What are Delinquent Borrowers Thinking?

Question

Once a borrower becomes delinquent on his or her mortgage, that person develops a negative attitude not only about paying the mortgage and his or her general finances, but also about the whole idea of homeownership — significantly more negative than homeowners who are underwater on their mortgages, but are still current in their payments.

That’s according to a Fannie Mae study released this week.

http://www.marketwatch.com/story/what-delinquent-borrowers-are-thinking-2012-06-15

What do you think? True or not?

That’s according to a Fannie Mae study released this week.

http://www.marketwatch.com/story/what-delinquent-borrowers-are-thinking-2012-06-15

What do you think?  True or not?

Don Konipol · Answer

It all relates to the continual decline of personal responsibility and the rise of "victimitess".  Unfortunately, enough examples of lender irresponsibility and outright immoral behavior do exist to, in the borrower's mind, justify their irresponsibility.  Government policies aimed at rewarding failure and penalizing success also significantly contribute to the state of mind.

Account Closed · Answer

Greg:  thanks for posting this article.  I was more interested in the survey than the conclusions.  3500 homeowner/borrowers were surveyed but only 403 people were delinquent.  So all the conclusions about how delinquent borrowers "feel" were drawn from 400 people? How diverse was that group? Did those 400 borrowers include the entire range of home prices and geography?  Sigh.

Earlier this year I was working with a seller and she was going on about her resentments that her $100K property is not worth the $300K she owes. She paid $100K for it in 2003.  In one of my less than stellar moments as a compassionate listener I said:  that's because you were already paid.  In less than 5 years you took out $200K in heloc and cash-out refinance money.  You spent the money on something and it doesn't appear to be the house.  I'd say you already sold the house for $300K but didn't have to sign a deed.

Like I said, it was a less than stellar customer service moment.

I work with a lot of sellers with serious financial difficulties.  Lots of income problems, lots of health problems and the costs that come with that.  It's much easier to be sympathetic to foreclosure when people are losing a home that was treated as a family and financial priority.

Dion DePaoli · Answer

I can see this being a clear trend.  We have demonized the banks and lenders and rarely ever hear about the borrower's responsibility to make good on their obligations.  The bubble was not the American people's fault it was that of the banks.  They offered me a mortgage which I didn't understand on a home I couldn't afford.  Those thoughts tend to go hand in hand with the sense of entitlement from borrowers.  I have seen and talked to commercial borrowers with the same entitlement that residential borrowers have.

I think this is a direct result of our system evolving into "origination with intent to distribute".  The loan risk has been separated from the core relationship of lender to borrower.  The borrower does not have affinity to the actual investor defaulting to think all loans are owned by big banks and all big banks are bad.  Blind to the fact that some fixed income products which pay their pensions and 401k's stem from the same loan they just defaulted on.  The system's complexity has been its own self inflicting wound.  Everyone use to know George Baily now know one does.  George Baily knew borrowers were people not account numbers.

Ibrahim Hughes · Answer

It is a part of the (using a portion of Kiyosaki's 'Cashflow Quadrant' model) 'tenant/employee/consumer' mentality that the American people are conditioned to feed into and live by.

Entitlement? Yes. Victimization? Certainly. But with that also comes this feeling that because homeownership isn't working out for me I want NOTHING to do with real estate, entrepreneurship, investing (a lot of these people also failed at RE investing and the stock market). Like Bill mentioned, the fighting entrepreneurship spirit that it takes to get back up and WIN in order to be successful is not evident in most people.

Jake Kucheck · Answer

It's much easier to be sympathetic to foreclosure when people are losing a home that was treated as a family and financial priority.

Bill Gulley · Answer

Just because tells someone there home is worth less, they might not care, the payment is current, they live there and it's their home, probably not happy about it, but so what? It's home and they may not want to move even if they could live a little cheaper. These people being compared to those who get behind and default are apples and oranges.

The oragnges are probably fed up with the system, they tried and the bankers caused the problem, if they lost their job in a window factory due to the housing bubble, then they got behind I can understand them being bitter. They give up! I met a guy recently like this and his argument was that the system was rigged, can't disagree really, as in many ways, it is. If you have a sence of being at the mercy of others regardless of what one does, that if you own a home, but it can always be taken away, what's the point?

I don't think it's a lack of responsibility so much as the lack of grit, the fight in the dog so to speak, determination seems to be lacking.

Michael D. · Answer

As usual, the actual study isn't linked to so that we can draw our own conclusions - and they probably got the causation wrong or backwards.

Isn't it more likely that owners who feel bad about all that stuff are the ones who end up delinquent - not the other way around?

Dale Osborn · Answer

There was some discussion about the banks being rigged. There also is the fact that history repeats itself. Along these lines, we had the Savings and Loans get into trouble. These knuckleheads were hired to tackle the added volume added to banks after the S&Ls closed up. Now we have a problem with banks closing up often involving many of those involved with making bad loans with the S&Ls earlier. In a few more years will these be hired by credit unions and will we have a credit union problem? We can only wait and see!

Mike H. · Answer

I'm really curious why some people stay in houses at all if they're that far underwater. If I wasn't an investor who needed good credit and my home was worth 100k less than I owed (say it was 300k and now worth 200k), I would walk away in a heartbeat.

You'd pay less in rent than you were paying in a mortgage. And in 3 or 4 years, you'd be able to buy again - likely veru similar to your own house for about 150k.

From a pure financial standpoint, there should be a lot more strategic defaults than we've read about so far.  It should be an absolute wave because its such an obvious decision if you look at the numbers.

What are Delinquent Borrowers Thinking?

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