Are you an idiot to keep paying your mortgage?

SF Gate ^ | 16 Nov 2008 | Kathleen Pender

[BGHater]

Should you keep paying your mortgage?

If you have significant equity in your home, absolutely.

If you don't, it's getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.

Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.

Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.

But what about the moral obligation to pay off a debt?

Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he "recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford."

Last year, Congress started removing some financial hazards of default when it passed a bill that temporarily waives the income tax on mortgage debt that is canceled when a homeowner is foreclosed upon, sells a home for less than the remaining debt (a short sale) or gets a loan modification that reduces the principal balance.

The tax waiver originally applied only to debt on a primary residence canceled in 2007, 2008 or 2009. Last month, in the bailout bill, Congress extended the waiver until 2013.

[Chili Girl]

But what about the moral obligation to pay off a debt?

That is exactly the problem - this country has no morals anymore!

[SouthTexas]

Might just consider that, but I wasn’t raised that way. If you can’t pay for, you don’t need it.

Oh well.

[nufsed]

I was raised to pay off my house. My parents never paid one off, except when they sold. They learned to pay it off because in my grandparent's generation banks would foreclose to get cash. So people lived with the fear of the loan being called.

In the 1960s some people who paid off their loans actually had mortgage burning parties.

The reality is that there is no rate of return on equity. When you get in a bind, you can't always borrow, and equity diminishes with the market.

If you pur equity in a safe, liquid investment, you can alwyas pay it off if you can't sleep knowing you're making more than it costs you to borrow. Or you can let it grow, sleep well, knowing you're compounding your investment while the interest is the same every year.

Here's the scenario: I offer you $20 for every $10 you give me. You say, I don't have $10. I paid off all my debts. You decide to borrow it from someone who wants 12 back. I take 10 and give you 20. How much would you borrow from your lender to get the $20?

This is what banks do. They pay you 3-4% and loan for 6-7% or evn more on credit cards etc. It's called arbitrage and you can do it for yourself and teach it to your children.

[SouthTexas]

teach it to your children.

Both kids are building houses at the moment. :)

[nufsed]

Good for them. I hate those tract cracker boxes. Your children may be interested in reading Millionaire By Thirty.

[Doe Eyes]

Hope that repairs my immage!

Its image, and you're doing just fine.

[a real Sheila]

Stories like this only serve to support what I’ve always suspected-

I am BETTER than a lot of people (cause I have a conscience about paying my bills and paying them on time)

I DO have a right to JUDGE these slackers

[mylife]

Have you no heart? ☺

[aquila48]

“...but only if they are at least 90 days delinquent.”

Reminder to self -— STOP PAYING MORTGAGE ASAP!!!

[Bean Counter]

If we are betting the farm on the ethics of people who have likely already made the decision to default on the mortgage and appeal to DelanObama for a personal bailout, then we are more thoroughly screwed than even I had thought...

[murphE]

I wonder if the government will tax as income any forgiveness of debt/ principle or interest. Hmm.

[LowCountryJoe]

Ha! What a upside-down world we live in when a crises made because some borrowers are not honoring their contracts, is blamed on predatory lenders. What about flakey borrowers?

[nufsed]

The government is giving a grace period on primary residences. There is no tax on debt forgiveness before January 2010.

However, the debt forgiveness tax exposure continues on investment/rental properties.

[Atlas Sneezed]

If they must do a subsidy, they should make it clear on the application that the effort will trigger a detailed audit of the loan origination, and that any violations of federal law will be prosecuted. This includes the brokers.

That should calm down the rate of applications.

[nufsed]

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

[org.whodat]

Almost went to law school myself but as you see I cannot type worth a damn.

[a real Sheila]

The last 3 or 4 months have turned me into a bitter, cynical person with a RACIST tinge.
I’m FED up with our media, our congress, our POTUS, and definitely our POTUS elect!
This is a scandal/bailout that keeps on TAKING from the taxpayers and GIVING to the slacka$$es.
I especially just cannot believe the part about the loan officers will be given an incentive to solicit customers for this mortgage restructure.
What in the HELL is happening to this country?
Can we do ANYTHING about it?

[Diana in Wisconsin]

I’m with you. Peace of mind is SO worth it. I’m currently scrambling to pay off some CC debt from a business we started last year. I cannot WAIT to be out from under that.

Then, it’s all extra cash towards mortgage principle. :)

(1994 Nissan w/103K on her...just put a new computer chip in her that we found at a scrap yard for $100. She runs like a top now.)

[thirst4truth]

I am in the RE business. The repo's we are getting from the banks are way less than the purchase price. We have pleaded with the lenders to not adjust to the higher interest rates on these buyers, they refuse to listen. We encourage a Notice of Default homeowner to call and renegotiate, the banks will not do it. So they get the property back after 6 months of no payments, then it sits for another three months while they push papers around and finally list it. It is always thousands less than the purchase price, and all they had to do is re negotiate the loan with a smaller interest rate and the homeowner could stay.

I haven't met one homeowner or agent yet who even has heard of a bank re negotiating an interest rate.

[thirst4truth]

A default and being behind on the mortgage is not the same thing. Never default, have an attorney write a deed to the lender first, and move out. That is payment in full in most cases. Is that a Deed in lieu of foreclosure? You go to the title co and sign the deed over to the bank. That doesn't necessarily mean they won't come after you for the balance of the debt after they sell it, but they are pretty busy right now and maybe they won't.