payments in the future, less responsible buyers were out there taking advantage of the credit laxness that lenders were providing. And now, for those responsible borrowers and potential borrowers, the bailouts seem like a get out of jail free pass. “It doesn’t make sense,” said Susan (who didn’t want to be named in full). “They went and got a loan they couldn’t afford, lived in this nice house for a couple of years while I sat on the sidelines being responsible, and they get a break for being irresponsible? It just doesn’t make sense.”