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By Richard Zahm
Solving Mortgage Woes Begins with Acceptance
To move forward, the industry must understand current realities
Take a close look at today’s mort- gage industry and I think you’ll agree that a great reset is under
way. The reasons for this are varied,
but one thing is clear: Borrowers who
refuse to pay are reshaping the landscape of homeownership.
Those who walk away from their
mortgages are no longer automatically
considered deadbeats. In fact, many
in society sympathize with strategic
defaulters — those who can afford to
pay their mortgage but are so underwater that they refuse — as well as with
borrowers who have run out of money,
often the result of unemployment or unsustainable loan terms.
Although efforts to punish strategic
defaulters have been introduced, they
often can worsen the problem. Putting
these borrowers on a multiyear mort-
gage timeout, as some of the efforts
aim to do, doesn’t help the market but
rather penalizes home-sellers, real es-
tate agents, lenders, state and local
governments, and mortgage brokers.
“For lenders and
the overall economy,
borrowers who stay put
but refuse to pay could be
a blessing in disguise.”
What those invoking guilt and fear
often fail to understand is this: For borrowers who are deeply underwater or
broke, none of this matters.
continued on page 40 »
As the number of defaulting homeowners has grown, the group’s characteristics have become less distinct. Think
of three ways to describe a person and
chances are that somebody just like
that walked away from their mortgage
Often, however, defaulters have one
common trait: Their mortgage-payoff
amount is at least 150 percent of their
house’s value. Borrowers in recourse
states typically delay their surrender
longer than those in nonrecourse states.
Those with high credit scores also typically wait longer before defaulting.
The more important determinant,
however, could be belief. Borrowers
who believe their homes will recoup
Richard Zahm is a private lender and
distressed real estate investor based in
Connecticut and California. Reach him at
RichZahm@gmail.com or (203) 962-5770.
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