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Saturday, December 19, 2009

Morgan Stanley's Financial Advice to Underwater US Homeowners: Consider Just Walking Away

It looks like many U.S. homeowners will follow the lead of Morgan Stanley and walk away from their mortgages (called a strategic default) if they are too far under water. Morgan Stanley will walk away from 5 San Francisco office buildings in bought for $6.5 billion in 2007. The properties may have lost half of their value. What's good for the bank is good for the borrower.

Bloomberg:
Morgan Stanley to Surrender 5 San Francisco Towers -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings, which have been held by the bank’s MSREF V fund. Barnes declined to say when the transfer will occur...

discussion:
Zero Hedge:
Morgan Stanley Abandons 5 San Francisco Office Towers -- What do the five buildings below have in common:

One Post, 201 California St., Foundry Square I, 60 Spear St., 188 Embarcadero, commercial buildings in San Francisco that Morgan Stanley walked away from.If you answered these are the 5 San Francisco office towers which, top tick mogul Morgan Stanley bought at the very peak of the housing market from Blackstone, and just abandoned earlier today, you win 10 shares of Federal Reserve Capital LLC, (the 33 Liberty Strategic Onshore Value Loss Fund)...

Calculated Risk:
Does Morgan Stanley "Walking Away" from CRE Contribute to Strategic Defaults? -- ... Note that Morgan Stanley is current on the loan and is not in foreclosure. They are simply "walking away" because the buildings are worth less than the amount owed...

One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.... I wonder if hearing about "rich" banks that are paying "large" bonuses walking away from commercial buildings also weakens the social pressure? ...

Huffington Post:
If Morgan Stanley Walks Away, Why Shouldn't You? Firm Walks Away From 5 Properties -- To the extent that Morgan Stanley is leading by example, the securities colossus is sending an unlikely message to underwater homeowners: Walk away...

The Big Picture:
Morgan Stanley’s Commercial Jingle Mail -- Good luck making moral arguments against homeowners doing just that in the future . . .

Seeking Alpha:
The Golden Rule of Defaults: Banks vs. Consumers -- Morgan Stanley is walking away from five office buildings it bought two years ago at the height of the market for $6.5 billion (that's "B"... not "M"), which have since lost as much as 50% in value. The reason, says a corporate spokeswoman, "This isn’t a default or foreclosure situation... we are going to give (the lender) the properties to get out of the loan obligation.” ...

The Agonist:
Morgan Stanley Defaults-- This is just a beautiful example of how the morality that applies to the corporate world is so different than the morality expected of you as a homeowner....
----
See data on strategic defaults -- homeowners who choose to default on their mortgage even though they could still afford to pay it.Wall Street Journal:
Debtor's Dilemma: Pay the Mortgage or Walk Away -- In Down Real-Estate Market, Homeowners Are Deciding to Abandon Their Loan Obligations Even if They Can Afford the Payments

Should I stay or should I go? That is the question more Americans are asking as the housing market continues to drag.

In good times, it would have been unthinkable to stop paying the mortgage. But for Derek Figg, a 30-year-old software engineer, it now seems like the best option.

Mr. Figg felt trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home's value has dropped to $230,000 or less...

Another risk for defaulters is that banks could sell the rights to pursue claims to collection agencies or other firms, which could then dun the borrowers for up to 20 years after a foreclosure. Such threats appear to deter some borrowers. A recent study from the Federal Reserve Bank of Richmond found that under-water borrowers were 20% more likely to default in a state where mortgage lenders can't pursue claims on other assets than in those where they can....

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