Posted on 06/28/2009 3:25:45 AM PDT by Zakeet
If two parties who have willingly entered into a contract choose to modify the terms of that contract, that is their own business and I have no problem with them doing it. What gets my gander up is the government forcing one of the parties to modify a contract. When the government starts messing up the process, bad things usually follow.
So, you are right, the best solution might be for the banks to voluntarily take a temporary hit at this time in order to avoid a bigger hit later. But that would also require the lenders to grow a brain practically overnight, and I seriously doubt that will happen.
So you buy a house for $250,000. You put $25,000 down and get a 15 year fixed. You make it so that you're not terribly overextended and leave yourself a little wiggle room for emergencies or a monthly savings plan. Very good, responsible homeownership.
Then you loose your job and have to relocate to a new state. You want to sell your house, but now it's only worth $$180,000. You're short $35,000. (Assuming you've been living in the house for a few years and paid down some of the mortgage.) You've blown through your savings trying to stay alive for four months and find a new job. You don't have the $35,000 you need to sell the house and get out of the mortgage. You could get an unsecured loan for the difference at 19% interest, but your new job doesn't pay quite as well as your old one did.
I think that this scenario is going to become more common over the next few years. People are going to walk away because they won't have a choice.
The writer forgets that many of these people cannot make the payments on the reduced amount. They will simply default on that..intentionally or because they can’t pay.
Many of these loans were simply fraudulent.
WSJ says one of 4 defaults is “strategic.” That’s when mortgage holders who could pay the mortgage dump it because they are so far underwater.
“The researchers found that homeowners start to default once their negative equity passes 10% of the homes value. After that, they walk away massively after decreases of 15%. About 17% of households would default even if they could pay the mortgage when the equity shortfall hits 50% of the houses value, they found.”
http://blogs.wsj.com/economics/2009/06/26/when-is-it-cheaper-to-ditch-a-home-than-pay/
They’ll lie about why they are doing it also.
Exactly. It is a huge mess all around.
Is it time to give homeowners who have defaulted on their loans a ‘get out of jail free card’? Well let’s see- would that also mean that people who now don’t have a home can get homes for free too? Why should defaulters get free homes when there’s millions of people who work hard but can’t afford to get homes in the first place? Shouldn’t they be given the opportunity to get free homes as well as the defautlers? Heck- let’s just everyone free everythign from now on- let’s just pay off everyone’s outstandign debts, give them money, whenever they ask, free health care, free investing advice, on and on it goes. Why shoudl defaulters be the only ones getting free passes in life? Are the irresponsble people hte only ones these days entitled to prefferential treatment? If so, what a great incentive for everyone to becoem irresponsible, and to drive up their debts without a care i nthe world.
[[Some housing experts believe there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are at risk of foreclosure]]
The majority of real rational experts beleive that peopel get what they deserve in life, NOT what they want- We EARN our way in htis life, but our socialist government apparently beleives otherwise- they beleive those who are rich should pay for hte irresponsible acts of millions of Americans who took out loans they KNEW they could NEVER pay back!
"Yeay! Finally!"
[[There is another issue that’s bothered me: Owners who *didn’t* overextend, but who’s markets have fallen terribly. What happens when they need to relocate for a job? Retirement? Etc...]]
These are calculated risks that every person must make in life- our government should NOT be in the business of rwarding us when we lose on risky investments-
[[So you buy a house for $250,000. You put $25,000 down and get a 15 year fixed. You make it so that you’re not terribly overextended and leave yourself a little wiggle room for emergencies or a monthly savings plan. Very good, responsible homeownership.]]
Let’s say I invest i nthe stock market- I buy into a company that is doing very well, and looks like it’s goign to do well for a long time- however, a storm blows through, damages the company, the company invests in risky proposals to try to get itself goign again, but htose investments go belly up, and hte company is forced to shut down, I try to get out in time, but end up losing say $35,000 before I can ge5t my broker to sell the stock- would it be the governments responsibility to reimberse me for my loses? I don’t see where it would be any different for any other type of investment, such as buying a home.
