Kwame Kenyatta, a Detroit city councilman and mayoral candidate, exercised his put option in his trust deed by defaulting and walking away from his home when his mortgage became greater than the value of his property. By forfeiting his negative equity, the mayoral candidate’s property was returned to the lender that held his mortgage. Ironically, since the mayoral candidate timely paid his monthly mortgage payments and his property was not in the process of foreclosure at the time of his abandonment, he failed to qualify for assistance from his lender who otherwise might have altered his mortgage terms. In addition to damaging his credit, the mayoral candidate fears his decision to walk may hurt his chances of being elected, as the public’s perception of “mortgage walking” is still negatively stigmatized.
first tuesday take: As more homes sink “underwater,” especially in California’s deluge of cascading values, walking away may be the most economically viable life-preserver available to borrowers trapped in a mortgage that is greater than the value of their home. The boomlicious fallout has been tagged “negative equity.” But politicians in California have fared better by having a chat with the lender about their needs, unless forward looking politicians in Michigan are attempting to make a public statement about their concern over current conditions.