Walking away from a mortgage seemed like a crazy idea to Chris Schreur, a financial adviser, and his wife Valerie thought he had gone mad when he mentioned it. It wasn’t just the financial hit, but the shame of defaulting.
“I think it is the number one reason, by far, that more people aren’t doing this,” Chris Schreur said.
After buying a house during the boom of the mid-2000s, many homeowners are now finding themselves underwater; meaning they owe more than their homes are worth. More than 11.3 million, or 24 percent, of homeowners were underwater by the end of 2009, according to a report by First American CoreLogic.
Finding themselves more than $130,000 underwater on their mortgage, the Schreurs chose to stop making their payments, even though they could afford it. “It was completely crazy to keep throwing good money after bad,” Mr. Schreur said. Their credit score was in the 800s and they had never been late on any payments before then. They owed $430,000 on their California home.
“Objectively the hardest part was the hit to the credit rating,” he said. “Defaulting on a debt is the hardest thing to accept.”
Schreur did some research and found he could get more house for less money by renting.
“My degree is economics, so I understand that you don’t keep putting money into a losing proposition just because you already put money in,” he said.
But it was his child’s future that made the decision clear and helped ease the shame factor.
“I think of it as a choice between either defaulting and writing the debt off now, and potentially not being able to send our daughter to college in 12 years,” he said.
Not wanting to go it alone, Schreur contacted You Walk Away, a company designed to provide information and assistance to those looking to strategically default.
He said they helped him counter a lot of the myths and disinformation that surround mortgage defaults. Schreur said a lot of people are afraid of foreclosure; they equate foreclosure with bankruptcy, or think a bank can take their savings, affect their employment, or their 401ks.
After paying the $1,000 flat fee for You Walk Away’s services, Schreur had access to attorneys who helped stop the pressure the bank was exerting on the family. Once the mortgage payments stopped, the bank had begun to send letters and called Schreur at home and at work.
Schreur said he talked to the bank about a mortgage modification before they started defaulting, but the bank was not interested.
The threats and stigma of defaulting seems to be the coercion banks are using to stop them from defaulting, said Schreur. “So the [banks think] it’s better to go that route than it is to just renegotiate with the people who, all things being equal, would rather stay in their homes.
“I think a lot of people feel stuck,” he said. “You do have choices. Staying in your house is a choice, walking away is a choice.”
The Schreurs are renting a home a mile away from their foreclosed place for $1,000 less per month than their mortgage payments.
“I think it is the number one reason, by far, that more people aren’t doing this,” Chris Schreur said.
After buying a house during the boom of the mid-2000s, many homeowners are now finding themselves underwater; meaning they owe more than their homes are worth. More than 11.3 million, or 24 percent, of homeowners were underwater by the end of 2009, according to a report by First American CoreLogic.
Finding themselves more than $130,000 underwater on their mortgage, the Schreurs chose to stop making their payments, even though they could afford it. “It was completely crazy to keep throwing good money after bad,” Mr. Schreur said. Their credit score was in the 800s and they had never been late on any payments before then. They owed $430,000 on their California home.
“Objectively the hardest part was the hit to the credit rating,” he said. “Defaulting on a debt is the hardest thing to accept.”
Schreur did some research and found he could get more house for less money by renting.
“My degree is economics, so I understand that you don’t keep putting money into a losing proposition just because you already put money in,” he said.
But it was his child’s future that made the decision clear and helped ease the shame factor.
“I think of it as a choice between either defaulting and writing the debt off now, and potentially not being able to send our daughter to college in 12 years,” he said.
Not wanting to go it alone, Schreur contacted You Walk Away, a company designed to provide information and assistance to those looking to strategically default.
He said they helped him counter a lot of the myths and disinformation that surround mortgage defaults. Schreur said a lot of people are afraid of foreclosure; they equate foreclosure with bankruptcy, or think a bank can take their savings, affect their employment, or their 401ks.
After paying the $1,000 flat fee for You Walk Away’s services, Schreur had access to attorneys who helped stop the pressure the bank was exerting on the family. Once the mortgage payments stopped, the bank had begun to send letters and called Schreur at home and at work.
Schreur said he talked to the bank about a mortgage modification before they started defaulting, but the bank was not interested.
The threats and stigma of defaulting seems to be the coercion banks are using to stop them from defaulting, said Schreur. “So the [banks think] it’s better to go that route than it is to just renegotiate with the people who, all things being equal, would rather stay in their homes.
“I think a lot of people feel stuck,” he said. “You do have choices. Staying in your house is a choice, walking away is a choice.”
The Schreurs are renting a home a mile away from their foreclosed place for $1,000 less per month than their mortgage payments.
Jodi Romanello walked away from the Florida home she and her husband planned to retire in. In February 2006, they put a $25,000 down payment on their $218,790 Port St. Lucie home. Turning down a “gimmick” mortgage, they went with what they thought was a stable 20-year mortgage of $196,000.
