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Law Prof Advises Homeowners to Stop Paying Their Mortgage

By Faye Mergel
Published: Friday, December 11th, 2009

Late payments and loan defaults are serious marks on a credit report, but a law professor from the University of Arizona thinks it is the best thing to do. Brent White argues in his new paper that the tactic could save homeowners a lot of money. As the United States housing crisis begins its fourth year, many people are starting to get convinced.

Law Prof Advises Homeowners to Stop Paying Their MortgageWhite is not the first person to suggest that people who owe more on mortgages than their home’s worth should turn their back from their creditor. But his suggestions have become so popular, they pop up on television, the newspaper, and on the internet. It is a tactic that could save homeowners their money, but will definitely ruin their ability to borrow.

Analysts say people cannot stop talking about it since it is central to what is causing the housing market to fall down. About one in every four homeowners, or a total of 10.7 million Americans, has his home underwater, according to First American CoreLogic, a company providing information on real estate.

In states hit hardest by the housing crisis, 40 percent of their homeowners are underwater. Those states are Arizona, Nevada, Michigan, Florida, and California. In his paper, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” White argues that millions of Americans are better off if they walk away from their mortgages. The law professor suggests that people who consider defaulting on their mortgages should try getting a new car or house before they do so. He says a mortgage default appears on a credit report which will impair the ability of people to borrow.

But industry specialists fear its consequences if people follow White’s suggestions. They explained that if everyone walks away from his mortgages, it will result to an economic havoc. Home prices would soar even higher and banks would no longer be able to extend lend to consumers because of the increase of bad loans in their records.

Specialists also say the tactic has great personal risks. A strong ability to borrow is even more important during tough economic times and people who undergo foreclosure will see their borrowing ability drop. This is because a foreclosure remains on a credit report for seven years and consumers will find it difficult to borrow during that period.

People who maintain an excellent credit report and go into foreclosure will be able to escape in less time but experts, nonetheless, advise them not to walk away. Instead, they advise homeowners to negotiate with their creditors if they find it extremely hard to meet their payments.

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