 Current Market Conditions
 What It looks Like Today 3 million homeowners received at least one foreclosure filing during 2009, 
setting a new record. One in 45 household were in default last year. The four states, we all know them well by now, with the most foreclosure filings: California, Florida, Arizona and Illinois were 50% of the nation's problem homes. The risk of default on home loans is 58% higher than it was on average in the 1990s. Foreclosure filings are at a historically high level that will likely continue for an extended period Walking away from property borrowers default for strategic reasons Deficiency Judgment California is one of 11 states where lenders are prohibited by law from filing deficiency judgments against borrowers to collect the difference between what was owed and what was collected when the asset was sold. The others are: Alaska, Arizona, Iowa, Montana, North Dakota, Oregon, Pennsylvania, South Carolina, Washington and Wisconsin. What that means is that you can have a million dollar mortgage, do a short sale for 500,000 and the lenders cant come after you for the difference in 11 states. The IRS will consider the difference, $500,000 in the above example as income, but the banks cant come after you. Many mortgage companies don't go after the balance still due. For one thing, deficiency judgments are not automatic. The lender would have to go to court, obtain a judgment and then try to enforce it in the county or state where you now reside. Most people who lose their homes to foreclosure or simply hand the keys back to their lenders don't have any money left, anyway. So it is often a waste of time for a lender to go after them. Today homeowners with negative equity have little financial incentive to make their payments. These prices are never coming back to prior levels. So, what do you do. Well, many are looking at the problem from a cash flow perspective and realizing they are paying monthly on a 750,000 debt for an asset now worth, maybe, $550,000. Make sense? Not to more and more people. Its becoming acceptable to make a rational business decision. After all, the big players do it all the time. 56,000 New York City apartment units were returned to the banks, because the speculation that rents could be increased in a rent controlled environment proved to be too difficult. Cash flow no longer added up and the keys went back to the banks. New research by Paola Sapienza of Northwestern University and Luigi Zingales from the University of Chicago notes that in the 1990-91 recession very few people who could afford their mortgage walked away from their homes. The magic number was 10. When equity declines exceeded 10% of the value of the home, owners started to waiver. A 10% loss and the default rate begins to rise. A 50% loss of home value and 17% of all owners preferred default to staying in the game. The study concludes that in this cycle, a large segment of foreclosures were driven by a similar metric. One in four recent mortgage defaults are strategic. Buyers of property make a business decision to walk away because they no longer like the deal. For 25% of all foreclosures, today, its inability as well as unwillingness to make payments. Banks Are Responding B of A Principal Reduction Enhancement Program Which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value. Offering a principal reduction, the first step toward HAMPs target of 31% of household income when modifying eligible mortgages, before lowering the interest rate and extending the term. Banks are responding more aggressively to the foreclosure problem because borrowers are handing back the keys. 31% of foreclosures in March were strategic defaults, according to researchers at Chicago and Northwestern University, up from 22% in March of 2009 REsourced from www.yourpropertypath.com You may republish this article, as long as you do not edit and you agree to preserve all links to the author and www.yourpropertypath.com
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