Word: walke
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Dates: during 2000-2009
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When the shortfall amount in question was $100,000, the walk-away responses accelerated at a faster rate. Some 7% of people said they would intentionally default when a $100,000 shortfall represented less than 10% of their house's value. Once that shortfall represented between 50% and 60% of the home's value, an entire 25% of respondents said they would walk away. The hesitation to intentionally default when the theoretical amount of negative equity was $50,000, even when representing the same percentage of a home's value, may relate to the high fixed costs that come with...
...this sort of data does not indicate how much homeowners are underwater - or their attitudes about future home prices. If a homeowner believes house prices will recover during the time he intends to live in his house - which could easily be 10 or 15 years - then the incentive to walk away stops making sense from an economic perspective...
Christopher Foote, a senior economist at the Federal Reserve Bank of Boston, who studied negative equity in Massachusetts during the late 1980s and early 1990s when home prices dropped 23%, argues that most walk-aways are likely driven by the combination of two things: both negative equity and an economic hardship, such as job loss. (See 10 ways your job will change...
More recently, Foote and his colleagues have studied patterns of mortgage nonpayment, and found that in certain states there is a disproportionate number of people who suddenly stop making payments and never try to catch up. This, they surmise, might be an indication of walk-aways - as opposed to struggling borrowers desperately trying to stay in their homes, making payments when they can. The states with more sudden stops are California, Florida, Nevada and Arizona - places where property prices have plummeted and more than 30% of homeowners are underwater. "That's consistent with the idea that there should be more...
Data from the new paper also point to the likelihood of mass walk-aways being a highly localized event. Sapienza and her colleagues plotted data on late mortgage payments and home-price declines and found very little relationship between the two when house prices in a metropolitan area had dropped less than 20% from their peak. However, once prices had fallen more than 20%, a disproportionate number of people wound up behind on their mortgage payments, even when the unemployment rate (a measure of means to pay) was held constant...