On the front page statistics told of the 532, 774 homes in Michigan that have mortgages that are greater than their current values, which was estimated at 38.5% of all mortgages in Michigan right now. The article detailed the growth of so-called “strategic defaults” from 5,100 in 2005 to 17,250 in 2008 (the numbers for 2009 are apparently not in yet).
There was also advice from a Southfield real estate attorney that, “When things are that bad (referring to the huge loss of value and the economic hardships that many in Michigan face), your moral compass and the obligation to make payments that most people feel, has got to give. He opined that, “the stigma of defaulting on a mortgage, even if one can still pay, is disappearing.”
Yet inside the paper the article took a nasty turn and focused upon the ability and the growing tendency for the banks to go after the defaulters for deficiency judgments and collection of the shortfall, if they have to sell the house as a foreclosure. Articles by Greta Guest, a Free Press Business writer and well known columnist Susan Tompor both gave examples of how the lenders could pursue ex-homeowners for years.
Guest wrote about Michigan laws that would allow the lender to turn the deficiency judgment over to collection agencies and have up to 36 years (if it was a 30-year mortgage) to harass the ex-creditor for fulfillment of the original contracted amount, including any back taxes owed on the place at the time that bank took it over. She wrote that mortgage recovery actions were up 26% in 2008 and some 187 since 2006. She sites data from First American Core Logic which shows Nevada to be the worst state for underwater mortgages at 70%, with Arizona second at 51% and Florida third at 48%. Michigan was fourth on that list, followed by California with 35% underwater mortgages.
Topor focused more on how long it might take to recover the value that has been lost in this recession and opined, as I have several times, that it will be decades before we get back to 2006 levels, if ever. Her example was a $200,000 home that the buyer bought in 2006 with a 5% down payment and a mortgage for the rest. In our area that home has dropped in value by 30%, so it is now worth about $140,000. The original mortgage for $190,000 is probably still in the high $180,000’s. Topor uses an appreciation rate of 3% per year once a recovery starts and positive appreciation returns and figures that it will be 2022 before this owner gets back to his original purchase price.
There was comment made in the Guest article on the very slow progress of any of the Federal programs to help in this situation, especially the mortgage modification programs. The banks complained that the whole process is too complicated and that borrowers are reluctant to go through the whole financial disclosure process that get eh modifications. They also sited the state’s high unemployment as a primary factor that they can’t do anything about. One foreclosed ex-homeowner was quoted, “Everything that I’ve worked for for the last 20 years is gone. Now I’m a dirtball. I can’t even go and get a used car.”
In a related story, the Free Press reported on a local Catholic nun who has lived in the same four-plex apartment for 22 years, who is now facing eviction because the landlord is in foreclosure. The foreclosure happened before the current moratorium on evictions went into effect in Michigan. That is going ot be more and more of an issue as more owners of apartment buildings and commercial building get into trouble.
I tried hard to find any positive news in all of these articles, but couldn’t. In the main article by Guest a local Realtor was quoted as saying, “When you’re living in a $200,000 house and can go buy the same house for $70,000 cash, why not just walk away?” He went on to state, “If there has ever been a time that you can let your credit go and it’s acceptable, it is now.” That’s a sad, but probably true, commentary on our times.
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