Tuesday, May 6, 2008

Walking Away from Your Home

"Walking Away from Your Home" has become a disturbing trend over the last couple of months. The company, You Walk Away, began in January according to this ABC Nightline Report and they definitely paint a picture of desperation and of "walking away" being an OPTION for some. They did a decent job of explaining the consequences of this course of action. However, it is frustrating to have so much negativity surrounding lenders and the mortgage lending industry, especially in the face of what this company may gain financially.

There were definitely Mortgage Lenders that worked under the guise of providing the customer a service and then getting them into their dream home by qualifying them for mortgages they could not afford down the road. In my opinion, this company, "You Walk Away" is doing the same thing. Providing a service that people pay for that will cause them to lose the ability to get decent interest rates on Credit Cards, Buy a Home, Finance a Car, maybe even Get a Job. Short term, this may be a solution but what happens in three years when they can't get the car they need because of past credit history, or they are not hired because of past credit history. (Many companies are beginning to use Credit Reports on applicants as an evaluation tool.)

I am not naive and understand that foreclosures are inevitable for some given recent market conditions. But it isn't an OPTION. It isn't like choosing what to eat at McDonald's, there you have options. The word OPTION shouldn't be used because a foreclosure is the bottom of the barrel. It was a gross miscalculation by the borrower to believe that they could or would be able to refinance/sell etc. in x number of years no matter what the lender/broker/banker told them. They should have thought worse case scenario.

Sample questions that would have been prudent and are prudent now to ask during the lending process:

  • How long are my payments the same?
  • What will my payments adjust to?
  • Can I qualify for those payments if it adjusts?
  • What is the LTV on this home? If values hold steady are there options to refinance? If they go down are there options?
  • Am I buying this house for the speculated future value or because I want to live in it with my family?

I believe that this company is not doing the public or the housing market any favors. Just as people thought short term when buying the house, they are thinking short term in getting out of the house. Some may be willing to deal with the ramifications of this course of action but I hope that they are fully given the extent of the ramifications. A foreclosure has to be reported on the 1003 for any application to purchase a home. Fannie Mae recently released a statement saying that they have increased the amount of time from 4 years to 5 years in accepting an application from a home loan applicant with a past foreclosure. And the foreclosure will affect their credit score for up to 7 years. That is a long time to deal with the consequences of this OPTION.

We are in unprecedented territory with regards to the housing market. This, however, doesn't change the fact that this company is getting paid for providing the customer a package that may very well reap the same result: A customer blaming the provider for their bad misfortune. There must be accountability to some degree. Whether from the lenders, the borrower or now this new company. The cycle of taking advantage of dreamers who over extend and become desperate has to stop somewhere.

Note: If you are beginning to go through the unfortunate proceedings of foreclosure and haven't been able to work a solution with your Lender, please find the time to research the necessary steps and information about foreclosures and how it affects you, the consumer. There are many ways to go about finding information without paying a service. I scanned this website and it had some good quick information and research about foreclosure laws, etc. for AZ. Use it as a resource: http://www.foreclosurecounseling.com/foreclosure_help/index.html

Remember: A foreclosure isn't about living payment/rent free or using it as a tool to help your financial situation...a foreclosure is about saying that what you signed and agreed to pay back is not possible. Make sure that the situation was caused by an extenuating circumstance(s) that must end in foreclosure (Divorce, Loss of Job, Injury, Death, etc.). Not because it was your OPTION to stick it to the lenders or prove a point. It won't do anybody any favors in the long run.

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