Dissing the American dream
The Wall Street Journal has an interesting piece about people in a California suburb walking away from their mortgages and renting instead. The article suggests that bailing on a mortgage, while a negative hit on the old credit score, might be good for the economy.
The story features two homeowners who’ve discovered that “giving up on the American dream has its benefits:”
Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.
“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.
Palmdale is about as suburban as you can get. It’s a collection of homes in the high-desert 50 miles northeast of LA. The streets have names like Avenue N-8.
While perhaps morally questionable, what these people are doing is perfectly legal in California. In fact, California is one of several states in which lenders can’t go after other assets of defaulters. And the Journal suggests that if all American homeowners at least three months behind on their mortgages just simply walked away, it could provide a bigger boost for the economy than all the tax breaks in the government’s stimulus package:
“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again…”
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.
Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.
That’s not going over very well with some of her neighbors:
Tom Sobelman, whose family of four lives across the street from Ms. Richey… argues that people who choose to default are unfairly benefiting at the expense of taxpayers, who have put trillions of dollars at risk to bail out struggling banks. “All these people are gaming the system, and I’m paying for it,” he says. “My kids are going to be paying it off.”
Elsewhere, homeowners in some Atlanta suburbs are upset that the county government won’t lower their home appraisals to match the market value. The Journal-Constitution has a special report:
To Donald Strohmeyer of Duluth, county assessments are a joke. In 2001, he bought his 7,000-square-foot Sugarloaf home as an investment property.
In 2006, the 74-year-old retired executive shelled out $10,108.39 in property taxes. This year, despite the unprecedented decline in real estate values, his property tax assessment was only 33 cents lower.
“To say there’s been no change in the assessed value is kind of ridiculous,” he said. “They are just going to eat up whatever they can. They’re going to build stadiums for the Braves and monuments to their own stupidity. There’s really nothing you can do.”â€¨
Well apparently, you can give up, rent a nice home with a pool and buy season tickets to Disneyland.
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