Allow me, if you will, to quote one of America’s great philosophers, Mr. Kenny Rogers: “You gotta know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.”

What in the world does Kenny Rogers have to do with mortgages and homeownership? Well, nothing. However, Kenny’s advice is so timeless because of its ability to relate to nearly any tough decision that has its pros and cons. So those words of wisdom aren’t strictly meant for the riverboat gambler, they can also pertain to (here comes the mortgage connection) the millions of underwater homeowners in U.S.: you have to know when to hold onto to what you got, and you have to know when it’s the right time to walk away.

In my feature article on HSH.com, “The Pros and Cons of Walking Away from your Mortgage,” I tried to take a similar approach, offering homeowners several reasons why they should hold onto their homes and several reasons why it may be time to walk away: Read the rest of this entry »

Angry mobs with their pitch forks and torches were already beginning to gather yesterday when the White House refuted rumors that they were planning on expanding their refinance efforts, most notably with a measure that included paying down the balances of underwater borrowers who presently can’t refinance.

Speculation about a possible expansion of the federal refi program began to grow after an article titled “An August Surprise from Obama?” was published in the political section of Reuters.com.

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Back in early April we polled our readers and asked, “How do you feel about your home — do you view it as a burden or an investment, is it neither, or do you rent?”

How Do You Feel About Your Home?
-vote on our poll (below)-

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We’ve been receiving a lot of comments from readers who say that their lenders aren’t honoring the home affordable refinance program’s (HARP’s) expanded loan to value (LTV) ratio of 125%. (Another way to express “125% LTV” would be “borrowers who are 25% underwater.”) Based on some numbers that we found, there seems to be some real validity to their complaints.

While rooting around the web for some HARP numbers, we discovered a report from the Federal Housing Finance Agency (FHFA) that clearly shows what readers have been so frustrated about. It appears as though the borrowers who are the most underwater — the audience HARP was designed to help — have gotten the fewest amount of refinances.

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Just yesterday we asked readers if principal reductions were a strategy that could improve the Federal loan mod effort. Given that the Treasury just announced new wrinkles to the HAMP today — including a provision that pays incentives to lenders who reduce a borrower’s principal — their answer seems to be “yes.” The Treasury’s new plans for HAMP focus its support mainly on both underwater and unemployed borrowers.

As the housing crisis and the solutions to solve it have evolved over the last few years, it has become evident that both underwater and unemployed borrowers continued to be under-served. The administration is hoping that the strategies announced today will finally address the challenges facing these borrowers.

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University of Arizona law professor Brent T. White made some major waves after he wrote a paper titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” White became one of the first academics to advocate strategic defaults — also known as walking away from your mortgage (on purpose).

One of White’s many points was that perhaps if more borrowers walked away it would prompt more lenders to move struggling borrowers into permanent loan modifications.

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Friday:

“Walking Away from Your Mortgage: Emotion or Logic?“: Emotions such as guilt keep some home owners from walking away from their mortgage. However, logic is what drives some home owners to walk.

Thursday:

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Yesterday’s post, titled “Is Renting the New American Dream?,” showcased the story of several borrowers who walked away from their mortgages and found greater financial freedom in doing so. While we advocated that walking away is morally wrong, it seems to be a growing consensus that the strategy may not be all that bad.

University of Arizona law professor Brent T. White wrote a  paper titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.” It explains that emotions (feelings of guilt or immorality) tend to cloud a homeowner’s decision to walk away from their mortgage debt.

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Lew Sichelman wrote an excellent piece for the trade publication National Mortgage News citing a fresh study which explored the likelihood that an underwater borrower would walk away from their home, even if they could afford to make payments.

The article noted that “fewer than one in 1,000″ borrowers would mail in the keys with just a 10% deficit, only 5% would walk away with a gap of 10% to 20% and only 17% would go voluntarily without selling if they were 50% underwater. Lew’s take is that ’strategic defaults’ are “well-reported, if not well documented.” We agree; the number of homeowners defaulting by choice is probably quite small relative to the problem as a whole.

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It was one year ago today that the Federal Reserve announced their plan to “reduce the cost and increase the availability of credit for the purchase of houses” On November 25, 2008 the Fed decided to support Main Street and the mortgage market by committing their first round of purchases to Fannie and Freddie mortgage-backed securities (MBS).

While it was only a year ago, it has been interesting to look back at the Fed’s announcement as well as our blog posts and see if the Fed’s original goals were met and if the program succeeded as intended.

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