Posted on 09/26/2010 7:41:50 AM PDT by Oldeconomybuyer
Millions of middle-income home- owners are struggling to pay down bloated, underwater mortgages while wealthier Americans are simply mailing in the keys to the mansion and calling it a day.
It's time for average Americans to start seeing their mortgage papers for what they are: records of financial transactions, not moral documents.
In a free-market society, an individual homeowner is not responsible for the strength of the nation's housing market. If anything, walkers may stimulate the economy, by spending a portion of the money they were sending to the banks each month.
Take a look at your finances and decide for yourself whether homeownership makes sense. A better decision for the future of your family may be to rent, pay off your credit cards, and put the savings in a college fund for your children or grandchildren.
Walk away from your house if it will be better for you to rent. And remember, walking away now doesn't mean that homeownership may not work for you later.
(Excerpt) Read more at mercurynews.com ...
I didn't say anything about why lots of houses are being foreclosed. I realize that there are lots of people who don't have a choice in the matter. Duh, thanks for sharing. That doesn't change the simple point, which applies to all those people out there who didn't lose their job, but who simply saw their home's value decrease, and so, decide to just "walk away".
If you can afford your home but "walk away" because it is underwater, you are committing an immoral act. If you can't afford your home, then you are not. You can in effect give it back to the bank by doing a short sale, you can give the bank a deed in lieu, or you can just leave.
Staying in the home but intentionally refusing to make the payments because the banks won't foreclose because Obama won't let them is also an immoral act. You might get a year or more in the home without payments.
As far as cashing in other assets to keep the home, that is what is required if you have such assets. When you have $100,000 in liquid assets and a bentley in the garage, and you refuse to use them to pay the mortgage, you are in the same boat as someone who has a job but refuses to pay. The bank probably used those assets to justify giving you the loan. If you have $15,000 and a crappy car and that's all you've got, and no job prospects, you're not taking any money from the bank by not cashing those in. You are only delaying the inevitable, and they can't touch those assets anyway.
So, the morality of it comes back again to whether you are able to stay in the house, whether through income or assets, or whether your circumstances don't allow it. If you are forced to give up the mortgage, give it up. If you are not forced to give it up, then keep making the payments, even if you are underwater.
If they choose to pursue a non-judicial foreclosure, there is no recourse to the borrower, meaning they cannot pursue the borrower for the deficiency, the difference between the amount of the loan and the amount that the bank gets in the non-judicial foreclosure sale. The sale occurs on the courthouse steps, and gets a lousy price for that reason, and usually the bank just gets it back by bidding the amount of the loan.
She made her statement because so many banks follow this route that consumers feel pretty free from repercussions if their home is foreclosed. The other kind of foreclosure is rare.
The other kind of foreclosure requires the bank to go to court and follow a court supervised procedure to foreclose the house. That procedure generally gets more of the home's actual value in the sale. The bank can then go after the borrower for the deficiency. However, it costs more money and banks don't like to go out of pocket for the court costs, and most of the time historically, the borrower didn't have any money worth pursuing anyway.
However, given that the deficiencies are now in the hundreds of thousands of dollars and that many of the borrowers have vacation homes, 401ks and other assets that can be pursued, you may see more banks pursuing this latter option than did in the past. So I would not advise someone who has a high potential deficiency to walk away without making a deal with the bank first.
By the way, I am in no way some kind of shill for the banks. They are bloated bureaucracies and have made all kinds of mistakes. Some have a culture of just being jerks about everything. Banks have screwed up; consumers have screwed up; the system is screwed up. That's a different subject.
I don't know all the particulars - but it works something like this - the homeowner goes to the bank and works out an agreement. Homeowner hands over the keys, agrees to pay a penalty to get out of the loan - and the bank gets to resell the house. The penalty is something between what is owed and what the bank can get for the house. It's often thousands of dollars. When the bank agrees, the person's credit is NOT ruined. Something the writer of the garbage also neglected to mention.
This article presents this arrangement dishonestly ( typical liberal newspaper) they act as though only the rich can buy an envelope to drop keys into... It's silly, dishonest, misleading and so typically liberal.
For all practical purposes, those statements are already in the contract.
