November 11th, 2011, 4:10 pm
@Traden4Alpha, exCBOE - I agree 100% that being with underwater mortgage means losing security margins and buffers you might have had. Anything that will incur substantial financial loss or cash outflow (such as illness, loss of job), will lead to default with bigger probability.However it does not mean it is 100% probability. In some cases you can downsize. It means you will lose money. How much money - it depends on a variety of conditions such as your equity in the property, LTV, savings, household income, price levels, familiy status (married, not married, kids just before college, or grown-ups), and others... At some point, of course, one prefers to walk away. The question is where is that point. And yet, based on what you are writing, the triggering event for default is a loss of substantial portion of the income and not the DEATH SPIRAL itself. It would have been if it was contributing significantly to the loss of jobs. But is this the case?@lexington - I am not sure I get your point. I agree that ongoing payments are part of the equation, but it is not new to those who live in these specific communities and it does feel right to me that it,on its own virtue, will send people en masse to default.