Can't Pay Your Mortgage? Trash Your House and Leave

On the lookout for disturbing trends? Here's one for your pile: According to a recent article in Fortune, there has been a noticeable increase in not just fraud but arson that has kept pace with the housing depression. Professionals in the insurance and lending industry are bracing themselves for all manner of similar situations, as homeowners either trash or simply leave their trash lying around their houses, often taking off without even claiming their furniture. This is already a dirty problem in the housing business, with owners, lenders and banks having to figure out a way to stick each other with the check when tenants destroy their property on their way out the door. Woe is the person left behind to clean up the chaos.

"We just estimated a trashout yesterday where we're going to have to drain the pool," one Fontana, Calif., resident posted on AgentsOnline.Net, a resource and idea site for realtors, "and the stench from it when you enter the backyard is overwhelming. Then, of course, there are mosquitoes all over the top, and it's been sitting so long without chemicals that it's green on top and murky black on the bottom. We've already had to refuse one pool because of its really creepy condition and I'm not so sure about this one either. [I] just hope we don't find the previous homeowner at the bottom when we drain it."

"Vacant homes attract vandals and depress property values," explained Douglas Robinson, spokesman for NeighborWorks America, a nonprofit created by Congress to offer financial and technical support and training for community-based revitalization. "This negatively affects existing owners and reduces local property tax revenues. But very few homeowners walk away, although those who do believe that is their best option. Of course, trying to get a loan modification so that the payments are affordable is their best option."

As if it were that easy. Especially for those homeowners, including those with good and bad credit, who have seen the light at the end of our current economic crisis only to decide there isn't a house in it. In fact, one could almost see the Wall Street Journal frown with disapproval upon reading the title of their December 2007 piece, "Now Even Borrowers With Good Credit Pose Risks." But the title no doubt was influenced by the comments of Bank of America CEO Kenneth Lewis in the piece itself. It seems that Lewis, whose company recently bought the housing meltdown's poster boy for bad lending, Countrywide, for $4 billion in stock, nevertheless feels confounded that customers of questionable loans would simply choose to abandon ship, er, house. "There's been a change in social attitudes toward default," Mr. Lewis told the Journal. "We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes." While Lewis may scratch his head in disbelief, employees of the bank Wachovia have an explanation that might work for him: Homeowners have crunched the numbers and decided their houses are worth less than their mortgages. According to a recent conference call, many of Wachovia's current losses in California are originating not from subprime buyers fallen on financial hardship, but from homeowners who can pay their cleverly structured loans but are just choosing a different fate. "They've been from people that have otherwise had the capacity to pay," a Wachovia spokesperson said on the call, "but have basically just decided not to, because they feel like they've lost equity, value in their properties. It's hard to know right now, but we may have seen somewhat of an acceleration problem … as people have reached that conclusion."

But that is what things usually do when you drive them off a cliff: Accelerate, ever faster. The open secret about the current housing crisis is that it is almost wholly built upon debt, which is to say the opposite of money. Everyone owes everyone: American banks borrow money from overseas, structure bizarre loans at home for Americans, which are then sliced and diced into securities and sold back to the international debt markets. The whole thing is a feedback loop made of bills needing to be paid. The best-kept secret of the crisis, however, is that homeowners at the mercy of those greedy banks and lenders -- including Countrywide CEO Angelo Mozilo, who sold off his stock before the crisis to net a cool $290 million while the company's value shrank to practically nothing -- are bailing out and leaving the banks and lenders to sort out the mess of past-due notices themselves.

And that's a problem the banks or lenders can't handle, according to Tricia Canites, managing attorney for Human Rights/Fair Housing Commission in Sacramento, one of the housing meltdown's most impacted cities. "The banks are not in the business of renting or selling properties," she explained by phone. "If the homeowners are willing to work with them, banks will work to get something rather than nothing. But it's a lose-lose situation, because you have homeowners who are willing to leave."

Not that they should, if you ask the U.S. Department of Housing and Urban Development. Many of those fed-up homeowners, according to HUD, might not understand the intricacies of their financial agreements and relationships with their lenders, and may miss an opportunity for renegotiation if they decide to simply mail in their keys and never look back.

"We strongly encourage homeowners facing a financial crisis to stay in close touch with the lender holding the mortgage on their home," advised Larry Bush, public affairs officer for HUD's California network. "Because of the number of foreclosures, many lenders would prefer not to add to the inventory of foreclosed homes but instead work out an agreement with the homeowner. Lenders likely have higher costs for a vacant home than a homeowner has for living in the home. They have to make certain the property is kept in good condition; in most jurisdictions this means keeping the electricity and water hookups active, security monitoring to ensure there are no squatters or break-ins, and new appraisal and inspection. Homeowners absorb many of those costs."

Of course it's expensive, one might say, but it's arguably more expensive for a homeowner to hang onto a money pit. Billions of equity lost, companies teetering on the brink of bankruptcy, the dollar sinking like a stone, the recession at the door: Some homeowners read those tea leaves and decide to leave well enough alone.

While that kind of payback might not sit well with banks and lenders who kick-started the so-called subprime crisis by taking advantage of ridiculously low lending rates, courtesy of free-marketeer and now-disgraced Federal Reserve Chairman Alan Greenspan, they cannot argue with its purely financial logic. These are people who refer to the market as a living thing and place their bets across its expansive craps table in hopes of hitting the mad jackpot. And for the years following Greenspan's loony monetary policy, that jackpot was in housing.

"Most of the homeowners now facing problems bought their homes when the market was at its recent height in 2005-2006, and paid prices that have not held up in the current market," added Bush. "That leaves the homeowner owing more than the current value of the home."

That, at least for conventional gamblers, is usually a sign to walk away from the table, which is what compromised homeowners are doing in greater numbers than before. But it has yet to reach the stage where it is has become an epidemic concern, according to Bush.

"There isn't a one-size rule for all communities," he explained. "We see some homeowners losing their homes, but HUD certainly does not see an exodus under way. In many cases, the trend is now toward resolving the financial challenges."

Perhaps for now, in an economic crisis that looks like it might have a bottom, or could be solved by the recent bipartisan band-aid designed to give taxpayers rebate checks ranging from $600 to $1,200. But that's not the kind of money that is going to save a homeowner from default or bankruptcy; it's merely spending money the government hopes will be liquidated at the mall, so that its resultant consumption can jump-start our debt-based economy back to life again. And, for many homeowners, even ones with good credit, loan modifications are just different arrangements of the same basic pain, one with root in the American Dream of housing for sure, but also one with root in dense financial contracts no one has time to read because they're too busy working to pay them off. As an alternative, rentals offer less migraines and less responsibility, because responsibility at the bottom and accountability at the top are rare things these days.

Too bad one is frowned upon by the powers that be, while the other is ignored outright.