NSXNEXT

iTrader: (2)

But that's the issue, you cannot simply look at it as a numbers game. It's like saying "Hell I can make millions robbing banks".

There are consequences to those actions. People need to stop blaming others for their problems and take responsibility.

Hey guess what, I'm going to lose money selling my home but I'm a man and I take it as a lesson learned.

amisconception

So in other words, you're saying that we should look at this from the perspective of an immoral criminal? Sure. OK, then it's a great idea.

amisconception

You're asking for WAY too much here buddy.

Trackruner228

iTrader: (1)

The topic the OP is talking about is possible. I know someone who was behind on their payments and since they where upside down in the loan the bank didn't foreclose.

amisconception

I hear you can rob banks for a boat load of cash these days.

I mean, since we're not taking the law, emotions, morals, or values under consideration.

TzarChasm

I'm pretty sure if that person stopped paying altogether, the bank would forclose as soon as possible.

amisconception

There's a difference between actually NOT being able to pay your mortgage and having the ability to pay but not paying to game the system.

Gaming the system is what led to the mess we're in now. Sure that's an oversimplification of the problem, but it's a huge reason why people took out speculative liar-loans in hopes of cashing in on the bubble.

Trackruner228

iTrader: (1)

Believe it or not I know for a fact he didnt. I mean granted he took out the equity and totally trashed the house (smoked in it , and dog) so the value plummeted. He lived in it a long time before making payments. It just wasn't worth it to the bank to foreclose.

TzarChasm

^
He is correct. If you just stop paying, but you can, the bank is NOT going to let you off the hook.

If you lose your job and stop paying, they MIGHT allow a short sale but it is different for every person, and in any case is not AT ALL what you are talking about.

Just stopping payment because you feel like it is not as easy as you think it is. Bankruptcy laws have gotten more strict in recent years in order to stop exactly this kind of nonsense.

Trackruner228

iTrader: (1)

I never said it was right I am just saying you can get away it. Its sad that people who can pay don't but that's the society we live in. Ask not what you can do for your country but ask what your country can do for you.

TzarChasm

Wait, so the bank did forclose? Are you sure it had nothing to do with the bank just being busy? What kind of time frame are you talking about? Several months to a year is pretty regular on a forclosure. Your story needs more detail.


And you agreed with a negative which means he kept making payments, but I don't think that's what you ment to say.

BubbaMarkTL

Let me present this in a slightly different way.



Family of 4, stay at home mom, living in south florida. Father makes 75k a year. Purchased home in 2005 for 375,000 and have a mortgage payment of 2500 per month. The current payoff on the loan is 330,000 and the current value of the property is 275,000.

Every monthly payment brings down the principle by approximately 300 dollars, the remainder goes to interest and escrow.


Course of action A)

continue paying the payments. In one year, the payoff will be 325,000 or more and the property value will be between 250,000 and 275,000. 30,000 dollars in monthly payments will be spent.

End result - negative equity in home = approximately 75k-100k + additional 30k lost due to a year of making payments.

Total for Course of action A = NEGATIVE 105k-135k

Course of action B)

Stop making the payments. after 5 months of not making payments the family is finally served papers to leave the home. at this point they are +12,500 in cash. Find an apartment, in order to offset landlord concern due to foreclosure, offer verification of income and 10k rent up front for the year from cash reserves created by not paying mortgage. Rent = 2000 per month. 10k down would reduce monthly rent to 1166 per month.

2500 remaining cash savings from mortgage payment stopping PLUS 16008 dollars cash saved due to reduced living expenses (2500 mortgage vs 1166 rent) = 18508 cash savings after 1 year.

This doesnt even take into account that the family is now off the hook for the 105k-135k negative equity.

Again, based on numbers alone, this is a no-brainer. in ONE year, the family can be 150,000 dollars or more in a BETTER financial position...with lowered credit, absolutely, but for alot of families, this is the question that they are facing now or will be facing soon. Is it worth 150,000 dollars in 1 year to sacrafice my good credit score for 5-7 years. As this recession continues it only seems fair to assume that the answer for more and more people will be a resounding yes. Holding credit scores over peoples heads as a be-all end-all is no longer going to be enough incentive for people to continue to do the right thing. And as this increases, banks will be faced with unsurmountable time and legal fees to fight or stop such behavior and would probably in alot of cases just let it go, sell the properties at a loss and wash their hands of these situations.

amisconception

Who do you think pays for that difference? Shareholders are wiped out, banks go out of business, taxpayers are left holding the bag - and other countries that bought our securities hate us because we have a system and culture that rewards deadbeat borrowers.

