Because of the sharp declines in home prices across the country, many underwater borrowers are thinking of letting their homes go into foreclosure and just buy another one.
With many nearby houses being sold below $50,000 and with home values declining steeply by as much as 40 percent, more and more borrowers are being tempted to just walk away from their homes.
Las Vegas homeowner Robert Bitterman said he has done a lot of improvements on the home he purchased five years ago. But today, his house is only worth $75,000, a drop of $100,000 from the amount he paid in 2004.
Bitterman said he has considered buying a cheaper home and then walking away from his current mortgage loan. He added that there are a lot of much cheaper homes near his house.
He also recognized that a foreclosure will hurt his credit score, but he reasoned out that his credit score will not matter if he will not buy anything major within six to eight years.
The thought of buying a much cheaper home and then walking away from a house that has lost its value has been in the minds of many homeowners struggling to make their monthly loan payments.
Executives in the mortgage sector however are warning underwater homeowners about their plans of buying and then bailing out.
According to Jeremy Moskowitz of Lakeside Mortgage, borrowers should think about the consequences of such actions because it might cause great regret later on.
Moskowitz said the lender could pursue legal actions to collect what it loses from foreclosure. The possibility of being hit with a lawsuit would stay in one’s mind, causing stress and anxiety. Borrowers pursued with lawsuits can be forced to go into bankruptcy.
Analysts also said that if more homeowners decide to buy and bail out, more foreclosures will enter the housing market, pushing down the market further down and reversing the little recovery that the market has so far achieved.
Nonetheless, Bitterman said he is not yet decided on ditching his house, but if home values fall further and make his home worthless, he has no other option than to ditch. He even reasoned out that he did not do anything wrong except buy a house during the housing boom.
Lastly, Moskowitz also said that banks know there are a lot of homeowners thinking of buying and bailing out, so they are screening tightly applications for second or third mortgages.
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