Word: walking
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...Awarded a star on the Hollywood Walk of Fame...
...paper suggest the percentage of intentional defaults may be much lower than 26%. The researchers also asked if respondents themselves would welsh on their mortgages if they were $50,000 underwater. Among the people for whom $50,000 represented less than 10% of their home's value, none would walk away. However, once $50,000 represented between 10% and 20% of the house's value, 5% said they would walk away, and when the shortfall reached 50% of home's value, a full 17% said they would. (See "Renting a Modernist House...
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...