House going down in value? Stop paying mortgage.

[turbo6bar]

Ethically, I feel one is obligated to pay their mortgage. However, I really can't blame a person for mailing the keys back when the debt exceeds market value. Lenders bear some responsibility for ensuring adequate collateral exists.

Executives of several lenders have expressed concern over the huge increase in jingle mail foreclosures. What happens is the borrower doesn't fall behind gradually. The borrower simply stops paying, PERIOD.

Currently, ~5 million households have zero or negative equity. That's 10% of all homes with a mortgage and 6% of all homes. Clearly, this is a dangerous new trend.

What do you think?

[Dueller]

Nuckin' futs.


I have 100% equity in my home. Its paid for.

[Netspeed]

I think they're idiots. They can afford the new payment but don't want to because the house has declined in value. It's an investment! Houses and everything else go up and down and they want an guaranteed permanent increase? Wow is all I can say......

[Jims5543]

40% of the houses I am Surveying in Florida are now owned by banks 40%.

[Dueller]

Originally Posted by Jim Cesiro

40% of the houses I am Surveying in Florida are now owned by banks 40%.

Wow, Didn't realize it was that bad. I assume you're surveying for a sale/purchase. And I bet some are upscale properties. What would you guesstimate the pecentage is for all lender owned homes?

[Rick Lee]

If you're willing to trash your credit for seven years and then to answer "yes" on all future mortgage applications where they ask about jingle mail, then go ahead. It would probably take a lot less than seven years for the home's value to go back up.

[lendaddy]

Outside the moral issues here...

When presented with this, why wouldn't the bank agree to a market rate or somewhat above fixed rate?

Yes they had an agreement but money is money and if this couple walks everyone loses. Would not the bank be wise to negotiate say a 8% rate with this couple to keep from getting it back and taking a $100k plus lose on the deal?

[450knotOffice]

Hmm.

So let me get this straight...

They owe more than the house is worth so they give back the keys and just stop paying...

So, if my car payment goes upside down because it's depreciating faster than I can make equity payments, should I just give the lender back the car keys and walk away?

The older I get, the more I realize that there are a LOT of less-than-intelligent people out there in the world.

[Porsche-O-Phile]

The banks are just as stupid as the borrowers for either (1) believing that values would go up forever, especially in wake of the insane appreciation rates that have been seen the last 8-or-so years or (2) thinking that the prices the borrowers were asking (backed by often bogus "appraisals") were actually legitimate.

They both drank from the "this is real - there is no bubble" Kool-Aid. As such, they're idiots and deserve their slice of humble pie too.

[legion]

It's the American way.

Make a bad decision?

It's not your fault!

Just walk away and blame the lender for giving you a loan that you couldn't repay.

Did you lie on your loan app?

It's not your fault!

[motion]

Originally Posted by Porsche-O-Phile

The banks are just as stupid as the borrowers for either (1) believing that values would go up forever, especially in wake of the insane appreciation rates that have been seen the last 8-or-so years or (2) thinking that the prices the borrowers were asking (backed by often bogus "appraisals") were actually legitimate.

They both drank from the "this is real - there is no bubble" Kool-Aid. As such, they're idiots and deserve their slice of humble pie too.

Jeff, your logic completely escapes me. The banks are only providing a product that people are demanding. To put the blame on them is just completely insane, IMHO. Its like saying a bartender who served a couple too many drinks to a drunk who drove away and killed someone deserves to be in prison for life for manslaughter. What is so difficult to understand about that?

[DARISC]

Given stupid and/or greedy buyers and unethical/greedy lenders (both groups with poor moral values - well, you can't fix stupid) and we end up with these two groups f'ing up the economy for everyone.

Fact is, the jerks in the video gambled and lost. Now they're welching out on what they owe. Disgusts me.

[lendaddy]

I think one can blame the lender in so far as they set themselves up for a fall as well. It's not a matter of fair or right, it's just that they didn't factor the risk high enough on the product.

