How Walking Away from a Mortgage Can Hurt You

It seems that our new economic reality has forced a few game changing rules when it comes to home ownership. With so many people losing their jobs, getting their hours scaled back, or getting downsized, or even not being able to find a job in the first place, it seems that lenders have started looking at a few new things. For instance, they may actually start looking at the reasons your home was foreclosed on, whereas in the past this may not have been as much of a focus.

A lot of people are simply “walking away” when it comes to their mortgages these days. Why? Well, because they see their home as a drowning asset, something that will never be worth what they pay for it again, since the value of homes in so many areas have taken nosedives in property values. They feel that the principle amount they owe is simply too high compared to what they owe on it. Often times, higher value homes may even owe several hundred thousand dollars more on a home than what the home is worth.

They actually walk away from the mortgage, even though they are still making an income and can technically still afford the house payments, and this is going to hurt their credit, yes, but not as badly as say a bankruptcy may. For instance, if a creditor looks at your credit report and they see that you had a home foreclosed on, but they see that your income didn’t dry up, they can logically conclude that you ran out on the house payment by choice, not by financial hardship.

They may use different rules when considering if they will lend you the money to buy a new home or not. In other words, they may penalize you for a longer time of not being able to finance a new home than they would someone that was foreclosed on because they genuinely had a hardship such as losing a job or something else that was financially taxing.

Rules like this may discourage people walking away from their mortgages. I understand certain instances where it may be warranted, but I gotta say I don’t understand it. It seems like an irresponsible thing to do, and actually like something that may hurt you to satisfy a situation that is temporary. After all, home prices are not going to be depressed forever, they will bounce back, and then what are you going to be able to show for it?