Upside Down Loans: Rules for Wall Street vs. Rules for Main Street

Wall Street firms walk-away from upside down properties and it's a business decision.  While homeowners with upside down loans who do so are deadbeats?

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

It seems almost every day I speak with a homeowner struggling over the moral dilemma of walking away from their upside down loans.

I don't ever tell a homeowner what to do in these situations, but in going over the numbers, a pretty clear answer usually presents itself. 

Even though these homeowners fully understand the math and logic of the answer, they have a very difficult time coming to grip with the emotional part of the decision.  Many state they weren't raised that way or ask themselves what would their family & friends think of them.

From my experiences, these homeowners with upside down loans have to go through their own sort of 5 steps of grieving to deal with the situation.

They should all just take a lesson from the fat cats on Wall Street, who only care about profit and power, and have no qualms about walking away from their upside down mistakes.

MORGAN STANLEY WALK-AWAYS

Back in December, Morgan Stanley announced they were essentially giving back 5 San Francisco office buildings to their lender where they were upside down.  Seems they overpaid for them at the height of the market in May 2007.  (the addresses are One Post, 201 California St., Foundry Square I, 60 Spear St. & 188 Embarcadero).

Morgan Stanley spokesperson Alyson Barnes spun it to Bloomberg News like this, "This isn't a default or foreclosure situation.  We are going to give them the properties to get out of the loan obligation."

This after Morgan Stanley turned Crescent Real Estate Equities over to its lender Barclays Capital in November for the same reason.  Seems their $2B loan was due in August and extensions were only delaying the inevitable default.

Wow!  Can I try this with the lenders on some of my rentals?

Oh even better, despite these walk-aways, Morgan Stanley will be paying their employees 31% more in bonus income in 2009 than they did in 2008.

If you're a homeowner with an upside down loan from Morgan Stanley Home Loans or Saxon Mortgage (owner by Morgan Stanley), now may be the time to call them up and just give your home back to them.  Tell them Alyson Barnes said it was ok.

TISHMAN SPEYER PROPERTIES - A RECORD WALK-AWAY

I remember reading an unflattering article a few months ago about a real estate investor who walked away from around 60 properties in the city of Pontiac, Michigan.  The reporter was pretty hard on the investor in the article.

I wonder what that same reporter would write about a company walking away from 11, 232 apartments in Manhattan? 

Seems this company's plans to convert the apartments into luxury condos and flip them fell apart with the economy. 

Now the rental income doesn't cover their mortgage payments and their tired of putting in their own money to cover the difference.

Not that the company will be hurting - they still own the Rockefeller & Chrysler Centers in New York and have a total of $33B in assets.

Hmm, they have the money to pay but are still giving the property back?

It'll be interesting to see how long this record stands...

WHERE DID AMERICA GO WRONG?

The Declaration of Independence states,

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

Obviously though, when it comes to upside down loans, we're not all created equal.

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries.  He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor.  He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications.  For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com.  He also publishes his own blog:  http://DrewsMortgageNews.com.