You simply CAN'T look at it from a "numbers alone" perspective. That's not the ONLY consequence of foreclosing so why bother?

BubbaMarkTL

we are not talking about hurting people or murdering people, we are talking about very difficult decisions familes are making or will have to make in order to keep their families going. It is wonderful that everyone here is fortunate enough to be gainfully employed, afford your mortgage, not have a need to sell a home right now, etc, but we are becoming the minority! over 10% of mortgages nationwide are in forclosure or behind on payments. that is staggering information! if i had to choose between fucking over a bank and feeding my family, im feeding my family, if that makes me an immoral criminal, so be it. that is where many familes are at right now or will be as this recession continues to worsen

Trackruner228

iTrader: (1)

Eventually he sold the house for around 300k, and it had 450k ish on the mortgage left. He worked out a deal hes only going to be paying 60k back. During that time it was probably about half a year,maybe more the bank didn't foreclose. They would have just lost to much money on the fore closer at least this way they made 60k. Of course now his credit is in the crapper.

taitando

I’m not condoning the idea, but the OP definitely isn’t the first to consider the stop paying and possibly “walk away” option. It’s happening all around the country because people are upside down in their payments. There are very few places where equity is still accruing. If anything, homeowners keep losing equity on a daily basis. And when equity stops accruing, people are basically sinking their funds into a money pit.

Many of us are quick to condemn walk away homeowners as irresponsible, selfish, and wrong, but there are millions of homeowners such as the OP who are weighing the pros and cons of defaulting on their home loan versus getting behind on other types of payments (credit cards, cars, etc…).

If the news is any indicator, it’s shown that people these days are much more likely to put their mortgages on the chopping block before anything else. And many are not walking because they can’t afford the payments, they are walking because all of their after-tax income is going out in bills, with the largest portion going to a home worth half of what they owe. When such a large portion of income is spent on a massively depreciating asset, it makes financial sense to dump that asset. But if you can’t sell the asset, what else can you do?

Stop paying or walk away? That’s what many have decided.

Of course there are consequences. If you walk away now your credit will be ruined for 5-10 years. But many don’t care, because it will probably take longer than that for home prices to come back, if they ever make a come back. Meanwhile, it may take even longer for borrowers to pay off the original mortgage, which could be 100% higher than the present value of the property.

If you think about that scenario, if your home's value is down or you are underwater by 50%, which is common in the bubble states, your home’s value would have to go up 100% to break even. Think that’ll happen? Doubtful. At least not in the next 5 years.

BubbaMarkTL

oh beleive me, i know full well who pays for it, I have stock in 3 different banks and have lost about 85% of the money in the last 18 months, it sickens me to see the value of one them go from 22 dollars per share to 1.57 per share as of today.

its shitty but its todays reality. banks ARE going out of business and merging left and right, its like the whole world economy is "rebooting". Frankly i find it frightening to not at least acknowledge what is going on and consider that difficult choises may need to be made.

Look at the situation in chicago right now with this window and door company thats making national news. The company shut its doors and fired everyone, only problem is that they were guaranteed in their contracts to receive severance pay and vacation pay....company says they have no money and the employees are SOL. is that fair? is that "the right thing to do"? nope!!! is it illegal? well the employees and their reps certainly think so, but what can be done? You cant squeeze juice out of a rock!!

BubbaMarkTL

Thank you for your excellent post, this is exactly what im saying.

amisconception

Who said anything about hurting people when I rob a bank? People rob banks with hand-written notes alone. You don't need a weapon.

And besides, you're the one who said not to take laws, morality, values or emotion under consideration. It's strictly about numbers. Prior to robbing a bank I had $0. After robbing a bank, I will have $10,000,000. Sounds like a sound plan to me (using your logic).

No you're not. You're not talking about hardship like a loss of employment or an income-producing member of the family getting cancer. You're talking about gaming the system when you don't have to.

