By Mike Colpitts
The huge number of homeowners who say they will walk away from mortgages if housing prices keep falling could have long lasting repercussions for the U.S. economy that would take years to emerge from.
According to a new survey conducted by Housing Predictor, as many as 25-million homeowners may walk away from their mortgages as a result of declining home prices and doubts about prices rising in the foreseeable future. The figure seemed impossible to comprehend just months ago. However, the Predictor Poll found similar results last March when 36% of respondents said they would walk away from mortgages. Some 32% said they would walk away in the most recent survey.
The narrow margin is representative of growing changes in consumers’ attitudes against bankers and government bail-outs of big business, while millions of homeowners suffer with foreclosures. The negative sentiment against bankers’ weak efforts to work out solutions with millions of homeowners facing the possibility of foreclosure are just one part of the economic crisis, but is clearly a major component in the shift of attitudes.
Bankers have modified 500,000 mortgages, according to the Treasury Department since the Obama administration asked bankers to voluntarily work out mortgage modifications with homeowners more than eight months ago.
There are currently an estimated 68 million mortgages in the U.S. after millions have been foreclosed in the worst foreclosure epidemic in history. The crisis has led to growing unemployment and sent shock waves into financial markets worldwide.
Mortgage servicing companies are delaying foreclosures on millions of homes and other properties in a thinly veiled attempt to wait out government decisions to come up with more solutions for the crisis. A group of Senators are proposing a bill that would force banks to modify mortgages for troubled homeowners.
The decision to forgo mortgage payments demonstrates a major change in consumers’ attitudes of bankers, who have generally been trusted until the financial crisis erupted more than a year ago.
There are also long lasting repercussions for mortgage holders and investors, who hold the mortgages. Deficiency judgments against mortgage borrowers who are either foreclosed or freely walk away from mortgages may be sought and collected in the majority of the country, leaving debtors damaged credit for years to come in addition to tarnished credit histories as a result of foreclosure.
Florida and Texas have some of the strongest homestead laws to protect consumers. Limited forms of homestead protections are available in 25 other states, but not all protect consumers to the degree of Florida, where lenders are unable to obtain deficiency judgments by law on foreclosures.
A Homestead Declaration must be filed in order for any protections to be in effect in the majority of states. Residents in most states are still liable for creditors’ liens until a homestead declaration has been recorded.
As foreclosures increase, filing a Homestead Declaration is vitally important for many homeowners. Although homestead protections and statutes vary from state to state most are intended to preserve the primary residence. It’s best to seek the advice of a real estate attorney in your state if you’re considering homestead exemptions before it becomes a problem to deal with later.