A while back I wrote about the Word Of the Year as designated by a the American Dialect Society. That word was “subprime”.

“Subprime” describes a type of loan. One you will have a hard time obtaining now. Subclasses of “subprime” loans are “no-doc loans”, “liar loans”, “ninja loans” and the “teaser loans”. I was reminded of these loans when I stumbled upon a year-old post from Tim O’Reilly in the O’Reilly Radar. O’Reilly writes about technology, but he found a connection to the shenanigans of the subprime loan market and Web 2.0.

Now there is a new type of loan. One of which I am afraid you will be hearing more. This is not a loan that any lender consciously made. Unfortunately, I have heard of borrowers who did take out loans like this on purpose but that may be the subject of a future post. The name of the loan is “Walker Loan”.

No “Walker Loan” is not named after some financial genius who originated it. Nor is it named after a Texas Ranger. The name is being given to loans that the borrows WALK away from. Example: you owe $500,000 on the house that you bought for $500,000 two years ago. You financed 100% of the purchase price because you expected the value of the house to continue to escalate wildly. Prices were going up so strongly at the time you bought the house, you had to pay over the asking price by a substantial amount because there were other interested buyers. You have been paying only interest on your loan, but now you have to make payments that will include principal…and the rate is adjusting upwards… AND…your house is only worth $400,000 now!

You could continue to make payments…but you can’t afford to do that. Your could try to sell the house, but it would be a “short sale” and that is an iffy proposition compounded by the fact that there are already several houses for sale in your neighborhood, including short sales and bank-owned-properties. You could stay in the house until the bank forecloses and makes you move.

Or…you could ”walk” away from the house and “walk” away from the mortgage. Your loan could change from whatever you call it now to a  ”Walker Loan”.

Maybe this will be the word of the year for 2009. I hope not!