Walkaways Waste Wachovia?

by Florida's #1 Mortgage Planner on April 15, 2008

Wachovia reported disappointing earnings today and highlighted that homeowners walking away from their mortgages, particularly in California, were at least part of the reason.  They are certainly the reason Wachovia is cutting dividends.

Calculated Risk discussed the Wachovia conference call and the remarks made by Don Truslow, the Chief Risk Officer…

Don Truslow, Wachovia Corporation – SEVP, Chief Risk Officer Ken, that’s exactly right. And Kevin, it’s just this pattern almost that somewhere — I don’t know where the tipping point is, but somewhere when a borrower crosses the 100% loan to value, somewhere north of that and they presumably run into some sort of cash flow bump, whether it’s reduced income or kind of normal things in life that have created past dues before, their propensity to just default and stop paying their mortgage rises dramatically and I mean really accelerates up and it’s almost regardless of how they scored, say, on FICO or other kinds of character, credit characteristics.

As you can see, Wachovia is afraid of the further deterioration of stability created by homeowners simply saying, “screw this,  it is cheaper for me to let stop paying this home and walk away.”  This behavior is even being fueled by various entrepreneurs providing details on how to do it, such as the one previously reported here, www.youwalkaway.com.

I am sure the mortgage broker is to blame for all of this, right?  Maybe even the real estate agent.  I am sure it isn’t the homeowner’s fault for their predicament.

In an industry with as many problems as the mortgage and real estate have dealt with, irresponsibility is not something that we need.  In Florida, and I am sure the same holds water in California, homeowners have even bought multi-million dollar homes and simply refuse to pay their mortgage, knowing they could live in it for “free” for up to two years, maybe even more.

I am not defending lenders, but their “margin calls”, coupled with the rise in “walkaways”, are leaving little doubt that more banks and lenders will likely show losses, cuts in dividends, and even more bankruptcies.

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