One thing about Big Shitpile that seems to have gone under the radar is the potential for–and, increasingly, the reality of–debtor revolt. That is, people who owe more than their home is worth refuse to pay without a renegotiated mortgage. Sean Broderick thinks that “a debtor’s revolt is going to be one of the defining trends for 2010”, and recounts this episode:
Two years later, Adam’s $450,000 Loxahatchee House was worth only $189,000. And he couldn’t find a renter for his home in Lake Worth. He tried working with the bank (one bank had given him mortgages on both properties), but they refused to budge on the amount he owed on either home or the terms of the mortgage.
So, Adam stopped paying both mortgages. He piled the money he saved up, figuring that if he lost both houses, at least he’d have a cushion of cash for a rental. The furious bankers threatened to foreclose. Adam said: “Go ahead.”
Months went by. Then the bankers came to him with a new deal. They offered him “a lot” of forgiveness on both loans, and the interest rate on the Loxahatchee home dropped to 2.9%….
He had to be willing to walk away from everything. I would not be able to sleep at night doing what he did. But obviously more people are doing it – they feel no moral obligation to continue paying a mortgage that isn’t working for them. And why should they? Wall Street is doing the same darned thing …
A mortgage is a business deal that is complicated by emotional attachments to the notion of ‘home.’ Of course you have to be willing to walk away, otherwise they won’t take you seriously–that’s Negotiation 101.