Home Wrecking: Victims and Walkaways

The housing crisis started out looking like a death in the family but is now resembling divorce as well. Added to the record numbers of Americans losing their homes because they can't make the mortgage payments are others who can afford to but decide to cut their losses and default voluntarily.

The category of walkaways is made up of speculators as well as new homeowners who were lured by introductory rates into buying bigger homes than they can afford.

"Some financial advisers," the Wall Street Journal reports, "are even encouraging homeowners who are upside down to consider foreclosure, which they see as a purely financial decision with limited negative consequences...(A) web site started in January that offers foreclosure counseling to homeowners advises that borrowers who default on one mortgage can typically get another mortgage between two and four years after a foreclosure. Then, 'before you know it, you will have this behind you and a fresh start!'"

As the politicians ponder ways to ease the crisis with rate freezes and subsidies, the emphasis is on the more than 900,000 households now in involuntary foreclosure, up 71% from a year ago, according to a survey by the Mortgage Bankers Association.

But as home prices continue in free fall, it will be necessary to separate the victims of predatory loan practices from those who saw a free lunch and are now walking out without paying the tab.

Fannie Mae, the government sponsor of loan guarantees, is working on harsher penalties for walking away, pursuing some borrowers in court and lengthening the time between when borrowers default and when they become eligible again for a Fannie Mae-backed loan.

"Of course, we will make exceptions for extenuating circumstances, like divorce or death," says a Fannie Mae executive. "But who we are trying to get are the people who can afford to make payments but have decided not to."