In a survey Fannie Mae conducted in December and January, two-thirds of the 3,000 respondents — a group including renters, homeowners with a mortgage and those who owned their home outright — said they still wanted to own a home and nearly 90% said they thought it was wrong to walk away from an underwater mortgage.
"Everyone is talking about what consumers think, but nobody has really gathered a broad-based sampling of what they think," said Douglas Duncan, Fannie's chief economist. The housing agency's survey aimed to gauge "what a representative sample of the American population is thinking about" when it comes to "owning versus renting."
The survey's findings about attitudes toward debt are sure to interest lenders holding mortgage debt on their balance sheets and investors holding mortgage-backed bonds.
Eighty-eight percent of respondents said that walking away from an underwater mortgage is unacceptable, and 70% of borrowers who were behind in their mortgage payments said it is not acceptable to walk away from those payments.
Borrowers were more than twice as likely to have considered stopping payments if they knew someone who has already defaulted, Fannie found.
Asked in an interview this week if he was surprised that roughly nine out of 10 believe it's wrong to walk from a mortgage even it is underwater, Duncan conceded he had not "readily formed an opinion."
However, he said, "Americans have been consistent in their attitude that if a borrower takes on an obligation, they should meet it. Yet, there has been so much talk about it — you have television personalities talking about it, saying, 'Walk away from it. It's a bad deal' — on that side I was a little bit surprised."
Duncan said it is a concern that someone who has defaulted can influence a borrower's attitudes about his or her own loan and can bring about a cascade of problems within a market. Citing data from the Mortgage Bankers Association, he noted that four states have 50% of loans that are seriously delinquent or in foreclosure. (The data includes conforming and nonconforming mortgage debt.)
Duncan said Fannie is studying this so-called contagion effect and how it has played out in its own loan book. "We did the survey to understand attitudes. If attitudes are affected by" knowing a borrower who abandoned a loan, "then actions are likely to be affected at some point too."
That two-thirds of consumers still want to own a home "would seem to" bode well for demand for new and existing homes, Duncan said. But he cautioned, "one of the things that is difficult with a survey like this is that it is a snapshot of sentiment at a point in time. This is specifically attitudinal."
Duncan said Fannie found the overwhelmingly positive attitude toward housing to be "an interesting fact … especially given that there are still out there some 5 million loans that are 90 days or more past due or in the process of foreclosure."
Sixty-four percent of respondents said they believed it was "a good time" to buy a house and 31% said it was "a very good time" to buy. Nearly three-quarters said they expected home prices to rise or stay the same over the next year.
Seventy percent of the survey respondents said they believe housing is a "safe" investment, compared with 83% who thought so in 2003.
Top reasons for owning a home were security for a family and access to good schools. In Fannie's survey seven years ago, financial attributes such as investment were the leading reason for owning a home. If this "is a shift that is sustained … then it is a move towards sustainable homeownership [and] not just homeownership to get access to a house," Duncan said.
He added: "There was this big focus on getting people into homes. Well, now we know it should have been getting people into homes and keeping them there."
The shift has a macroeconomic impact as well. After all, much of the growth in gross domestic product over the past decade has been tied to the real estate boom. If this shift in attitude "gets us back to a balance that is focused on sustainable homeownership, it will definitely have benefits for economic stability."
He said he expects GDP growth of 3%-3.2% this year.
The survey also found 25% of delinquent borrowers had a second mortgage.
Duncan was asked what this means for the home equity loan and home equity lines of credit market.
"It is going to put a damper on it in the short run if for no other reason that house prices have fallen as much as they have," said Duncan. "There won't be that much equity to tap into."