More see walking on mortgage as a viable plan

[Liberal_in_LA]

More see walking on mortgage as a viable plan
'Strategic default' losing stigma as homes go deeper underwater

Chris Kelly, shown in her apartment in Austin, Texas, says she is much happier after downsizing and walking away from a 3,000-square-foot Seattle house.
By Jane Hodges

More Americans than ever are showing a willingness to walk away from their underwater homes, according to a recent survey. Chris Kelly is a perfect example of someone who never thought she would send the bank “jingle mail” — mailing the keys back. But she did.

Until last year Kelly, a 46-year-old administrative assistant, was living in a 3,000-square-foot home she owned with her ex-husband in the Seattle suburbs.

The duo had put the three-bedroom, three-and-a-half bath home on the market before finalizing their divorce in the spring of 2009 but had no luck luring move-up buyers to the $600,000 home even after price markdowns.


Kelly wound up living there solo, struggling to make the mortgage payments. But as she kept writing checks, and worrying, she became aware that she’d have to make a hard choice: Leave the house while she still had decent savings, or pay until she’d emptied out all her accounts and then enter foreclosure.

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“It’s a phenomenon we haven’t seen before in the housing market,” said Rick Sharga, senior vice president of RealtyTrac. “The mindset of why people purchase a home has changed over the past decade.”

http://www.msnbc.msn.com/id/40704053/ns/business-real_estate/

[Arctic Dave]

1. Smart decision on her part.

[jtuck004]

40. Absolutely. AIG, Goldman Sachs, all the investment banks had

trillions in obligations, but they foisted it off on the taxpayers, which led directly to the tanking of this economy.
They continue to get millions personally, billions as a group, in bonuses for doing nothing. Nothing. Other than
screwing the American people.

If she see's no future hope, she would be a fool to waste her savings on this. Walk away, file bankruptcy if she must,
start over.

'Cause it is probably not going to get any better for a long time.

[KT2000]

2. not sure about this

it seems to me that these people have an obligation - both of them.
Maybe it means both hanging onto the house until the market changes.

[Kennah]

6. Suppose they get laid off and can't find work where they're paid enough to even make the payment?

[leftofcool]

9. How do they afford a place to rent then?

[Kennah]

16. Maybe they don't

Maybe they live with family. Or in their car. Or in the State and National Parks. Or a myriad of other what ifs.

However, if one trades a 3,000 sf home in Seattle for an apartment somewhere else, where there's a job, then they can probably make rent.

[KT2000]

18. that is a different scenario

maybe they could retain ownership, rent out the house and then their individual costs per month would be reduced.
I am all for mortgage modification but this is treating their home purchase like stock holdings or something.

[SoCalDem]

19. They probably could not get enough rent to cover the payments

and then there's the issue of potential damage.. The walkways just want it "all gone"..

Homes should be a HOME first..and an investment second..

[eridani]

24. Indeed. Re-reading Unca Karl on use-value vs exchange value would be helpful

I recommend it.

[sendero]

22. The market's not going to change..

... and she's ABSOLUTELY making the right decision.

[eridani]

23. If you can afford the mortgage, hanging on until better times makes sense

If you can't afford it, it's insane to keep paying.

[Mojorabbit]

41. I get what you are saying

If there is no expectation of contracts being honored it causes no end of problems but on the other hand businesses do this all the time. Look at Donald Trump, he has filed bankruptcy many times and is respected as a savy businessman.
It is a double standard.
If foreclosure looks likely no matter what, it might be best to just go ahead and leave the property. THe housing market isn't supposed to get better for many years and may in fact get worse in 2011 and 2012 where we hit another bottom.

[pnwmom]

3. I wonder how many of the underwater mortgages are

original mortgages, and how many are refinance mortgages taken out later to consolidate other debt (car payments, credit card balances, etc.), which allowed the new larger mortgage payment to be tax deductible?

A lot of people started consolidating when other interest payments were no longer tax deductible. I wonder if this is part of what has put so many mortgages underwater -- that many of them now cover other debt as well?

[Liberal_in_LA]

4. Watch that show 'real estate intervention' sometimes. everyone of them:

How much did you pay for the house? $300,000
How much do you owe on the mortgage? $500,000

When they walk away, they are walking away on the debt due to trips, credit cards, cars, etc... not just the house.

[SoCalDem]

7. Exactly.. they used the house as an ATM, extracting their vapor-equity

so they have no way to ever recoup, unless they stay there until values go back up..and they may not do that in their lifetime..

A friend of mine did the same with her house.. put down $27K on a $99K house..by the time she finally walked away, they owed $335K on it..

She was very upset at "losing her house", but I reminded her that her house had "given" her all that cash, which they USED , so they had more than gotten what she had put into it..

Of course it was her goofball husband who initiated most of these "transactions", but she signed the papers too:( (he was a swindling, con-man, gambling, cheating guy:grr:

He has now taken up with another "woman with a house"..:(

[Liberal_in_LA]

11. yep. And there were 101% loans in 2005-2006. Giving bigger mortgages

than purchase price.

[SoCalDem]

13. around here they had 125% re fi loans

:grr:

[Liberal_in_LA]

17. because home values can only go up. of course.

[SoCalDem]

10. These re-fis were advertised to do just that.. turn non-deductible

debt into mortgage (deductible) debt.. but it's a fool's game, since changing unsecured debt into a 30 yr debt is pretty dumb..and many will be paying off car debt for a car they got rid of 20 years earlier..