I lost my job due to economic conditions, have no mortgage, and do not own a home. And again, if I did lose my job and wasn't able to work, that would fall under a hardship and thus qualify me for a short sale.

You're rationalizing gaming a system by incorporating a hardship reason when you don't have one.

That's because people "purchased" homes they couldn't afford. Either by trying to game the system via speculation or financial ignorance.

Again, you've now changed your argument to include a hardship. That wasn't the case in your initial scenario. Remember "numbers alone" ?

amisconception

So you're condoning the very actions that have left you with a loss of 85% of your stock's value? Sounds pretty retarded to me.

We all acknowlege we're in an economic crisis. The source of the problem seems to be escaping you though.

So you're saying all contracts should be backed by the full faith and credit of the USofA?

While I don't know the details of this story... It was the employee's decision to work for said company. It was his choice to take on employment with the assumed gaurantee of the company's future financial health and their ability to live up to their side of the bargain. It wasn't forced on him.

TzarChasm

Your thinking is still flawed for several reasons.

1. the numbers you are assuming are VERY large. Whoever this fool was would have to have WAAAAY overpayed for that house for the value of the house to have gone down by 30% AFTER going up for two years equaling a net loss of 50% or so. It's possible, but unlikely.

2. You are assuming that the bank is going to let him get away scott free. Again, I think this is unlikely. In the case where a person can pay but chooses not to, the banks are not likely to just let him off the hook. Then, thinking he is a smart guy he stops paying, ruins his credit, and still gets told by a judge that he has to pay. The risk of that happening is one thing that keeps people paying even once they look at it as a "based on numbers alone" scenario. I do not think more and more people are going to be doing this, most people who lose their houses are going to be ones that shouldn't have been there in the first place, not just ones that bought high.

3. In your based on numbers alone, you do not take into account the costs of moving, rent increase, the possibility of having to change schools, the difficulty of finding a comparable place to live, insurance increases, the possibility that their credit may never recover, loss of credit cards, seizure of assets, difficulty finding work, morality/esteem issues for kids and wife (assuming dad is too much a dirtbag to care), and probably a whole host of other potential negative side effects that I can't think up off the top of my head.

Like someone else said, you could use this same justification for robbing a bank. "if I just go in and take some money, and I am able to get away with it, "based on numbers alone" I will be much better off." But fortunately there are frequently consequences to those kind of actions so they are not all that common.

The real danger is in people like you who think "everyone is doing it" so you think it's ok. It's still not, and people who find themselves thinking it is, may very well be in for more than they barganed for.

TzarChasm

6 months to forclose on a home is pretty normal right now it sometimes took years even in the old sustem. i doubt it really had anything at all to do with the house value.

TzarChasm

This is not AT ALL the situation you origionally presented. If you want to talk about weather it's possible to be unable to pay bills through no fault of your own, then take it to another thread, that will probably be boring and full of people agreeing with you.

Trackruner228

iTrader: (1)

Your probably right I dont really know the details. All I know from what I understand is that it didnt get foreclosed on. I did get the impression though that the bank didnt really want too. I will have to find out more details later.

Anachostic

Primary issue with example: Assuming $75k/yr income and $0 monthly expenses (impossible), the maximum home purchase should be $267k. The family is already $100k overstretched.

So anyway, an alternative of action A is to stay in the house for 10 years, apply additional funds toward the mortgage as they become available (via raises or supplemental income), and sell when the market value of the house is equal to their debt.

Since they paid continuously while in the house, they will reach that point faster. Technically, they will have positive equity. All houses will still have depressed prices, but they reached parity quicker because they kept paying. Now, after selling the house, they maintain excellent credit and can purchase another house at a slightly lower price than when they brought their first house.

An alternative to action B: They walk away from the house and become renters. Their credit affects their insurance: health/auto/renter's each go up by $20/mo. or $720/yr. They need to get one new car. They get a 20k car. Because their credit is poor, they get a loan rate of 8% instead of 5%. This costs them an extra $30/mo in payments and costs $1700 in extra interest over the loan's life. Repeat similar situation if any child is college-bound.