[stomachmonkey]

I don't feel sorry for them.

They rolled the dice and came up snake eyes.

Sucks for them but it's still their responsibility.

[Dottore]

Originally Posted by motion

Jeff, your logic completely escapes me. The banks are only providing a product that people are demanding. To put the blame on them is just completely insane, IMHO. Its like saying a bartender who served a couple too many drinks to a drunk who drove away and killed someone deserves to be in prison for life for manslaughter. What is so difficult to understand about that?

I think it's a question of degree.

A bartender who serves drinks to someone who is massively drunk, and who he knows intends to drive home does have some culpability in a lot of jurisdictions.

Equally, banks who have been pushing easy credit to high risk individuals with low incomes, in the face of a declining economy and real estate bubble, should, arguably, eat some of the consequences.

[legion]

Originally Posted by motion

Jeff, your logic completely escapes me. The banks are only providing a product that people are demanding. To put the blame on them is just completely insane, IMHO. Its like saying a bartender who served a couple too many drinks to a drunk who drove away and killed someone deserves to be in prison for life for manslaughter. What is so difficult to understand about that?

The way I look at it is lenders did not perform adequate due diligence to protect their investors from bad loans. Instead they lowered lending standards to ridiculous levels ("the old rules no longer apply") and cashed in on a short-term trend. Management and personal bankers got huge bonuses, the investors are left holding the bag of bad loans.

That's not to say that the borrowers are not culpable either. No one cares about your finances like you do. Everyone should be well away of what they can afford and ignorance is no excuse.

[stomachmonkey]

Originally Posted by Dottore

I think it's a question of degree.

A bartender who serves drinks to someone who is massively drunk and knows will drive home does have some culpability in a lot of jurisdictions.

Equally, banks who have been pushing easy credit to high risk individuals with low incomes, in the face of a declining economy and real estate bubble, should, arguably, eat some of the consequences.

But they say they can afford to pay the higher rate.

They say they don"t WANT to because of the decreased value.

They feel they are paying too much for the house.

A55hats.

[the]

Originally Posted by motion

Jeff, your logic completely escapes me. The banks are only providing a product that people are demanding. To put the blame on them is just completely insane, IMHO. Its like saying a bartender who served a couple too many drinks to a drunk who drove away and killed someone deserves to be in prison for life for manslaughter. What is so difficult to understand about that?

I guess it depends on what you mean by "blame." Blame for what? If it's blame for the banks losing billions of dollars because of defaulting homeowners, then yes, I think the blame can be placed on the banks. It was their money to lend, they were taking the risk of not getting repaid, and they foolishly put themselves in situations where they were going to get screwed.

If it's "boo hoo, cry for me because I can't make my increased mortgage payment after it reset at a crazy (but agreed to) interest rate," then yes, that's the homeowners fault and they have no one to blame but themselves.

Also, I think a lot of these people who are walking away are doing so not so much because the paper value of their house had plummeted (except in SJC), but because they really couldn't afford the house to begin with.

They were willing to s-t-r-e-t-c-h to make the payments (you know, like using 60% of your paycheck to pay the mortgage) when it was a well known fact that "real estate prices never go down" and you could expect to have 20% appreciation forever. But now that they realize the music has ended and they are the ones without a chair, making that stretch doesn't seem worth it anymore.

[Dottore]

Originally Posted by lendaddy

I think one can blame the lender in so far as they set themselves up for a fall as well. It's not a matter of fair or right, it's just that they didn't factor the risk high enough on the product.

Yup.

But I think there is an element of "fair or right" involved here. It's a Zen thing - but everything's connected, and it behooves us all to realize that what we do in life has consequences, and that we should think about these and not act thoughtlessly, with blatant disregard for others.

That applies to borrowers and drunks, but also to banks and bartenders.

[DARISC]

Originally Posted by stomachmonkey

But they say they can afford to pay the higher rate.

They say they don"t WANT to because of the decreased value.

They feel they are paying too much for the house.

A55hats.

Yes.