From Denny: What I find to be an alarming development that could cascade - and cause our fragile economy to collapse or develop a severe limp - is this new trend of homeowners walking away from devalued homes while they can still afford to pay. It's called "strategic default" and already over one million homeowners have done this. Currently, there are over 11 million homeowners across the nation who are struggling to pay their mortgages.
There is no way the banks can absorb this many toxic assets. Of course, the big banks dug themselves into this hole and refuse to work with homeowners. They haven't even dipped into the huge billions Obama gave them to help restructure mortgage debt.
And you think the BP oil spill is a mess - wait until this real estate walk away spreads past Arizona and California. I simply do not understand why banks are so incredibly stupid. It just goes to the old Louisiana saying, "Greed will bring you to your knees." There is no way the American taxpayers will ever again OK a bailout for any big banks or Wall Street. Our biggest banks like Bank of America and Citibank are setting themselves up to fail.
When this mess finally shakes out there is no telling what our financial landscape will look like in America. Will any of us recognize it? As it is, a recent bill in Congress to break up the big banks was shot down. After another mortgage meltdown that bill might enjoy a serious Come to Jesus Meeting and Resurrection.
Below is an excerpt from the original CBS story. Links to very short video clips worth the viewing are posted on this blog too.
Strategic Default: Walking Away from Mortgages (CBS)
60 Minutes: A Million Have Walked Away; Trend Could Undermine the Fragile Economic Recovery
Despite some indications that the economy is recovering, the housing market remains a disaster area. Currently, about seven million homeowners are behind on their mortgages and that number is only getting worse.
Banks, with the help of the government, are offering some relief to homeowners who've lost jobs and just can't meet their payments.
But there's a growing number who can pay but are simply walking away from houses that are now worth as little as half of what they paid for them.
It's called "strategic default." People have done the math and decided making those monthly payments is just throwing money away, leaving the mortgage holders - the banks - as zookeepers of an ever-growing parade of white elephants.
In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away...
The Southwest has become an inland ocean of bad mortgage debt. In Arizona, a full 50 percent of houses are underwater, and in Nevada it's even worse: 65 percent of houses there are drowning and the rivers are rising.
And it's not just the Southwest: according to CoreLogic, more than 11 million homeowners across the country are underwater. It's estimated that number could double in the next year, which means nearly half of all American mortgage holders will owe more on their homes than those homes are currently worth....
To try and stem the tide of foreclosures, Stevens says the Obama administration has set aside billions to give banks incentive to help struggling and underwater borrowers with their mortgages. But banks have been slow to modify the terms of those loans....
Watch CBS News Videos Online
Video: The Case For Walking Away From Your Mortgage - Brent White, a law professor at the University of Arizona does the math and explains why walking away from your mortgage might make financial sense.
Video: Are Mortgage Walkaways Going Viral? - Yale Economics Professor Robert Shiller developed the widely used Case-Shiller Home Price Index. He talks with Morley Safer of "60 Minutes" about trends in real estate and whether mortgage walkaways are "going viral."
Video: YouWalkAway.com - Chad Ruyle, co-founder of YouWalkAway.com talks about his business.
Video: Walking Away From A Mortgage - Chris Deaner of Sun City, Arizona tells Morley Safer of "60 Minutes" why he walked away from his home mortgage.
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