by Calculated Risk on 1/22/2008 12:24:00 PM

From the Wachovia conference call:

“Part of one of the challenges is, and we've mentioned this before, a lot of this current losses have been coming out of California and it's -- they've been from people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties, and so in a way, we may have -- it's hard to know right now, but we may have seen somewhat of an acceleration problem loans as people have reached that conclusion and we're just going to have to see how the patterns unfold here.”
emphasis added

This echoes the comments of BofA CEO Kenneth Lewis last month:

"There's been a change in social attitudes toward default," Mr. Lewis says. ... "We're seeing people who are current on their credit cards but are defaulting on their mortgages," Mr. Lewis says. "I'm astonished that people would walk away from their homes."

In a previous post, I calculated that somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes will be worth, over the next couple of years. (See Homeowners With Negative Equity)

As I've noted before, 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. These are homeowners with the "capacity to pay, but have basically just decided not to".

Wachovia is seeing that happen now. Imagine what will happen as house prices fall this year and next.