Troubled homeowners: Can't pay? Just walk away

[Vipergrün]

Hope this is not a re-post...

Is it just me, or does the article do a good job of glorifying irresponsibility?
Unbelievable that the IRS will just ignore the balance owed by the borrower. Wish I could get those kind of tax breaks for being honest.

http://money.cnn.com/2008/02/06/real_estate/walking_away/index.htm?cnn=yes

[s_wilwerding]

I'd do the same thing if I was in that situation. The worst they can do is lower your credit rating, and my guess is that these people probably have crummy credit ratings to begin with.

I place most of the blame for these types of situations on the banks - they were betting that even though the homeowner probably couldn't make their payments, the bank would make money selling the home in a high market. They bet wrong.

[Rick Lee]

Originally Posted by s_wilwerding

I'd do the same thing if I was in that situation. The worst they can do is lower your credit rating, and my guess is that these people probably have crummy credit ratings to begin with.

I place most of the blame for these types of situations on the banks - they were betting that even though the homeowner probably couldn't make their payments, the bank would make money selling the home in a high market. They bet wrong.

Really? Do you feel the same way about financing a new car and then not paying once you've driven it off the lot because it's dropped 15-30% in value?

[stomachmonkey]

"The Los Angeles-based writer bought two properties in Hancock Park, west of downtown, using no-down, interest-only mortgages in 2006. He paid just over $1 million for both.

David had planned to sell them quickly but got caught in the slump. Soon his interest rate will jump by a few points, and his payments will go up by several hundred dollars a month for each place. He figures his properties have fallen in value by at least $60,000 each"

Awwww, poor baby. Got in over his head on a gamble to make a quick buck..

It's OK, just walk away. We forgive you. A55hat

[Hugh R]

Originally Posted by Rick Lee

Really? Do you feel the same way about financing a new car and then not paying once you've driven it off the lot because it's dropped 15-30% in value?

What!!!! That's not FAIR, I just bought a new car about 10 days ago. And I paid cash for it as well. I though it was an investment that would go up in value!! I want the gubmit to help me out, nobody told me it would go down in value. Its those predatory automobile salesman who preyed on me. I want a cash rebate (remember I paid cash). If I'd taken out a loan, I'd want loan forgiveness, and a break from the IRS on any monies I get back.

[GothingNC]

I know if someone who had a hard time selling their condo about 10 years ago.

She purchased a new home, moved out of the condo and left it to the bank. She still had no problem buying a car later on.

I came very close to giving my house in Portales NM back to the bank, I was asking $35,000 for it and it took 8 years to sell for ... $35,000 - 2 bedroom, one car garage, population of the town is only 12,500.

I was lucky enough to have a tenant that paid rent on time and took very good care of the house, she was an elderly lady and had no interest in owning it.

[dhoward]

Football bets like that get limbs broken....

[Porsche-O-Phile]

That's an excellent point.

The banks are very stupid in both cases - to loan $$$ "secured" by a depreciating object whose value is highly overstated. However I think the banks are actually smarter with respect to how they handle this with automobiles than with houses.

If you have sub-par credit and want to buy a car, you pay a higher rate and have to put enough down on the car so that you're unlikely to get in an "upside down" situation. The logic being that if Joe Six-Pack buys a new car and gets plowed into by someone without insurance right off the lot, he's likely to not get enough $$$ in a "total loss" claim to pay off the note. Think he's going to react favorably to the bank saying "you still owe me six grand for the car that got totalled and that you can no longer use/drive"? Probably not. However, a "good" credit person is more likely to satisfy the debt (or carry optional gap coverage) and a "bad" credit person is more likely to say "FU". As such, the lenders avoid letting "bad" credit risks get themselves into that situation, where the bank could end up holding an empty bag to the tune of a few thousand dollars.

The lenders were FAR more reckless with housing the last few years - not just because there's more $$$ on the line, but because lending standards had been developed over many years (decades), defining pretty well what the sensible way to deal with the various spectrum of creditworthiness was in order to minimize lender risk. The banks/lenders said "screw all that" and started lending to anyone that could fog a mirror. $30k a year job? Spotty employment history? Low credit score? Bankruptcy? Overextended? It all didn't matter. I personally know people in each of these categories that got mortgages. It was reckless and it was stupid - and it was "backed" by the collateral of overpriced junkpiles "appraised" by guys that were (I'm sure) paid off in many cases to "make the numbers work". The whole thing was a sham in order to bundle up bogus, invalid and "liar" loans in the "credible" form of home mortgages, which were attractive to lenders as Mortgage Backed Securities and other products.

Historically, mortgages have been associated with "low risk/stable" because of the conventional lending guidelines restricting them to responsible individuals, and because the whole system was based on SLOW, gradual appreciation. When the bubble stupidity started and banks started tinkering with the lending standards, you get what we have now - a situation where a lot of them will fail and a lot of them will suffer, and (worse still) where "mortgage" will be seen as a risky investment product by investors for many, many years to come.

The bubble did nothing less than destroy one of the cornerstones of household financial security - one that many banks and investment opportunities were built on. That's what's so damaging about this "subprime" issue, and why I have such deep-seeded loathing for the people that promulgated it.