My post was in response to previous comments, rather than the contents of the article, which warned that foreclosures could lead to taxable income. I'll readily agree that defaulting on non-first-mortgage debt or non-primary-residence debt carries some taxable risk (although probably a minor risk).
The fact remains that for a homeowner whose mortgage is underwater (and who has probably lacked the equity to either refinance or obtain a second mortgage for at least the past couple of years), it can make financial sense to allow the lender to foreclose and repossess the house, and then rent a comparable house to live in for a much lower monthly payment. Given the large supply of rental homes on the market due to the housing meltdown, finding one with a decent rent or lease rate is not too difficult, and owners are generally willing to ignore past foreclosures if the person otherwise would have good credit.
Used to be tax law - I thought a bad law - glad to here it is not currently applicable ...
I do.
“Nobody seems to condemn these people for not paying back on these loans even after they have a successful business and have the money.”
Are you talking about the banks or the politicians?
“Someone will rent to them but it probably won’t be a very nice place”
Actually, rental units couldn’t care less. I have friends and family that manage rental companies and none of them could care less that you walked away. They are not selling you a rental unit, they are leasing it to you. No rental company asks about your previous home ownership. They simply want the money. If you have a job and the money to pay, so be it. Plus, since you walked away from your mortgage you need a place to stay. They know that and know they can evict you for non-payment. Simple equation.
They may have been hard working, but they weren't very smart financially.
“Further, I cannot ever remember an author recommending purposeful default.
“
There have been tons of articles over the past 18 months advocating doing so.
“Sure it might make sense...if you don’t mind reneging on your legal and moral obligations.
“
What is moral about the way the mortgage and housing industry was manipulated by the bankers such that mortgages were a necessity and home prices were extremely manipulated?
An immoral system cannot later claim morality.
Luckily, most citizens didn't fall for the con, -
[But they did; most still don't have a clue, and don't want one.]
But we're getting closer to the mark. Politicians, legislators, and their puppet-masters, have been at war against the middle-class in the USA since GHWB, and before.
Over the past couple of decades, our trade deficits have sucked at least 20 Trillion Dollars out of our economy; more than 20 Trillion Dollars that previously made up part of our collective national wealth, the cash flows from which previously made our economy the most vibrant and prosperous in the world. That's about Two Trillion Dollars per year, every year, for twenty years, of incomes that would have been circulating around the US economy, generating wealth.
That's like US eating our seed corn, year after year, for twenty years. A farmer who did this would last about two seasons, at most.
The anti-American Democrats and RINOs in Congress and the Presidency voted or acted, time after time, to change legislation to encourage the offshoring of production, and to cripple or stop American production; committed to lopsided multi-lateral trade agreements that were detrimental to the American economy; imported many millions of foreigners to take American jobs and/or drain our resources through welfare, SSI, crime and fraud; and left our borders wide open for illegals to do the same.
We been robbed, big time. Every Democrat needs to go, as does every RINO who will not commit to restoring our Constitutional republic.
There is not, and never has been, a "global" economy. There are national economies, with international trade, and every nation except the United States works to protect their own best national interests in trade. Our communist Democrat and RINO Free Traitors have sold us out to our enemies.
Oh...okay.
“200-300 point credit drop- that’s it”
And a 100-200 point increase after about 9 months with no further derogatory credit entries.
The FICO system is highly manipulated. FICO is in no way accurate. They manipulate the numbers each month based on the desires of the banks to loan money to certain consumer sectors. FICO is a closely guarded secret as to its formula, why is that? It is because they manipulate the numbers to manipulate consumer credit.
“Is it “moral” to throw people out of their homes if they can’t pay?
“
It is sad that so many Americans are brainwashed into thinking there is a moral obligation of consumers within an immoral and manipulated mortgage system, all the while supporting the immormal actions of that system that result in people being homeless, all in the name of money. Ironic that they equate money and greed with morality.
“If someone has the ability to pay back a loan and they don’t, then they are a cheat and a deadbeat. American morality is getting really squishy if people start thinking that being a cheat and a deadbeat is okay. “
Politcians or banks? Because you seem to be talking about both.
Karl Marx is that you?
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