Abandoning a Home Loan Is Acceptable to 36% of Americans, Pew Survey Finds

More than one-third of Americans say it’s acceptable under some circumstances to stop paying a mortgage and walk away from the home, a survey by the Pew Research Center found.

While 59 percent of those surveyed said it’s “unacceptable” to abandon a home loan, 19 percent said it was “acceptable” and another 17 percent said it depends on the circumstances, an answer that wasn’t on the survey, said Rich Morin, a Pew Research senior editor in Washington. Of the respondents, 63 percent own homes and 31 percent are renters.

“We all know the percentage of people who walked away has been increasing,” Morin said in a telephone interview. “Whether that builds sympathy or resentment, I think, remains to be seen.”

Homeowners are struggling with their mortgages amid job losses and the worst housing crash since the Great Depression. About 14.4 percent of home loans were delinquent or in foreclosure at the end of June, the Mortgage Bankers Association reported Aug. 26.

U.S. unemployment was 9.6 percent in August, near a 26-year high. Home prices in 20 cities are down 28 percent from their 2006 peak, according to the S&P/Case-Shiller index of property values.

Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies, and their regulator, the Federal Housing Finance Agency, “are concerned about borrowers who have an ability to pay but who choose to default on their mortgages,” FHFA acting director Edward DeMarco told a Congressional subcommittee hearing today. “Strategic defaults not only result in increased losses for taxpayers, but also have a deleterious effect on neighborhoods,” he said.

Strategic Defaults Rise

About 12 percent of residential-loan defaults in February were strategic, meaning homeowners decided not to make payments even though they could afford to, New York-based Morgan Stanley said in an April 29 report. The rate was about 4 percent in mid- 2007.

People who said turning a home over to the lender is acceptable climbed to 25 percent among those who suffered recession-related hardships, such as job loss or problems paying bills, the Pew Research survey found.

Jon Wittenberg, 41, stopped making payments on a condominium he owns in Thousand Oaks, California, two years after he got laid off with about 3,000 others by Amgen Inc., where he worked as a scientist. He moved to Walnut Creek in Northern California, where he now works for a bio-fuels company, and rents out the condo he left behind for $1,300 a month, or less than half of his monthly payments for mortgage, taxes, insurance and fees, he said.

‘Act of Defiance’

The breaking point came after months of asking for a loan modification, when lender Wells Fargo & Co. proposed to raise his monthly payments, he said.

“It was an act of defiance,” Wittenberg, who now lives in a rented house with his girlfriend and her two kids, said of his decision to abandon mortgage payments. “I thought, ‘See ya!’ ”

A Wells Fargo spokeswoman, Vickee Adams, declined to comment on Wittenberg’s loan.

Strategic defaults aren’t a significant problem for the San Francisco-based bank, where 92 percent of 8 million home loans are current, said Franklin Codel, chief financial officer at the home-lending unit.

“There are lot of people in this country who are underwater on their mortgages who are paying and doing the right thing,” Codel said in a telephone interview from Des Moines, Iowa. “The hypothesis that everybody who’s underwater is not paying the mortgage isn’t holding water.”

Feeling Trapped

About 21 percent of the 2,967 people surveyed by Pew Research owed more than their homes were worth. That’s close to the 23 percent estimate in August by CoreLogic Inc., a real estate information company in Santa Ana, California.

“Negative equity is clearly a huge anchor weighing down on the economy,” Sam Khater, chief economist for CoreLogic, said in a telephone interview. “People are trapped.”

Jeffery Horton, 33, said he stopped payments in October on a three-bedroom house and a one-bedroom condo he owns in Winter Garden, Florida. After his lenders refused to negotiate a loan modification, he decided the properties weren’t worth keeping.

“I’m not the first person in history to walk away from a bad deal,” said Horton, who works as a network administrator for a student-housing developer. “To me, the most frustrating thing is feeling trapped.”

‘Things Changed’

Renters are paying Horton $875 a month for the condo, which costs him almost $1,300 in monthly payments, he said. The condo is scheduled to be sold in a foreclosure auction Sept. 27, he said. The house he bought for $265,000 in 2007 was appraised for $134,000, he said. He expects to live there another six months for free before getting evicted.

“I signed a contract, but things changed,” Horton said in a telephone interview. “The only way out was to walk away.”

The survey is the first by Pew Research to ask the walk- away question, which was part of a project of opinion surveys tracking attitudes about the recession, Morin said. Pew Research is a nonpartisan organization that doesn’t take positions on policy issues, according to its website.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.