Last point: If the sole breadwinner of the family falls ill or something else unexpected happens, a bank would be more forgiving to allow a monthly payment to be deferred than a landlord. Banks would just extend the loan another month. When renting, you have to have last month's rent, plus this month's rent. That's a hole that's hard to dig out of. But then again, if the example family did it once, there's reason to believe they could let the payments slide until they got evicted again.

Welcome to "the other people."

BubbaMarkTL

1. unfortunately these numbers are pretty standard for the hardest hit areas like south florida and vegas. most areas are not that extreme, but some are. I know someone who bought a beautiful 2 bedroom condo in clearwater, FL in 2004 for 289,000 roughly, it was brand new, highly upgraded, etc. Now his neighbors cant sell equivalent units for 200k. this is not due to stupidity or ignorance on behalf of the buyer, its just the market we live in.

2. who at these banks is tasked with researching each individual person who is defaulting on their loan, calling their bosses, etc, to establish if they actually lost their jobs? hell, alot of the mortgages that are foreclosing right now were given without any income (or employment) verification!! so these banks have no way to track or discover your income. that becomes a ridiculously complex and time consuming task that i have yet to hear banks really getting involved in. It is the fear of this sort of investigative behavior that has you maintaining your payments when in reality, youd have to be a pretty big fish for a bank to go out of their way to isolate your case and hire investigators to figure out if you are actually employed. And if you are that big of a fish and have already gone down the road of doing such a dishonest and wrong thing, its not that much harder to take it a step further and hide your income from prying eyes while this whole situation plays itself out until you are foreclosed and the books are closed.

3. you have a point there, absolutely, but again, add all that extra stuff up and you still come nowhere near the amount that you are saving by ridding yourself of the large negative equity that was your home / mortgage.

Anachostic

Why does everyone keep talking about losing $X in the last year or prices returning in Y years? There is a reason mortgages are 15 and 30 years. That's how long you're supposed to live in them!

Yeah, I know that time has sped up, but still, can't everyone sit still for a while until things improve?

taitando

I just "purchased" a bank owned property locally here. The last person stayed there 10 months rent/mortgage free before they finally foreclosed. Banks are inundated right now.

Going back to the OP. I feel for your situation and would probably consider the same if I were in your shoes. Whatever's wrong or right, it's up to you to decide what's best for yourself and your family.

I'm just glad I didn't buy 2 years ago when everyone was telling me how it was "such a great time to buy". It's like being upside down on a car payment but to a greater severity. Unlike a car, you can't trade in a house and have the debt added to the backend. But like a car, you can get repo'd. Either way, you gotta pay a price (tangible or not)...

BubbaMarkTL

I dont know a single person under the age of 70 who has lived in the same home for more than 15 years at a time. Nor do i know anyone under the age of 70 who currently does or ever has truely OWNED a home outright. Staying put in a home for 15-30 years is not the society we live in anymore.

The is a limit in any successful society and economy to how many people SHOULD own homes. A successful modern economy needs a good portion of its workforce across ALL fields to be mobile and not tied down and saddled with debts that force them to stay put. we just simply live in a different world than our parents or their parents.

TzarChasm

1. you are talking about a very small subset of people however. I did allow that it was possible, but it's unlikely. If you want to only talk about extreme cases then fine, but I got the feeling you were talking about a more general public.

2. IF you had a dishonest loan application from the beginning then your right, it is going to be easier to walk away. But again, that's a whole different topic really, and could once again potentially mean legal trouble. I know the banks up here have been assisting the DA with prosecuting people with fradulent loan applications. The problem is that a lot of them were illegals anyway, and they disappear into the wind. If however, like most people you filled out a real application, they can easily call your place of employment, it's not all that tough a job.

I think you are mixing a lot of scenarios in order to try to prove something is how you want it to be, but the reality of things, and the way you would like things to be, do not seem to fit.

TzarChasm

Thats because at age 29, your sample size is too small. Your friends, if they own homes, would have had to have bought them at age 14 to have lived there for 15 years.

Most of the people I know have been in their house for 10-15 years and have no plan to go anywhere. I have known some people who have either moved or upgraded, but about 80% of the people I know have the same house.

Anachostic

These are people that should not own homes, then. A home is not a liquid asset. "Not [being] tied down and saddled with debts that force them to stay put" is called renting. And you can rent a whole house so there's no excuse to confuse apartments and houses.