If you can't pay your house note it is not because you are underwater, it is because you got a home you couldn't afford, a loan you couldn't afford, or did a cash out refi.
Yeah, this’ll solve our financial crisis....
Even though I’m a homeowner I LOVE that prices are falling right now.
I have 7 yrs left on a 15 yr mortgage on a house that is too small for my large family in a neighborhood that isn’t the greatest with schools that aren’t the greatest (I have 4 kids, 4 bedrooms, converted the dining room into a bedroom and converted the living room into a home office; a huge auto dealership is being built next door).
I’d love to upgrade, and move, and now I finally can—we’ve saved up enough for 20% down on a better house with more land in a better neighborhood with better schools, and we don’t even need to sell our current house. Plan to rent it out to all the foreclosed people. Houses are renting out well in my area.
I couldn’t have done any of this without the price drop. Homes that were once unaffordable to me are now affordable.
I read somewhere that the IRS looks on this type of forgiveness as "income" and taxes you accordingly, so even if you haven't been working a while, you still get hit. Mebbe I'm off on this, but the proposed "help" has the smell of Unintended Consequences.
Thank you, Marie. This is similar to what has happened to us.
We bought a condo in CA two years ago. It is now worth $250,000 less than when we purchased it. Meanwhile, we are paying the property taxes on the original value. There have been so many defaults in our neighborhood that the homeowners’ association has had to raise their monthly rates substantially to make up for them and the value of our home has decreased further. Our city has notified citizens that they are raising the rates for all utilities by a large amount. If we sell our home now, we will lose all the equity we built up over a lifetime. Our retirement investments have taken less of a hit than the average person’s, but a really sizable chunk is gone.
Most of my husband’s clients were homebuilders. They evaporated. The few clients he has left want to barter, take 90 days to pay him, or pay in tiny increments. Our income has plummeted by 75%. My husband is working 12 hour days trying to turn potential opportunities into something that will generate some income. Most of the offers ask that he wait until there is some kind of profit before he gets his share. He hasn’t had a good night’s sleep since November. Meanwhile, the school district I work for is talking about reducing the number of days we work.
We have a perfect credit rating and are responsible people. We have always paid our debts honorably and we are continuing to do so; but the world is crumbling around us. Our elderly parents are here and need us. We can’t uproot them or leave them here alone. Our children are here. We are stuck in CA for the time being and deeply frightened about what is happening to CA.
We, FRiends, are the people you are so callously commenting upon.
People are going to walk away because they won’t have a choice.
Depending on the state you’re in (e.g. California), and whether you’ve refinanced or not (not under your scenario), the bank cannot pursue you for the deficiency. In California, and a number of other states, if your loan is a purchase money security interest (which, in California at least includes a construction loan) and not a refi, deficiency judgments are not allowed. You give the bank the keys and that’s it.
Here is an idea that should be explored.
The reverse mortgage program is for homeowners 62 years of age or older. Essentially, it allows people to stay in their homes, but forestalls mortgage payments until the property is transferred, usually due to the death of the homeowner.
The underwriting requirements are still very strict, reflecting a financial mindset that goes back a decade or more. If the FHA would loosen those requirements, seniors could free up their own cash flow situation, with very little risk to the government.This would put money back into the economy, without phony tax rebates or other giveaways. It would be a win-win situation that Congress should look into. There are also hefty fees involved, most of which accrue to the private sector.
I still wouldn't (couldn't) vote for Barney Frank, but he would garner some admiration from seniors who would only be spending their children's legitimate inheritance.
Right now, the reverse mortgage program is about as popular as a Christmas Club account. Bringing it into the 21st century might attract more participants.
Bottom line, there are many homeowners who are well above water, but still cannot tap into their equity.
Just a thought, admittedly self-serving, but still worth a look.
I’m not upside down and have been working my butt off to faithfully discharge all my obligations. I cannot make MORE people’s house payment than I already am. I am sorry for them, but life has ups and downs, and they knew what they were doing when they signed their mortgage.
At some point the breaking point will be reached and taxpayers will simply walk away. I know I’m close.
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