ECONOMIC EPIDEMIC: A MILLION AMERICANS WHO COULD AFFORD TO PAY THEIR MORTGAGES ON HOMES "UNDERWATER" WALKED AWAY INSTEAD. IT'S THE "IN THING" SAYS ONE -- "60 MINUTES"
Trend Could Undermine the Fragile Economic Recovery
Chris Deaner could still make the mortgage payments on the home he bought but chose not to, forcing the bank to begin foreclosure proceedings. And there's an estimated million more like him. He's part of a rising epidemic of Americans who, despite having the money, walked away from homes "underwater," or worth less than their mortgages. Morley Safer reports on "strategic default," a trend that could hurt the economic recovery, on 60 MINUTES, Sunday, May 9 (7:00-8:00 PM, ET/PT) on the CBS Television Network.
In Arizona, where Deaner lives, half of the homes are "underwater." So he wasn't the only one walking away from a house and mortgage, says the Sun City resident. "It's almost like the in thing to do right now, it seems like," he tells Safer. He paid $262,000 for his home at the height of the boom, only to see it fall to an estimated $142,000. He says he tried to renegotiate his $250,000 mortgage, but his bank refused because he could afford the payments. "I thought, initially, it was immoral. My family raised me to believe...you should take care of your contract liabilities," says Deaner.
He'll get a bad credit rating for his action, but says he'll save enough money to overcome that when he decides to buy a home again. Deaner says he doesn't feel any responsibility for walking away. Then, reminded by Safer that if everybody in his position did what he did, the economy would be even worse, he says, "If that starts happening, then that's for the professionals to figure out." Watch an excerpt.
The professionals have already taken notice. Banks are afraid the trend will spread to average homeowners and the CEO of Citibank's mortgage unit estimates that one out of five borrowers defaulting on mortgages now are able to pay - a trend that could continue and harm the economic recovery by overburdening the banks with bad loans and real estate they can't sell. No banks would agree to speak to 60 MINUTES about strategic default.
Right now the burden of strategic default is being borne by the homeowners in the same place as Deaner who decided to stay in their homes and continue paying. Without them, the banks would be in much worse shape. Tom Hansen of Scottsdale, Ariz., who paid $1.2 million for a home worth maybe $850,000 now, says it's a matter of conscience for him. He'll stay put - for now at least. "I just would not be comfortable walking away...maybe at some point in time...but right now I'm not," he tells Safer.