When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried....he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford.
...Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure.
Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”
You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.
Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, ... Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.
...The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away...“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”
In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.
...But new types of loans like interest-only mortgages and cash-out refinance loans mean buyers do not pay down their mortgages. And adjustable rate mortgages, which accounted for 39 percent of mortgages written in 2006, expose owners to rent-like rises in their housing costs.
The value of homeownership, then, has increasingly shifted to the home’s likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.
...Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.
“Will everyone walk out?” he said. “No. But there’s been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market.”
When homeowners see houses identical to their own selling for much less than they owe, Mr. Menegatti said, “I wouldn’t be surprised to see five or six million homeowners walk away.”
The company You Walk Away sounds pretty good. I am sure there will be numerous others sprouting up all over the country. Here are some things they promise on their website -
- Your lender WILL NOT be able to call you in attempt to collect!
- Your lender WILL NOT be able to collect any deficiency or loss they may receive by you walking away!
- You WILL be able to stay in your home for up to 8 months or more without having to pay anything to your lender!
- You CAN have the foreclosure REMOVED from your credit!