not getting away with anything

[elessa]

read an article today in the san francisco chronicle discussing "walkaway" borrowers. you know, those people who have decided that they will stop paying their mortgages and send their keys back to their lenders. in many instances it isn't a matter of financial hardship that is inducing them to do this. it is rather the realisation that with the market adjusting their house is worth less than what they have it mortgaged for.

this adjustment/correction has happened before. there were homeowners in the early 1990s who were in houses which were valued less than the loans against them. but lo and behold, the market corrected after a few years and the values of those properties began to climb. the appreciation surpassed their wildest dreams. the greed of those in those houses who turned around and sold them to people looking to "flip" for a profit, and selling to those who took out dubious loans has created the current mess.

a house is a place you live. a HOME! it is not an ATM machine.

well, now fannie mac and freddie mac have let it be known that there are penalties for simply walking away because you don't want to pay your mortgage. it could be five to seven years before you can get another mortgage. also, you may not be able to obtain credit cards, student loans, auto loans, or even get a job. (yeah, there are employers who run credit reports to see if you are responsible.)

the real kicker is that the IRS could come back on those walking away. imagine having to pay income tax on the balance of the loan. ouch! the bank loaned you the money. you used it to buy the house. hence, you are considered to have taken that money as income by walking away from paying it back.

think again, people. there is no free ride. you signed a contract saying you would repay the loan. it is your own damn fault you made a poor financial decision.

to those who say making payments on an upside down house is throwing away money are looking at the house as an ATM machine, not a HOME!

i am sorry. i simply find this all to be very amusing.

Comments

[stmarc.livejournal.com]

Some reporter the other day said that people were losing their houses because they were "unable to pay because their houses were worth less than the mortgage."

Say what?

It's the same house you had yesterday. It's the same payment you had yesterday (barring ARM's that go above your ability to pay.) The fact that you're upside down has NOTHING TO DO with making the payments.

Bill Bonner over at the Daily Reckoning has been observing for several years now that for some reason people have got it into their heads that houses are investments. They are NOT. Houses, at least the one you actually live in, are consumer goods. They are consumer goods with reasonably good resale potential, but they are consumer goods. Therefore, over the long term, houses must cost what consumers can afford to pay for them. Right now, the average person in most areas cannot afford the average house. That is unsustainable. Since wages aren't going to go up, prices will have to come down. Period.

Do you know I saw some other financial commentator seriously suggest that the government should start BULLDOZING HOUSES in areas with "excess inventory?" With people living in ghettos and slums because housing prices are artificially high? He ought to be horsewhipped. Let Supply and Demand get together again. A lot more people could have a lot nicer houses just by letting the market settle this! If that means a lot of people lose some money, well, the Fed can (and will!) always print more.

M

[elessa.livejournal.com]

the problem is that no one is allowing supply and demand to correct the situation. there is a complete lack of commonsense dominating the entire situation.

if left alone the market will correct itself.

but, nooooo, the government is stepping in which is only going to make the situation worse. i have the feeling those in positions of power slept through economics class.

i completely agree with you about the house being a consumer good. a HOME, not an ATM. *sigh when will people ever learn?

[elessa.livejournal.com]

what gets me are the loans for 110% of the value. huh?

or how does someone who earns $2400/month think they are going to afford a mortgage of $500K? there is a limit to how much money you can spend per month and live.

and yes, the house was bought for $75K and is worth $500K, but so are all the others just like it! you can't upgrade to larger unless you have the funds to get a higher loan.

[muzadi.livejournal.com]

I understand the theory, but...I have to look at my own situation, which had the cards fallen only slightly differently would have been catastrophic.

Consider:
1. Buy a home with one's wife.
2. Market crashes
3. Wife leaves
4. Try to sell

Can't foreclose, since the house - like virtually every house in the area has a second mortgage, and neither foreclosure nor bankruptsy protects you from that second mortgage.

So, pay on a $75k second for 20-30 years while also trying to pay rental costs on a place you now actually live in. I don't know about other people, but I'm just barely above water as it is.

Now, as it turned out, we did manage to get a buyer and after a harrowing series of turned downed seconds for them, something finally came through, but had it not, I don't even want to think what I could have done.

I am certainly not saying one isn't responsible for bad bets and unpredicted events - you sign the paper, you do your best. How far does that go, however? Debtor's prison? Because the way the laws are set up, due to factors entirely outside your control you can wind up with your wages gleaned for 20-30 years with absolutely nothing you can do around it.

What has to be taken into account is that the loaning banks, not just you, were betting on the market, but they - unlike you - are the last to lose in this kind of situation.

I would just suggest that both parties need to meet in the middle, and that it isn't just a "Sorry dude, here's your life ruined on a platter."

[elessa.livejournal.com]

a major part of the problem is people who take out a loan to get a loan. second mortgages for the purpose of a downpayment are not a good idea for exactly this reason.

i have owned two houses. i was fortunate in that my ex was military. the first loan was VA. our second house was loan we obtained with a downpayment from the sale of the first house.

i refinanced the second house when we divorced. one mortgage. fixed. i was the one responsible for the payments and accepted the risks. after four years, i sold it so i could move north. do i have any money left from that sale after another four years? no.

i will again own a house. no second mortgage. it will be a loan i can afford.

[muzadi.livejournal.com]

For many parts of the country that is perfectly reasonable, but not getting a second morgage is simply not an option in the SF Bay Area unless you are independently wealthy or already own another house in the clear.

[elessa.livejournal.com]

which is why the market needs to be permitted to correct itself without government intervention continuing to feed the artificially high housing prices.

fyi, my houses were in san diego. not exactly a part of the country that is "reasonable". my first house which was bought the same time my sister bought one in indiana cost 4X as much as hers. it was smaller than hers.

my parents just paid $150K cash for a 3500 sq ft house in indiana. my 2200 sq ft house cost $445K...

[muzadi.livejournal.com]

Starter houses in this area are $550-650k.

Regardless, none of this addresses the issue that the risk is actuality mutually between the borrower and the lender, but only the lender is legally liable.

I agree that the bubble needed to pop, and people who are trying to get out of situations that didn't function like an investment I have no sympathy for, but they aren't the only people or situations out there, and just pointing at them and laughing and going, "Ha, ha, you should have been smarter," is unrealistic in the extreme.

[muzadi.livejournal.com]

Excuse me, only the BORROWER is legally liable in this situation. Ahem.

[elessa.livejournal.com]

i am not pointing at all borrowers. each and every situation is different.

it is the ones who viewed the house as an investment/ATM machine that would only rise in equity in horrific leaps only to discover there is a limit then period of adjustment to cope with who i shake my head at.

a house should never be purchased with that in mind. it is a bonus, but the house should be a home first. a place to live. back in my grandparent's day and earlier. you bought the house and stayed there for thirty or fifty years. none of this mindset of buy another one every two years or so.

[elessa.livejournal.com]

when we bought our first house we went and prequalified on a loan. we knew exactly how much we could borrow on a single mortgage. we only looked at houses worth that or less.

a second mortgage for the downpayment is a gamble for the very reason that is occurring. you are using equity that can be lost when the market shifts.