Beware of the Walkaways

Homeowners of a new and unattractive breed are plaguing the Federal Housing Administration these days. Known as "the walkaways," they are people who find themselves unable to meet their mortgage payments--and to solve the problem simply move out their belongings at night, drop their house key in the mailbox and disappear. In West Texas, largely because of walkaways, the Federal Government currently has 1,800 repossessed houses on its hands. In seven South Florida counties, walkaways have abandoned 3,000 FHA-guaranteed homes in the past twelve months.

Because it underwrites low-cost housing for high-risk groups, the FHA's problems are particularly acute. But mortgage defaults in general have long been increasing throughout the nation. The rate of mortgage foreclosures has tripled during the past ten years, to an estimated 3.77 per 1,000 mortgages. Most housing economists agree that the leveling off of home prices in many parts of the U.S. accounts for most of the increase. As long as home prices were rising, a homeowner who could not meet his payments could always sell out--usually at a profit. Now, with prices steady, an overextended homeowner must either sell at a loss or face foreclosure.

Though the increase in the foreclosure rate so far causes housing experts little anxiety, they do worry about the abundance of new mortgage money from commercial banks. When the Federal Reserve allowed commercial banks to raise interest payments on savings accounts to 4% last January, the banks began pumping money into FHA-insured home loans to offset their own increased costs. In the elbowing for new business, there is a danger that the banks will sign up an increasing percentage of bad mortgage risks. Confides a leading West Coast banker: "Again and again I have to tell my branch managers that I would rather have a soundly conceived mortgage at 5 3/4% than one at 6 1/4% which goes bad." Unless the branch managers take this advice to heart, today's overambitious mortgages will create tomorrow's walkaways.

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