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

By Scott Thill, AlterNet. Posted February 1, 2008.

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.

See more stories tagged with: lending crisis, debt, economy, trash-outs, foreclosures

Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.