Would you Walk Away from your Home

[disneysteve]

P.S.S. If people actually put 20% down on their homes I don't even think this would be a discussion. Less people would be upside down. & those that were upside down would think a little more carefully about leaving that 20% down payment behind.

True. Also, if people had kept payments to 28% of income and taken fixed-rate loans. Many of the problems arose with folks who put down little to nothing. Many problems arose when interest only loans had the principal payments kick in or ARMs adjusted. They could afford the initial payment but not the new payment, and they knew that when they bought the house but figured the rising value would save them and they'd refi before the new payment started.

[tripods68]

Steve,

There are two kinds of homeowners today IMO:
1. People who believes in doing the "right" thing. These are people who made responsible decisions, bought their homes before the bubble.

2. People who bought homes during the 'haydays' of the housing market and are now up-side down but still can afford their house payments. These people are responsible who wants to REFI but can't. So you have large populations that have made this transition.

In this sense, its easy to comprehend the state of mind of most people where they are. I fall in the 2 category, being up-side with our mortgage but its a decision that have cross my mind without a doubt.

[JoshuaHeckathorn]

2. People who bought homes during the 'haydays' of the housing market and are now up-side down but still can afford their house payments. These people are responsible who wants to REFI but can't. So you have large populations that have made this transition.

Are you 100% sure you can't refi? Check to make sure your loan isn't owned by Fannie Mae/Freddie Mac first. Here's a link for the Fannie Mae Lookup:

Does Fannie Mae Own Your Mortgage? Loan Lookup Tool

Through the Home Affordable Refi program (HARP) you can do refis for up to 125% LTV, and your lender should be able to close in 2-3 weeks. Unfortunately, a lot of people still aren't familiar with HARP.

[tripods68]

Are you 100% sure you can't refi? Check to make sure your loan isn't owned by Fannie Mae/Freddie Mac first.

I've checked. My loan is owned by my credit union.

[snafu]

I've been through this scenario before. We live in an economic 'roller coaster' city. When our oil based economy is good, things are very very good, when oil prices drop suddenly, the economy suddenly goes into a tail spin. The bottom dropped out in '72 [I think] and my parents saw the value of their paid off home drop like a rock. People whose job vanished, walked away having 1st stripped their homes of appliances and even cupboards! Thieves were breaking into homes and stealing wiring!

It devastated the newer communities since there were so many empty, stripped houses. The banks were very good working with anyone who was willing to stay and tough it out. I saw the same thing happen in 1982-83 when mortgage interest rates went to 18%. Vast numbers of homeowners no longer qualified for renewal as it was over the 33% allowable. Again, the banks were key in stopping the chaos. Apparently there was a lot of 'creative' financing with houses evaluated using a different criteria.

In both these time frames, it only took a couple of years to restore value. I know a lot of young families were bailed-out by their parents but their houses weren't over-valued in a 'bubble.' Likewise, there was not so much emphasis placed on FICO scores. Today,
employers will reject qualified candidates because their credit rating is poor.

I know businesses do 'strategic defaults,' Enron type companies wreck havoc for swaths of families, Bernie Madoff [sp?] ripped off Charity Organizations, the Executive group pay themselves 200 times the average salary in their organization and the very Bankers who caused the maelstrom paid themselves handsome bonuses but do you see it as good business decision making? Is it what you would do if you were in the decision making chair...

[tripods68]

I'm so attached with the house. It is the home that my husband and I started with. Its where we start to build our family...

This is the biggest reason why we wouldn't move. The fact that our kids have only known 1 home their precious little years (6 and 5). Plus we love our home and its the center of our Universe.

[rj.phila]

i wouldnt fault anyone for walking on an underwater mortgage. this notion of a loan from a bank as some kind of gentlemanly agreement amongst honorable parties that should be upheld due to dignity and personal constitution all became horsedoody, AFAIC, in light of the behavior of some of the loan issuers. really sickening stuff.

also, lets remember that US laws dont prevent the kind of leverage that(along with many other things) facilitated the problem. other countries that have 20% down min requirements didnt have this problem. other countries have laws that allow creditors to pursue other means of collateral. the US wasnt alone in their governance on alot of these issues, as well.

as is true in researching anything, i think one must ask the age-old question: "who benefits most?"

[cypher1]

i wouldnt fault anyone for walking on an underwater mortgage. this notion of a loan from a bank as some kind of gentlemanly agreement amongst honorable parties that should be upheld due to dignity and personal constitution all became horsedoody, AFAIC, in light of the behavior of some of the loan issuers. really sickening stuff.

