I suppose we should all be used to sloppy reporting about the housing industry and its trends, but reports like one on National Public Radio this morning are stark reminders that the mass media can be counted on to make a bad situation more confusing.
In a fevered effort to create some sweeping generalization about human behavior in the face of personal financial catastrophe, NPR reporter Alex Blumberg made it seem oh-so-simple for distressed homeowners to turn their under-water homes over to a bank and then go out and buy another house.
“So,” Blumberg says, “imagine, you buy your house for 400 grand; now, it's worth 200. You might decide to stop paying your mortgage and simply buy another house, similar to the one you already own but for half the price. The old house: the bank can have it.” He adds, too casually for my taste: “You suffer a blow to your credit score on the one hand, but you get a far cheaper house on the other.”
In Blumberg’s example, that owner had better have $200,000 in cash to pay for the next home, says a mortgage specialist at the Connecticut Credit Bureau. “Your credit rating takes an especially big hit when you default on a mortgage,” she told me. “It is unusual for people who default on their mortgage to go out and buy another with credit.”
Any time I have heard this story about folks walking away from their homes and mortgages, the add-on is that they rent their next place. And even renting may be difficult if a landlord checks credit ratings. For NPR to imply that people are walking away from mortgages because they can with impunity is to do yet another disservice to the public, and to the rule of logic.
The transcript of the NPR segment is available here.
