Learning To Walk: Fear, Shame And Your Underwater Mortgage
WASHINGTON -- Nearly 1 in every 4 U.S. homeowners with mortgages owe more on their home than it's worth. Once a month, those 10.8 million are faced with a question that cuts to the core of the American Dream and offers a confusing collision between a deep-seated sense of personal obligation and a cold, simple business calculation: Should I pay my mortgage?
For decades, there was only one answer for most people: Of course I should keep paying, it's the right thing to do. Besides, the argument went, a home is a great investment. Today, in the wake of the most seismic housing collapse in the nation's history, that logic has increasingly been challenged by homeowners despondent about their lack of options.
Although researchers find that some underwater borrowers who could continue paying their mortgages strategically default anyway, the vast majority continue to pay. Many homeowners, out of a combined sense of fear, shame, courage and morality, resist making what is otherwise a logical financial decision.
Walking away from a home, however, is more than the sum of a few business decisions. For many homeowners, it's either an act of civic defiance against a system they no longer buy into or the end result of being shuffled around by institutions that don't help them solve their financial problems.
While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it's like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.
We initially heard from 58 people from all over the country who fit the criteria. Ten of them have become unreachable over the past year, but the remaining 48 were eager to share their stories. A year later, only eight of them are still paying their mortgage. Some requested anonymity because of the shame associated with foreclosure; others requested it because they don't want to draw retribution from the banks. But there were those who were happy to share their tales on the record.
Almost universally, the homeowners we spoke with took personal responsibility for their situations, declining to blame the banks or politicians. Yet nearly all of them faced similar struggles in their attempts to work with their banks: lost paperwork and little interest in finding a financial compromise.
The hostility people felt from their banks made the decision to walk away easier for many, and some now even revel in it, celebrating a break from a system they see as rigged against them. "We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy," said one. Others are still haunted with shame by the decision. Most said they felt a mix of both.
Many of the homeowners said they felt alone and powerless in their interactions with the banks and were curious to hear what other people in similar situations had to say. "There should be support groups for people who have to deal with these banks," said Richmond Burton, 50, a soon-to-be-former resident of Long Island's East Hampton. "It can drive you crazy. I'm very good at dealing with pressure, and they made it feel like you're at their mercy."
Following Burton's suggestion, HuffPost contacted Meetup.com and set up the infrastructure for underwater homeowners to do just that. This coming Tuesday, homeowners across the country can use Meetup's tool to organize small gatherings of homeowners who have walked away or who have considered doing it. Often, the best advice comes from a neighbor.
Burton's effort to get out from under his home became a second job, he said. "I never would have thought that the American Dream was to not own a home, but that's what mine became. I'm not ever going to take another mortgage. If I can avoid it, I'm not ever going to borrow money again," said Burton.
After years of failing to get approval for a "short sale" of his home, or even a decent mortgage modification, Burton said he stopped paying in August 2009 to help himself financially and to get his bank's attention. (A short sale occurs when lenders accept a sum less than the outstanding value than a mortgage loan, in lieu of forcing a borrower into foreclosure.)
He contacted HuffPost several months later and said he was still trying to get a short sale approved or persuade the bank to take the house in exchange for simply letting him walk away. The bank was refusing.
When we reconnected a year later, he said he had just signed documents that would let him walk away without a penalty, but he was forfeiting his $120,000 down payment. What did it feel like to walk away from that much money?
"It feels great," Burton said without hesitation. "I'm starting again. I've still got my talent, I've got my intelligence. I've got my health. At least I'm free of the enormous amount of stress that I had and the frustration of doing the best I could and it wasn't good enough. It wasn't working. Ultimately, I made a decision that my physical and mental health was more valuable than this house and my investment in it."
Burton went more than a year without paying his mortgage before persuading the bank to accept a short sale. "The mortgage company was not wiling to work with me. The businesses that we have created to serve us are enslaving us. They're not listening to us, they don't even pretend to care about us. Really, our only option is to do what I'm doing, which is to fire them all. I'm doing everything I can to remove them from my life," he said.
Lenders and servicers say such decisions will destroy borrowers' credit record and render them non-entities in the U.S. economy. Burton said that when he bought his Long Island home in 2000, his credit score had been somewhere in the 600s, an average figure. He allowed HuffPost to run his credit score through Equifax, one of three major credit-monitoring bureaus. As of Tuesday, after his ordeal of three years, his score is 614 -- below average, but not savaged. A few months ago, he had no trouble buying an iPhone. He ignores the many credit card solicitations that come his way.
The purpose of HuffPost's investigation was not to determine who or what was to blame for the predicament that the homeowners found themselves in or whether they are deserving of sympathy -- twin concerns that dominate the foreclosure discussion and will no doubt continue with ferocity in the comment section below this story.
Our question was more direct: What are the costs and benefits of walking away from an underwater mortgage -- not for the banks or the neighborhood or for society as a whole, but for the real people making the decision?