Would You Walk Away???

With 1 in 5 homeowners underwater, many pundits predict a flood of people walking away from their homes. Five readers talked to us about why they are - and are not - sticking around.


Fewer walking away than you think

Almost 20% of homeowners - or 8.3 million people - are "underwater" on their mortgages, owing more than their properties are worth. Another 2.2 million are near that drowning point, known as "negative amortization."

A basic cost-benefit analysis predicts that these people will abandon their homes and accept foreclosure. But there is little data measuring whether that logic holds true. In fact, Eric Johnson, a business professor at Columbia University, believes it doesn't. After years of studying behavioral economics - essentially the economics of choice - he argues that people will simply not make such rational decisions.

"There are two effects that suggest [walk aways] won't happen so easily," he says. "The first is the endowment effect. People tend to value their own house above its market price. Owners don't want to sell at a loss. They have what we call a loss aversion."

The second is that people weigh the importance of immediate outcomes more heavily than long-term effects. Walking away involves upfront expenditures of time, money and effort, while the benefits of walking away are back-loaded.

"People are impatient and weight present costs and benefits more, so they will walk away less often than we might think.

I want to Thank you for checking this Blog out and if you have any questions or no someone that has suffered a hardship and is having trouble paying there mortgage. Please pass this contact information.

Robert Vaughan
Vice President