When I learned on Monday that New York investment firm Tishman Speyer had decided to walk away from its $5.4 billion loan on 56 apartment buildings that make up Stuyvesant Town in Manhattan, I decided to write a blog post on how that move – and all of the assumptions and decisions that led up to it – reflects the decisions that millions of regular ol’ homeowners are making.
I was beat to the punch by AOL.com’s Housing Watch, but it’s okay because author Alyssa Katz quoted me in her article. “And Phoenix agent Bob Stahl joins the chorus, assuring borrowers that a strategic default followed by a short sale won’t hurt their ability to get a mortgage in the future.”
I have to say that Katz didn’t get it completely right – I never assured borrowers that a strategic default wouldn’t hurt their ability to get a mortgage in the future. In the blog post she references (Phoenix Real Estate Blog: “Strategic Defaults” – A Mortgage Lender’s Perspective) I referenced a conversation with my friend Matt Maret, a mortgage banker with Bell Mortgage.
Here’s what I wrote: “He said that the FHA will lend to a person who has a short sale on record (even if it was yesterday) – as long as there are no late payments on the person’s credit (and that person is otherwise qualified, of course). . . Even if the home is foreclosed, Matt said, a person could qualify for an FHA loan 2 years after the foreclosure.”
The “no late payments” caveat is a big one that Katz should have mentioned. And, just a few weeks ago the FHA changed their rules about guaranteeing loans for borrowers with short sales on their record. Fortunately, I wrote a blog post explaining that one, too: Phoenix Short Sales and Phoenix FHA Loans – What You Need to Know. Basically, the FHA no longer makes loans to borrowers who have recently short sold a home, with a few exceptions.
That has changed somewhat the calculation of whether it makes financial sense for a homeowner to default on his home – short sell it or let the lender foreclose – even if he can afford to make his payment. Basically, it means that most homeowners will have to rent for two or three years before they can buy a home again. But even then, a strategic default might make sense in some cases.
I’ve realized, as strategic defaults have blown onto many a front page recently, that I’ve been blogging about strategic mortgage defaults in the Phoenix real estate market long before “it was cool.” Check out the Phoenix Real Estate Blog Strategic Default Timeline:
April 24, 2008: Forget saving money, is walking away the right thing to do?
December 2, 2008: Phoenix Real Estate Blog: Am I An Idiot?
July 10, 2009: Edith Macefield Wouldn’t Walk Away
July 24, 2009: 26% of Mortgage Defaults Are “Strategic”
July 27, 2009: The ABCs of “Strategic” Mortgage Defaults
August 5, 2009: “Strategic Defaults” – A Mortgage Lender’s Perspective
September 24, 2009: Should You Continue to Pay for a Home When You Owe More than it’s Worth?
January 11, 2010: Phoenix Short Sales and Phoenix FHA Loans – What You Need to Know
January 28, 2010: REALTOR.com® Featured Blog on the Value of Homeownership
What do you think about strategic defaults? Click on the “Comments” link below and join the discussion!
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I have read with interest the recent articles about Strategic Defaults. I can understand why a mortgage holder might not like the idea, but the “underwater” problems created by the housing bubble should be shared by the mortgagor and mortgagee. Lowering the interest rate for a couple years won’t do the job, it just puts off the inevitable.
The best solution I have seen comes from John Hussman, an economist who runs the Hussman mutual funds – http://www.hussmanfunds.com. He says the government should “encourage” banks to reduce underwater mortgage principals (and payments) in exchange for “appreciate rights” to some of the future appreciation of the properties. The homeowners get to keep their homes at a lower cost and the appreciation rights become new assets on the banks’ balance sheets. Win-win.
Right now the underwater homeowner’s only hope if he keeps paying the mortgage is that someday the house will appreciate. There is no reason the bank shouldn’t take on a share of that hope.
nice post. thanks.