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High Unemployment Along With More Price Declines Result In Additional Planned Defaults
Although it’s obvious that walking away from a property in which you own will affect your credit report in future years, there are other risks that are often overlooked. A lower credit rating can affect not only being able to qualify for future loans but also what kind of apartment you can rent, and can possibly disqualify you from getting a future job.
Many homeowners are asking themselves whether or not they should keep making their mortgage payments. Since about 11 million homeowners nationwide owe more than their property is worth, strategic defaults will be a big factor in residential real estate over the next several years. Some argue that paying your mortgage is simply a moral obligation while others believe that it’s only a business contract.
There are those who claim that you should do everything in your power to keep paying your mortgage even if you owe the bank far more than what your property is worth. Of course, this is a poor business decision. The banks also have a moral responsibility to make loans that match the collateral in which the shareholders can get their money back in case of default. Whether or not one decides to walk away depends on the situation.
A major problem with this situation is that most mortgage lenders will not discuss these problems until after a homeowner stopped paying his/her mortgage. This only postpones the problem. The bank ends up taking a bigger loss in the end because it is forced to foreclose, and then has to deal with the expenses of selling the property. In this market, the bank is forced to hold the property for a considerable amount of time. Many banks are holding properties and are nervous about flooding the market with even more inventory which would continue driving prices down.
MSNBC has reported that housing prices nationally have fallen to 2002 levels. Some states have seen drops of over 50%. Currently, the employment picture is getting worse with workers being unemployed for long periods of time. This is a structural problem with our economy that cannot be fixed overnight. Because of these problems, the housing bottom hasn't been reached yet.
Many homeowners are asking themselves whether or not they should keep making their mortgage payments. Since about 11 million homeowners nationwide owe more than their property is worth, strategic defaults will be a big factor in residential real estate over the next several years. Some argue that paying your mortgage is simply a moral obligation while others believe that it’s only a business contract.
There are those who claim that you should do everything in your power to keep paying your mortgage even if you owe the bank far more than what your property is worth. Of course, this is a poor business decision. The banks also have a moral responsibility to make loans that match the collateral in which the shareholders can get their money back in case of default. Whether or not one decides to walk away depends on the situation.
A major problem with this situation is that most mortgage lenders will not discuss these problems until after a homeowner stopped paying his/her mortgage. This only postpones the problem. The bank ends up taking a bigger loss in the end because it is forced to foreclose, and then has to deal with the expenses of selling the property. In this market, the bank is forced to hold the property for a considerable amount of time. Many banks are holding properties and are nervous about flooding the market with even more inventory which would continue driving prices down.
MSNBC has reported that housing prices nationally have fallen to 2002 levels. Some states have seen drops of over 50%. Currently, the employment picture is getting worse with workers being unemployed for long periods of time. This is a structural problem with our economy that cannot be fixed overnight. Because of these problems, the housing bottom hasn't been reached yet.