Once again, Holden Lewis says in a few words what it would take me many (is that why people go to journalism school?). (He’s actually quoting the writer of the Calculated Risk blog …)
“One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.”
I think this is s-o-o-o very true. Peer pressure keeps many people from doing certain things.
Faith is the backbone of the US economy, right? It’s why you’re allowed to write a check at the grocery store, use your credit card at the diner, as well as why people feel comfortable to use US dollars, for that matter.
If more and more people just said, “Well, I’m done, see ya latazzzz!”, we’d be in for some tough times.
Who is at risk of doing this?
I think low-income, first-time homebuyers who have no illusions that they’ll ever be able to pay off their 30-year mortgage loans, adjustable rate or otherwise.
And, investors / speculators, who are holding onto 2-20 properties they cannot now unload. They can walk away with just a bankruptcy to their name, and start over. (No doubt, they’ll continue to get credit card offers in the mail, regardless.)
This is one of the strengths of our system, in many cases.
But, of course, one of its weaknesses.