[jmowreader]

36. How Reagan Fucked America, Exhibit 99,843

One of the "loopholes" Reagan ended was to end the deductibility of non-mortgage interest. By doing this, he accomplished two things: (1) gave a huge and never-ending windfall to the mortgage industry and (2) turned the American public's view of their homes from "long term investment" to "funding source."

[girl gone mad]

31. Refis are recourse loans.

The banks can come after them above the value of the home.

That wouldn't meet the definition of a "strategic default".

[knitter4democracy]

33. Mine's an original mortgage. I'm hoping to be able to keep paying.

We didn't use the mortgage to pay anything else off, just to finance the house. Then, the ex left, and I've been left trying to keep paying for the house with the support that now gets taken directly out of his check and my parapro pay. Per the judgment of divorce, I have only another year and some to refinance into my name only, and I have no idea how that's going to work with my job.

Keep in mind the divorce rate's up, and a lot of this may be fallout from that.

[pnwmom]

34. You're in a tough position - good luck.

:hug:

[SoCalDem]

5. "...3,000-square-foot home she owned..."

She was just renting it from the mortgage holder...she never "owned" it.

This fact is what many people are finally realizing....and why so many are "walking away"..

In the "olden days" when people had to put down 20/30%, they had financial "skin" in the game, so walking away meant forfeiting the money they put down as a down payment....but in "modern" times, more and more people put little or nothing down, they might as well bail when they see their "investment" tanking..

Their credit rating will tank for a while, but there are millions and millions of people in the same boat & if they can find a place to rent, they are probably better off financially..

Home ownership is not what it used to be..

[leftofcool]

8. On the other hand, good luck finding a place to rent

after you have walked away from a home. Unless you can find a landlord who won't do a credit check, your chances of finding a decent place to live will be pretty tough. Some friends of ours just went through this. They had to settle for a small rental in an area of town deemed unsafe because they walked away from their home. Sad part is, they can afford the home, they just didn't want to keep paying for it. Even the owners of small homes for rent around this little community we retired to are starting to do credit checks. Ideally, set up your rental place before you walk.

[SoCalDem]

12. or have a family member with good credit do it for you..

The woman in the story moved out of state, so she probably arranged fro the place while she was still In the other place.. She probably told the landlord she was "selling" the house.. Her next move will be tricky.

[Liberal_in_LA]

14. Maybe she'll have a good ref from current landlord to get her the next place

Or find a new husband with good credit

[leftofcool]

15. Tricky indeed!

[sendero]

26. True..

.... and it is the BANK'S FAULT this is the case. They were making so much CASH on every loan they made they didn't BOTHER to worry about whether or not the borrower was in a position to repay the loan.

[aikoaiko]

20. Its perfectly OK for people to make their best economic decisions within the bounds of the law.

In this case, its pay the mortgage or give up the house to the bank. She chose option 2.


Of course its not quite as simple as walking away, but it can be done.


People get too emotional about their debt.

[Arctic Dave]

21. +1

And she did it BEFORE she spent every penny trying to service her mortgage. Smart on her part.

[NashVegas]

25. I Only Wish I Could Criticize Her

She's doing what big business in America has been doing for 30 years - looking at the bottom line and saying "fuck all" to the big picture.

How can anyone expect the regular population behave in a moral fashion, financially, when we don't demand it of business?

There are people above this post calling it a smart move. Makes me glad I don't have children and don't have the challenge of trying to raise one to be a decent human being, in this atmosphere.

[girl gone mad]

32. She's a decent human being.

She is thinking of her family. The bank signed the contract stating that in the event of default, they get the home. If they wanted more, they had all the means in the world to write up more stringent contracts and lobby governments to change the laws, etc. In reality, they didn't give a f*ck about whether or not the loan was recourse, or even whether the borrower ever could or would pay it back. They were making billions securitizing these mortgages and they couldn't create new loans fast enough to meet the demand. The bankers created this disaster simply to enrich themselves and they walked away from it extremely wealthy. Not one of them has been prosecuted in a criminal court. None of the money they stole through these schemes has been clawed back.

She doesn't owe them anything. They owe the American citizens everything.

[KansasVoter]

27. Don't people still owe what if left after the bank sells the house?

[TheOther95Percent]

29. It depends

Some states known as "recourse states" can go after the borrower for the difference between the mortgage owed and what the bank eventually was able to get in a property sale. Other states are non-recourse so that means the house is the only collateral the bank can get. Here's a good treatment on the topic.
http://banking.about.com/od/loans/a/recourseloan.htm

[KansasVoter]

30. Thanks for the info and link!!!

[unkachuck]

28. oh my....

"Leave the house while she still had decent savings, or pay until she’d emptied out all her accounts..."

"The mindset of why people purchase a home has changed over the past decade."

....younger people must not be as willing to take it in the ass as us older folk....does that bother you, Mr. Sharga?

[tridim]

35. I chose the "empty the saving account and get foreclosed" option

It was a huge mistake, obviously. At the time I thought I would find a job, but I didn't.

Anyway, I'm out of the underwater house, which is nice, but it sure sucks being broke.

[Liberal_in_LA]

37. Wasn't a mistake if you thought you were making the best decision at the time

[tridim]

39. True, damn hindsight..

It's only a mistake because I gave the bank $30k I didn't have to.

[Dappleganger]

38. No house (or man) is worth ruining your life over.