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Old 08-16-2010, 10:56 AM
Franc Tireur Franc Tireur is offline
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Strategic defaults: Why older Americans walk away from mortgages

When Ken Carpenter bought his two-bedroom Florida condominium in 2004, the investment looked like a no-brainer.

The 68-year-old retired General Motors quality engineer, who lives in Michigan, paid a little under $200,000 for the West Palm Beach apartment in a complex with a swimming pool, tennis courts and fitness facilities. His adult daughter, who lived there and had been renting, would move into the unit and pay rent. The apartment would also serve as a vacation property for Carpenter and his wife.

“I knew property values were rising, and I thought if worse came to worse and my daughter had to move out I could sell it and at worst wouldn’t lose anything,” Carpenter says.

Carpenter’s daughter moved to the West Coast in 2007. And while he’s been able to continue renting the apartment, Carpenter is losing $500 a month after paying the mortgage, insurance and condo association maintenance fees. A much bigger pain point is Florida’s collapsed housing market. The condo carries a $153,000 mortgage, but was assessed recently at just $80,000 — putting Carpenter deep underwater on the loan.

Now Carpenter is hoping to sell the condo — at a steep loss — to a third-party company that negotiates with banks to purchase underwater mortgages. But if that fails, he may decide to walk away from the condo, making a so-called “strategic default” on the loan.

Strategic defaults are quite different from defaults and foreclosures that occur when homeowners don’t have sufficient resources to make payments. The decision by homeowners with resources to walk away stems from the steep drop in housing values in some parts of the country — and their judgment that continuing to pay doesn’t make sense.
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Old 08-16-2010, 11:55 AM
GenEquis GenEquis is offline
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It doesn't just happen to older Americans. I purchased my townhouse in 2005 for $175k with basically $0 down. My biggest mistakes were paying a bit too much for it and putting too much trust in my mortgage broker. I didn't know until I got the rate adjustment letter two years later my loan had a 3 year prepayment penality. And my payment was going up 40% - almost $500/month. Way more than I could handle and I couldn't afford to re-fi. Not one of the better experiences I've ever had...
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Old 08-16-2010, 12:51 PM
Franc Tireur Franc Tireur is offline
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Well, I guess the article focused on the older people walking away.

It cannot be sustainable from the banks and the administration to do little or nothing because one way or another the market and the system will pay for that.

It must me something serious and acceptable to be done otherwise things will go even deeper.
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Old 08-16-2010, 02:37 PM
fastreplies fastreplies is offline
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simply walking away.


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