They chose a home from Renar Homes, picked out a lot, and closed the deal once it was ready to move into. Their monthly mortgage payment was $1,485.
“In November 2007 we suddenly got a bill for $1,890,” Romanello said. “I called them [Wells Fargo] and was told the taxes went up.”
But, Romanello said that was a smokescreen. The lender had actually set the mortgage from the cost of the empty lot, without the house—without telling them. Romanello’s husband got sick (he passed away last year) and the extra payment was too much.
“At this point the market was down,” she said. “I called the company back and asked for a short sale. They said we had to be three months in arrears before they would consider a short sale.”
After approaching the bank and being turned down for a refinance or lower payments, the Romanellos chose to strategically default and their last payment was in November 2008. Wells Fargo spokesperson, Janis Smith, was unavailable for comment at print time.
As with the Schreurs, the shame and moral factor was the biggest stumbling block for the Romanellos.
“The banks are making it sound like a moral issue, like you’re defaulting on something you promised,” Romanello said. “And I’m very angry about it, because first they’re taking taxpayer’s money; and they don’t try to work with you at all.
Romanello is now renting an apartment in Manhattan, New York.
Despite homeowners increasingly walking away from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. A study by Brent T. White, associate professor of Law at Arizona University, examined why.
“Most homeowners choose not to strategically default as a result of two emotional forces,” the study concludes. The first is the desire to avoid the shame and guilt of foreclosure; and the second is exaggerated anxiety over foreclosure’s perceived consequences.
These emotional constraints are “actively cultivated” by the government and other social control agents to encourage homeowners to keep paying their mortgages; “and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision,” the study said.
The study, “Underwater and Not Walking Away: Shame, Fear, and the Social Management of the Housing Crisis” was released in February.
Jon Maddux, CEO of You Walk Away, said they get a lot of inquiries from people who think that they have to file for bankruptcy—which they don’t.
“It’s a blip on their credit,” he said, adding that most people can apply for a loan in three years after foreclosure.
“It’s important that people understand it’s not the end of the world; it’s not something that will financially destroy them,” Maddux said.
The company has helped about 4,000 people walk away from their mortgages and gets thousands of inquiries per month. Of their clients, 90 to 95 percent have tried to work things out with their lender first, Maddux said.
“The nature of the act of walking away has always been associated with being a deadbeat, a failure, etc,” he said. “But it is now seen as a business decision.”
They chose a home from Renar Homes, picked out a lot, and closed the deal once it was ready to move into. Their monthly mortgage payment was $1,485.
“In November 2007 we suddenly got a bill for $1,890,” Romanello said. “I called them [Wells Fargo] and was told the taxes went up.”
But, Romanello said that was a smokescreen. The lender had actually set the mortgage from the cost of the empty lot, without the house—without telling them. Romanello’s husband got sick (he passed away last year) and the extra payment was too much.
“At this point the market was down,” she said. “I called the company back and asked for a short sale. They said we had to be three months in arrears before they would consider a short sale.”
After approaching the bank and being turned down for a refinance or lower payments, the Romanellos chose to strategically default and their last payment was in November 2008. Wells Fargo spokesperson, Janis Smith, was unavailable for comment at print time.
As with the Schreurs, the shame and moral factor was the biggest stumbling block for the Romanellos.
“The banks are making it sound like a moral issue, like you’re defaulting on something you promised,” Romanello said. “And I’m very angry about it, because first they’re taking taxpayer’s money; and they don’t try to work with you at all.
Romanello is now renting an apartment in Manhattan, New York.
Despite homeowners increasingly walking away from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. A study by Brent T. White, associate professor of Law at Arizona University, examined why.
“Most homeowners choose not to strategically default as a result of two emotional forces,” the study concludes. The first is the desire to avoid the shame and guilt of foreclosure; and the second is exaggerated anxiety over foreclosure’s perceived consequences.
These emotional constraints are “actively cultivated” by the government and other social control agents to encourage homeowners to keep paying their mortgages; “and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision,” the study said.
The study, “Underwater and Not Walking Away: Shame, Fear, and the Social Management of the Housing Crisis” was released in February.
Jon Maddux, CEO of You Walk Away, said they get a lot of inquiries from people who think that they have to file for bankruptcy—which they don’t.
“It’s a blip on their credit,” he said, adding that most people can apply for a loan in three years after foreclosure.
“It’s important that people understand it’s not the end of the world; it’s not something that will financially destroy them,” Maddux said.
The company has helped about 4,000 people walk away from their mortgages and gets thousands of inquiries per month. Of their clients, 90 to 95 percent have tried to work things out with their lender first, Maddux said.
“The nature of the act of walking away has always been associated with being a deadbeat, a failure, etc,” he said. “But it is now seen as a business decision.”
