Monday, April 14, 2008
Don't walk away Renee...
You can't go home again. So said Thomas Wolfe in his famous book. Well, apparently you can't just walk away from home either. of at least not from your home mortgage.
According to a news feed that I got today, the government and the lending industry are taking aim at “walk-away” home owners who stop making payments and months later send the house keys back to their lender.
Such borrowers will not be able to get another mortgage through Fannie Mae for five years, unless there are “documented extenuating circumstances.” In that case, the prohibition is three years. Even after the prescribed time has elapsed, a borrower with a foreclosure in his file will have to make at least a 10 percent down payment and have a FICO credit score of at least 680 to qualify for a Fannie Mae loan.
Freddie Mac, which counts foreclosures as major credit black mark for seven years, is now aggressively pursuing walk-away borrowers where permitted under state law, a senior official said.
Federal legislation enacted last year allows home owners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven.
Walk-away borrowers, by contrast, have nothing forgiven, and the Internal Revenue Service may demand taxes on the balance they never paid, the IRS says.
So the "I'll just walk away" option is getting nasty for the beleaguered homeowner. I guess it's better to let them drag you, kicking and screaming, from the house on eviction day. At least you can claim that you did not walk away.
Locally I'm seeing more and more of the walk-aways and those people aren't just moving to somewhere else in Michigan, they're leaving to go somewhere where there is work to be had.
I don't think our "leaders" in Michigan have yet figured out that they have a serious population drain going on and that the state is undergoing a fundamental change. I did see an interesting article in the weekend Detroit Free Press comparing the Detroit area to the Pittsburgh area and what they went through in Pittsburgh when their major industry died.
I think our state leaders are still in denial that our major manufacturing industry is dying or rapidly changing away from Michigan. We will be lucky to come out on the other side of this mess with two Automotive companies left in Michigan and more likely with only one. And even if the local companies survive, they will have to become more global and much less Michigan-based and oriented.
I did a post some time back with a graphic of a man beating a dead horse. If I could find a graphic of a bunch of politicians sucking on the teats of a dead cow I think that would be a better representation of our current situation. One just wants to scream - "let go of the automotive cow teats and develop other job sources." A variation on the old saw "that dog don't hunt" might be "that cow don't suckle anymore."
But, back to the main theme. If you were thinking, "I'll just turn in my keys and be done with it" as a solution to your foreclosure problems, forget about it. The lenders and the government want a pound of flesh and you know whose rear that is coming out of.