[Vipergrün]

Wow, I guess these folks dumping their houses did not have to sign a gazillion documents like I did during close of escrow. Just what part of "Adjustable Mortgage" is confusing? I do not buy the argument that so many people were "suckered" into these loans. Now, to top it off, minority groups are shouting racism because they were unfairly targeted. Hmmmm, bet 10 bucks they would have been shouting racism if they were not able to get a mortgage....

Simple solution. Either understand what you are signing, or don't sign! But the lure of easy dollars was just too much.

Yes, this makes me angry because one way or another I'll be subsidizing this mess with either higher taxes or higher fees next time I buy a house.....

[Porsche-O-Phile]

Didn't you know? The big mean lender boogy-man MADE those poor people sign all those confusing documents. They're VICTIMS, you know? The poor widdle oppressed person against the big mean bank.

Look, the banks were stupid, but the borrowers were FAR stupider.

FWIW, one of the reasons I believe we MUST keep Hitlary out of the WH is because she supports a bailout for these kinds of idiots - that you and I and the few responsible people still living in America will no doubt be paying for.

[s_wilwerding]

Originally Posted by Rick Lee

Really? Do you feel the same way about financing a new car and then not paying once you've driven it off the lot because it's dropped 15-30% in value?

Well, if I've got crummy credit, the dealership knows that I can't pay for the car, they assume the car is going to go up in value, and they loan me more than what the car is currently worth, I would say that it was stupid of them.

I'm not saying what these people are doing is right - they signed documents that said they would pay for the house, and they can't. I probably mis-spoke when I said I would do it - I probably wouldn't because I live by my agreements. I'm just saying I can understand why people are doing it - they've got nothing to lose.

[tonypeoni]

I have mixed feelings about this. Only a few years ago I can remember a analyst on NPR encouraging first time home buyers to go "House Broke". The rational being that the houses were appreciating far faster than the stock market. On the other hand I despise slum lords. They drive up the cost of housing for people who need it most. This housing slump is just the punishment they needed. That being their going to get a taste of their own medicine as their the ones likely to end up in one of these section 8 houses.

[Rick Lee]

What does any of this have to do with slum lords? Do you know what that is?

[onewhippedpuppy]

Before we bought our house, we sat down with a Countrywide rep to see what they had to offer. After he laid out his sales pitch, I asked if he could print out an amortization schedule for the loan. He looked at me like I asked for his social security number. I then asked him for the present value of the loan, principal + interest. Again, he looked at me with a baffled look on his face. Then he told me, "nobody has ever asked me for that before". SCARY.

Of course, despite his laptop and finance program, he wasn't able to give me what I could have figured in two minutes on a financial calculator. Needless to say, we took our business elsewhere.

[tonypeoni]

Originally Posted by Rick Lee

What does any of this have to do with slum lords? Do you know what that is?

How do you think the prices for the houses got out of hand in the first place! Lets get to the root of why these banks were lending 250k on 175k houses. There are neighborhoods on the south side of Indy where slum lords were paying so much for houses people looking for starter homes could not compete. The same is very true with the crisis in Florida

[widgeon13]

Originally Posted by onewhippedpuppy

Before we bought our house, we sat down with a Countrywide rep to see what they had to offer. After he laid out his sales pitch, I asked if he could print out an amortization schedule for the loan. He looked at me like I asked for his social security number. I then asked him for the present value of the loan, principal + interest. Again, he looked at me with a baffled look on his face. Then he told me, "nobody has ever asked me for that before". SCARY.

Of course, despite his laptop and finance program, he wasn't able to give me what I could have figured in two minutes on a financial calculator. Needless to say, we took our business elsewhere.

Had that information been put on the table by the lenders (in the first place) some folks would have seen how vulnerable they would be with these no money down loans. Everyone expected the bandwagon to keep rolling. What's disturbing is that traditional lending practice (not having a mortgage greater than 30% of gross income?? or something like that) was completely thrown out the window.

[tonypeoni]

Originally Posted by widgeon13

Had that information been put on the table by the lenders (in the first place) some folks would have seen how vulnerable they would be with these no money down loans. Everyone expected the bandwagon to keep rolling. What's disturbing is that traditional lending practice (not having a mortgage greater than 30% of gross income?? or something like that) was completely thrown out the window.

The mean old man across the street swears for years the rule was 3 years salary no more. Hes normally right about the things I wish he wasn't

[Hugh R]

I have owned four houses that I lived in and all three were bought on a qualifying loan on the 30% rule of course the last time I bought a house was 11 years ago.

[tonypeoni]

Originally Posted by Hugh R

I have owned four houses that I lived in and all three were bought on a qualifying loan on the 30% rule of course the last time I bought a house was 11 years ago.

I think the problem here is gen X is so heavily laden with school loans and misc debt that its near impossible for them to save the way their parents did. Couple that with a really rough job market its not hard to see how these folks ended up in the trick bag.

[widgeon13]

The other thing is that w/ a 100% mortgage, you don't have any skin in the game for the first five years or so, why not walk away.

Not what I would do but then again the lenders were looking to rape and pillage as well.