Professional Home Staging and Photography Blog: Mortgage walk-aways poised to accelerate

Mortgage walk-aways poised to accelerate

A home supported by a dollar signIt appears relative calm has descended on the long-suffering housing market, especially when it comes to price movement. For months now home values have shown signs of stability, and even moderate increases in some areas. Real estate observers of course like to see that but are generally unconvinced that a sustainable real estate recovery is imminent. Too many hazards remain in its way, among them the still notable oversupply, a weak job market and the potential of many more mortgage walk-aways.

Yes, that walk-away - a term that has finessed its way into today's popular real estate vocabulary - where a homeowner who can afford to make his home loan payments chooses instead to take a hike due to being severely upside down. This is the standard definition of it.

Walk-aways represent 15-35% of present delinquencies, according to housing industry estimates. The range is wide because it is hard to really figure out who can afford to make the mortgage payments and who can't. But really, what does it matter; walk-away is a walk-away regardless of the mortgage borrower's finances.

As things stand, the mortgage walk-away trend is likely to shift into a higher gear for the foreseeable future. There are quite a few reasons why so. Any intermediate-term price appreciation will be modest at best, leaving people in the suffocating embrace of negative equity for much longer than they feel comfortable with. They understandably start thinking of their options. If prices backtrack some more - as some real estate experts confidently predict - the decision will be easy. HAMP and other private mortgage provider modification programs are helping to some degree in alleviating pressures on struggling homeowners, but many don't qualify. They see an alternative in walk-aways.

In addition, the shame that has been associated with mortgage foreclosures and walk-aways is gradually dissipating. More people are tackling their distress from a financial survival standpoint instead of what the prevailing moral obligation calls for. They are making decisions based on what's best for them and their families. This is also made easier as mortgage lenders now are increasingly being perceived as being responsible for the housing wreckage.

These developments inevitably point toward the mortgage walk-away problem getting worse from here on out. For how long is impossible to say. It is going to cause trouble, however, for any durable real estate market turnaround hopes.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 12 commentsEsko Kiuru • September 16 2010 10:33PM


I agree that mortgage walk-aways aren't going to end any time soon.  There's too many reasons for people to consider it right now.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 10 years ago

Walk aways are bad for the market. It is that feeling of the homeowner feeling they shouldn't have to pay because they are under water. I don't get what changed from their great home to it is a bad investment? They still have to live somewhere and they put love, sweat and energy into makeing that house into a home. Wait it out!

Posted by Nona Swann, Serving the needs of the Sellers in Brevard County (Swann & Associates Real Estate) about 10 years ago

Attorneys will advise people to do those walk aways and have them restart somewhere else in another home while they still have the opportunity.

Posted by Stanley Stepak, Realtor - Avon Lake, Avon, Bay Village, Westlake, (Howard Hanna - Avon Lake, OH) about 10 years ago

I've given a lot of valuations to sellers without equity. In this area at least I can't see the problem abating anytime soon,

Posted by Matt Grohe, Serving the metro since 2003 (RE/MAX Concepts) about 10 years ago

Esko, so now the term I guess is "Walk Aways" instead of "Strategic Defaults", both are bad in my opinion no matter what they are called.

I agree with Nona, do this does not make any sense to me, and I have heard a lot of arguments for it.  I can't see where it is better to go and pay rent instead of keeping the property until the market change.  After all these are not people that can't afford the payment, like in the case of other defaults.

Also come the beginning of next month, they will not just be walking away for now, the will be walking away for 7 years, because that will be how long before they can qualify again for a conventional mortgage.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 10 years ago

All the adjusting option arms in 2011 scare the snot out of me.  You are right, there are almost no workouts going on and this vicious cycle will continue until something happens or it all works itself out!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 10 years ago


You sum it up pretty well, too many reasons to consider it.

Posted by Esko Kiuru almost 10 years ago


It's hard not to give it a thought when you are underwater by a foot or more.

Posted by Esko Kiuru almost 10 years ago


Some people consult attorneys to find out the consequences if they pull it off. That's smart.

Posted by Esko Kiuru almost 10 years ago


It's going to stay around for years so long as prices don't improve.

Posted by Esko Kiuru almost 10 years ago


I know how you feel about it. Everyone has to evaluate his own specific situation and then reach a decision that makes sense for him. 

Posted by Esko Kiuru almost 10 years ago


The way things look right now, this thing is going to linger around for a while, I'm afraid.

Posted by Esko Kiuru almost 10 years ago