By that rationale, if I took out an auto loan for a new car and there is a huge recall on the auto name. The car's make/model reputation in question, and value drops significantly. Is it still justified for me to walk away from my car since I feel it's worth less than what I owe? I mean its not my fault the make made a mistake, and value basically crashed. Why should I get the shortend of the stick?

If it comes down to me not being able to eat, or having a roof over my head, I know where my priorities stand.

[rj.phila]

cypher1- you're making several references, and i think im not fully clear on exactly what you're saying?

re: priorities-yes, i think any rational person would choose food over shelter. (not sure how that bears on it? maybe explain more.)

the OP was posing the question of electively walking on a mortgage. so "short end of the stick" is a relative concept, IMO.

or, to put my opinion another way:

lots of factors were in effect. i think its important to look at who stands to gain, and lose, the MOST in a situation where a homeowner winds up underwater. so, consider the spectrum from borrower, loan issuer, parent company, security issuer, security speculator, all the way up to CDO shorter, there are varying degrees of incentive towards gain/loss, that are risk-adjusted, if you will. my sympathies lie most with the people who have the least to gain, and most to lose, who i think were the "most taken advantage of". IMO, those happen to be the borrowers. nobody's "hands are clean". but some are much cleaner than others, surely?

im speaking from a practical, assessment of loan perspective. not an "i love my home" perspective-which i think is how the OP was referring to the issue?

[JoshuaHeckathorn]

I've checked. My loan is owned by my credit union.

Bummer...well, if you love your home, then stick with it. I'm a believer that values will rise once again.

[cypher1]

cypher1- you're making several references, and i think im not fully clear on exactly what you're saying?

re: priorities-yes, i think any rational person would choose food over shelter. (not sure how that bears on it? maybe explain more.)

the OP was posing the question of electively walking on a mortgage. so "short end of the stick" is a relative concept, IMO.

or, to put my opinion another way:

lots of factors were in effect. i think its important to look at who stands to gain, and lose, the MOST in a situation where a homeowner winds up underwater. so, consider the spectrum from borrower, loan issuer, parent company, security issuer, security speculator, all the way up to CDO shorter, there are varying degrees of incentive towards gain/loss, that are risk-adjusted, if you will. my sympathies lie most with the people who have the least to gain, and most to lose, who i think were the "most taken advantage of". IMO, those happen to be the borrowers. nobody's "hands are clean". but some are much cleaner than others, surely?

im speaking from a practical, assessment of loan perspective. not an "i love my home" perspective-which i think is how the OP was referring to the issue?

I was just asking how is it any different from walking away from a car loan after finding out the car is worth significantly less than what is owed on the balance.

[rj.phila]

I was just asking how is it any different from walking away from a car loan after finding out the car is worth significantly less than what is owed on the balance.

got it. save for the fact that RE valuation obviously functions very differently than auto valuation, and one depreciates generally while the other appreciates, i guess in theory, there's NOT alot of difference in the owner driving a car back to a dealer and saying "here's your car back, im gonna stop paying on the loan, ok?". depending on how long he held the car, and how big the origination fee was that the loan issuer received, the creditor can still potentially end up with a good deal on that-while not planned, the creditor could not potentially be "screwed". in essence, the borrower "leased" a car for a period of time. creditor has a car with more miles on it, a loan origination fee, and however many monthly payments were made. if this scenario caused the bankruptcy of the debtor, then i'd say the debtor came away with a much worse deal than the creditor.

if an auto loan issuer behaved in a similar predatory, unethical and unscrupulous manner in which some of these mortgage issuers behaved, my sympathies would still lie with the borrower.

[maat55]

I've spent some time learning about how this all came about and have concluded that they who walk away are using good business sense. Under a normal free market, this would not have happened and would not be an issue.

If I had no hope of my home regaining its previous value, I would walk away.

[Naz56]

I'd probably hold on until market values got better but who knows? you can change your mind when you're actually faced with the choice.

[wincrasher]

I think "strategic default" is foolish and short-sighted.

Everyone is acting like the current situation is permanent. Trends are certainly negative, that's for sure. But the next "big thing" may be just around the corner.

I live my life by the philosophy that I am special, that I make my own opportunities and the future is always brighter than it is today.

With a bullish view of the future as I have, I can't imagine compromising my financial future by defaulting on a loan voluntarily.