Your point about having a limit as to how many should own homes is a good point. We've discovered that limit and then some.

BubbaMarkTL

in this economy and even 5 years ago, it is and was VERY difficult and rare for a 20-something year old to be able to afford a home that they would even consider living in for more than 5 years. 20-30-40 years ago, a 25 year old would already be married for a few years, have a couple kids, be well on their way with their career or whatever and be able to buy a 4 bedroom home well under 100k....and yea, of course, their salaries were lower but the ratio of average salary to average homeprice is so out of control in this country, thats part of what got us in this mess to begin with!! Hell my first house was a 1100 square foot bungalow that i bought for 106k....sold it 4 years later for nearly 140k and only invested about 2 grand into upgrades and upkeep. Now im in a condo on the lakefront of chicago and paid a TON more than those numbers for and ive been there nearly 2 years and if i could sell it for the exact amount i paid, id be jumping up and down for joy!!!

DLCU2

Wow, how can you even think or suggest something like this

Imagine the rest of the world decides to do the same, you're going to put the world in a even bigger crap hole than we are already in. Banks won't have any more money to lend out, and a lot of businesses that depend on these credit lines and loans for their business wont have it available to them. The number of job cuts will be ridiculous..... it will be far far far worse than the great depression.

So, no, I don't think its just as simple as hurting one's credit and having an extra $4,500.00 in your pocket. The government will just try to bail out these companies, and this money will ultimately come out of the tax payer's wallet. Maybe they will print more money to offset this...causing inflation to spike. Then what? your $4,500.00 will have the same purchasing power as $450.00. Is it worth it?

NSXNEXT

iTrader: (2)

Exactly what I was going to say....It's like the stock market....so long as you don't sell you haven't lost ANYTHING!!!!!

And tough shit if you took out more mortgage than you can afford. Mommy and Daddy aren't there to bail you out.

And Bubba, the reason we're in the shitstorm we're in is due, in large part to people not listenining to their consciences and saying "Wow maybe we can't afford the mortgage the bank is offering us." You provided a perfect example above.

NSXNEXT

iTrader: (2)

Mistake #1 is ASSuming a home is an INVESTMENT

DLCU2

BTW, if you didn't know, this whole sub-prime mortgage crisis all started with people who decided they couldn't make a mortgage payments! Sure it partially the bank's fault for offering these mortgages with outrages variable rates, but the buyer should have been more intelligent to figure out what he/she can afford. These troubled loans ultimately got repackaged into bonds and complex derivatives that became a huge part of the the collapsing financial industry. I see that you are getting flamed big time for this thread...do you understand now? Its just not that simple....

BubbaMarkTL

you cant possibly beleive that. One of the bedrock foundation principles of a successful economy IS that homes ARE an investment and will appreciate in value over time. hundreds and hundreds of millions of people throughout american history have relied completely and solely on this principle in order to live a successful life, put kids thru college, save for retirement, come up with cash in emergencies, etc. If a home is NOT an investment (which unfortunately for this window in time, it appears it isnt) that is a back breaking injury to the economy. If people cant have faith in their homes to sustain their values and increase in values, theres not much else you CAN count on...

i really take issue with your statement that it is an assumption that housing is an investment. American history itself proves you wrong your statement above.

BubbaMarkTL

the cause of the crisis is not in question here and really doesnt matter much anymore. This thread is about an increasingly popular (albeit unethical) way to potentially save yourself from further financial ruin

TzarChasm

Actually you are wrong again. In several ways.

1. It is extremely common for home prices to fluctuate. If someone ever told you that house prices were going up forever, that person is an idiot. If you believed them, you too are an idiot.

2.The amount of money you spend on a home would historically be better off put into the stock market. House prices generally hold with inflation so a house is not really an investment (or at least not a real good one). The standard is normally houses are "worth" roughly 3 times the average salary in an area. That historical standard has been fairly true until recently when we had a bubble, that did as all bubbles do, and popped.

3. Your understanding of the word investment is poor. An investment makes money in the long run. For you to say that since you can't get your money back for a house you bought two years ago means it is not an investment shows that you don't understand the word.