Sunday, January 27, 2008

New Trend: Intentional Foreclosure

(Calculated Risk) From CBS: New Trend In Sacramento: 'Intentional Foreclosure' (hat tip Shawn)

Linda Caoli helps lots of families on the verge of losing their homes, including a single mom working two jobs to pay her mortgage.

"She says Linda the house across the street, same model, with more upgrades sold in foreclosure for $315,000!" explains Linda.

Her client isn't the only one thinking about ditching her house to buy the better deal across the street. A number of realtors CBS13 talked to say it's already happening.
This is similar to Peter Viles' story in the LA Times: A tipping point? "Foreclose me ... I'll save money".

Wachovia is seeing this too (from their Jan 22nd conference call):
“... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity ...”
And from BofA CEO Kenneth Lewis in December:
"There's been a change in social attitudes toward default. We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes."
This change in social attitudes could lead to a flood of foreclosures. The following is from my post last December: Homeowners With Negative Equity

The following graph shows the number of homeowners with no or negative equity, using the most recent First American data, with several different price declines.

Homeowners with no or negative equity At the end of 2006, there were approximately 3.5 million U.S. homeowners with no or negative equity. (approximately 7% of the 51 million household with mortgages).

By the end of 2007, the number will have risen to about 5.6 million.

If prices decline an additional 10% in 2008, the number of homeowners with no equity will rise to 10.7 million.

The last two categories are based on a 20%, and 30%, peak to trough declines. The 20% decline was suggested by MarketWatch chief economist Irwin Kellner (See How low must housing prices go?) and 30% was suggested by Paul Krugman (see What it takes).

Intentional foreclosure. Jingle Mail. Negative Equity. All terms that could be common in 2008.

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