Anton Chigur writes:
El Bee: Would appreciate your thoughts/comments relative to the scenario outlined in the below article.
http://www.latimes.com/classified/realestate/news/la-fi-harney20-2009sep20,0,2560658.story
Thanks Anton for sending this in. This article has been making the rounds and basically says owners with high FICO scores are walking away from properties in droves. No surprise. Those with good credit scores tend to be better with money and can spot a worthless investment when they see one. So they bounce when they see the writing on the wall.
As far as my opinion on the matter, lots of people have encapsulated my own thoughts pretty well. One such person is a reader of this very blog:
Wizard writes:
Anton Chigur.
Purely a business decision.
Nothing ethical or moral.
It's in the contract,house is collateral for loan. They made loan with said collateral.
Also to be considered: With so many walkers..
credit scores will adjust to suit.
That pretty much says it all. And Wizard's credit score point is especially important because ultimately, as long as there is no real penalty (I'm sure having busted credit is no Swedish massage, but in the context of being among MILLIONS of newly FICO-challenged ne'er-do-wells, it won't mean much. I mean, the banks have to lend to somebody, and if they excluded everyone with a foreclosure, short sale or bankruptcy, there'd hardly be anyone left to lend to!) or social stigma attached then there will be absolutely nothing to stop this rapidly growing trend.
And especially now that the mainstream media has caught onto what Dr. Housing Bubble and Calculated Risk have been talking about for ages, you better believe Joe Six-Pack will finally see the advantages of such a move and be all aboard the Hightail Express.
Is anybody out there ACTUALLY still using the "immorality" argument? Even if someone could make a compelling argument about the "unethical" nature of moonwalking away from a severely underwater, potentially life-ruining albatross, it's tantamount to moaning, "Hurricanes are doo-doo heads."
Well, yeah, maybe so, but that's not going to stop a Category 5 from wiping out trailer parks in Florida.
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I speculate that those crying moral dilemma are the same people that need valuations to stay high so they won't face it. Even if not the case, everyone can agree that valuations need to fall and this 'walking away' by high fico peeps will contribute to that process... as always, good stuff lbc blog!
ReplyDeleteAgree MRK...
ReplyDeleteNow, I wonder if lender's models will change to reflect high fico borrowers willingness to ruthlessly default when things look bleak. In other words, would they be considered a higher risk? Being a little snarky, but one never knows.
The lab rats have learned well from the powers that be.
SR,
ReplyDeleteInteresting. You might be half-joking, but let's walk this through.
Could it get to a point where a FICO score is meaningless? I mean, now that walking away has hit the mainstream, doesn't EVERYBODY--regardless of FICO score--have the propensity to moonwalk?
If we become Ruthless Default Nation, and those who used to be the most trustworthy and financially astute are the most likely to bail and protect their financial futures, lenders won't know who to lend to. Total chaos.
A FICO score is basically a measure of your likeliness to repay your obligations--and repayment is all lenders care about. But what if FICO can't tell you shit (and it didn't tell lenders shit, as they are finding out with every single high-FICO moonwalk)? Then what?
Without bullshit FICO scores, there's only one way to measure one's propensity to keep paying: Skin in the game.
What a concept.
Will 20% down become the norm again? With FICOs becoming progressively more meaningless, I don't see how else banks can continue to write loans.
I guess we can finally see the full circle connection to the credit default swap ratings to fico score now...
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