by Calculated Risk on 2/01/2008 02:50:00 AM

From the Financial Times: Last year’s model: stricken US homeowners confound predictions

“There has been a failure in some of the key assumptions which supported our analysis and modelling,” [Ray McDaniel, president of Moody’s] admits. “The information quality deteriorated in a way that was not appreciated by Moody’s or others.” Mortgage borrowers, in other words, did not behave as expected.
...
One possible explanation is that it has become culturally more acceptable this decade for people to abandon houses or stop paying in the hope of renegotiating their home loans. The shame that used to be associated with losing a house may, in other words, be ebbing away – particularly among homeowners who took out subprime loans in recent years, as underwriting standards were loosened....

... people with high loan-to-value mortgages no longer felt as strong an incentive to maintain payments when house prices started to fall – even if they were able to. This is because of the negative equity phenomenon – where house prices have fallen below the value of the loan or will soon do so.

There is much more in the article, but people are recognizing the change in homeowner attitude towards foreclosure. One of the greatest fears for lenders (and investors in mortgage backed securities) is that it has become socially acceptable for upside down middle class Americans to walk away from their homes.

A few recent quotes from lenders:

"There's been a change in social attitudes toward default. We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes."
Bank of America CEO Kenneth Lewis, December 20, 2007

“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.”
Wachovia, Jan 22, 2008
emphasis added

"Another effect we are seeing has been ... consumers willingness just to walk away from homes. We haven't seen anything like this since Texas during the oil bust and people just willing to declare bankruptcy and walk away. We are seeing a lot of that similar type social phenomenon occurring, especially in California. And that is concerning to us."
Mark Hammond, CEO, Flagstar Bancorp, January 30, 2008