Walk on Existing Mortgage??

[turbo6bar]

Put me in the minority. I personally would never get myself in that mess, but I don't blame a person for walking. The banks and credit bureaus have made it too easy to walk. There is no penalty for this action. Those fuchers (lenders, investors, etc) quest for profit at all cost overrode all caution. If we are unwilling to hold Wall St liable for their mistakes, we shouldn't punish the individuals. Besides, the lender's remedy is taking possession of the property and obtaining a judgment against the borrower.

Ethically, I believe it is wrong, though. On the other hand, some individuals flew too close to the sun, took unreasonable risk, and cannot afford the mortgage. Why should they garner sympathy and understanding for being unrealistic and overoptimistic?

Folks, we're going to learn the definition of moral hazard the easy way or the hard way.

Rick Lee, I do believe they will consider your VA property an investment property, in which case you will need at least 20 if not 30% equity for a refinance or government assistance. Unfortunately, the "IS now a good time to refi?" threads are little solace for the investor. If there's nothing holding you to AZ, consider moving back. I am shooting from the hip.

[imcarthur]

Certainly, I am on the other end of the spectrum: paid off house + a different country which didn’t allow the ‘inventive’ mortgages. But the concept of - it’s OK to walk away if, if, if - is making our parents & their parents do cartwheels in their graves.

Greed from unchecked banks & greed (insert hope, dream or whatever pleasant word you feel should go here) from home buyers who expected to leapfrog a life of gradual affordable home upgrading (like our parents did) produced this mess. Dealing with a personal home situation going south as if it was a poor business decision may be the wise financial move, but the very concept of doing it & letting others pay, is morally bankrupt.

Ian

[island_dude]

Personally, option 1 would be the only one I would consider. For arguments sake, I don't see how option 2 could work. First off buying the new house will be considered an investment property by the bank. They will set the interest rate appropriately and expect a very healthy down payment. They would see that you were underwater on the first and its unlikely that you would get the loan at any terms. Lets assume that you actually get the new loan. For this to be the case you would have sufficient income and savings to qualify for both. The point at which you tried to walk you would get ripped to shreds. This would not be a case of simply being tapped out, but just deciding not to pay. I doubt that there would be a way to walk even if the bank let you get into this situation.

[MBAtarga]

Originally Posted by jeffgrant

It seems like "social experiments" don't have a good track record around here.

I disagree. The "slapping the cratch" thread went rather well from what I recall!

[MBAtarga]

Originally Posted by therotman

I wouldn't be surprised if credit bureaus were forced to "forgive" these recent foreclosures on the credit rating of defaultees across this country in the name of stimulating the economy.

It's not their fault they bought a house with a stated income, neg-am, pick a payment they could barely make minimum payment on at the 1% teaser rate!

It's not their fault they bought a house with a stated income, neg-am, pick a payment they could barely make minimum payment on at the 1% teaser rate!

I fixed it for you - at least I hope you were being sarcastic!

[Red Baron]

Originally Posted by cl8ton

"cons: deal with bad creadit for seven years. (I don't really care as I pay cash for everythnig... except for the house of course."

Dirt bag it is then!

[Dave L]

I think people in a lot of these situations justify things in thier own mind. "Why should they care if they walk away? are they going to hurt "the bank" the "CEO" with the multimillion dollar pay check?" We all know that it all comes back as higher taxes, higher credit card interest rates but I think in the heat of the moment people can create thier own reality and justify walking away.

I think the days of 25% down and 25 year mortgages will make a return. With skin in the game home owners will be much more carefull and less willing to walk.

[ChrisBennet]

Why shouldn't the original poster walk?
It's only fair that he should stick the bank with the $210,00 loss.
I'm sure if his home had appreciated $210,000 he'd cut the bank a check for the "profit" right?
-Chris

[onewhippedpuppy]

Originally Posted by the

Yep, we're in this mess because banks were greedy, and incompetent, in getting themselves in secured loans which were obviously going to become unsecured in large part.

The banks have the money, they are the lenders, it is their responsibility to make sure that they obtain sufficient collateral to secure their loans. It is their job to analyze risk, and the value (present and future) of their collateral. They fail when they fail to do that, and instead rely on the "good heart" of secured borrowers.

They failed. Their greed and incompetence has caused this problem.

(It isn't that much different than if the banks just stored their cash out in their parking lots in porta potties, to save on having to construct expensive safes, and installing expensive alarm systems and security guards).

That's total BS. The thread poster bought a house that he could afford at the time, and from the sound of it, can still afford. He wants to dump it because he paid too much and is now upside down. How is that the bank's fault? He made a stupid purchase in a bubble market, now he doesn't want to pay the consequences.

If you sign your name to a contract, you damn well better understand what you're agreeing to. Seems that many people in this country forgot that. Maybe if they brought back debtors prison people would take contracts more seriously.

[the]

The contract, when taken in conjunction with existing laws, allows him to walk. Under the agreement between the parties, he has consequences, and the bank has consequences.

Who is the one who stands to lose? The bank. Who is the one who foolishly (through greed and incompetence) allowed itself to be in a position to lose? The bank.

Like you say, if you sign your name to a contract, you damn well better understand what you are agreeing to. The bank should have damn well understood that it was agreeing to a contract where it had non-existent or insufficient security for its loan.

The banks failed to damn well understand what contracts they were agreeing to. That has caused this entire problem.

[the]

Originally Posted by onewhippedpuppy

Maybe if they brought back debtors prison people would take contracts more seriously.

Ironically, it is you who are not taking contracts seriously.

In a free society, which respects and enforces contracts, debtor's prisons are not necessary. The parties are free to contract with each other, allocate risk, and price risk, freely.

People are free to do whatever they want, including breaching the contract. That is ok, because the nonbreaching party has already freely negotiated and included his breach remedies in the contract. If he has acted wisely, particularly in a secured loan situation, his contract should fully protect him.

If, for example, banks acted reasonably in analyzing their security, they never would have made no money down loans on bubble priced houses. Any idiot could see the would be grossly undersecured. And that when that happened, many borrowers would exercise their right to simply walk away (and suffer whatever consequences flow from it).

[vash]

sell the toys, like the supercharged boxter and fight and claw to honor the commitment.

make the boxter, an imaginary skiboat, RV, whatever. lots of people took equity out to buy toys. i know people like this. then they talk about walking...grrrr.

[Jim Richards]

Originally Posted by the

That is ok, because the nonbreaching party has already freely negotiated and included his breach remedies in the contract. If he has acted wisely, particularly in a secured loan situation, his contract should fully protect him.

If he has not acted wisely (needs taxpayer bailout to prevent bank collapse), perhaps the non-breaching party needs some jail time. Corporate malfeasance? I realize that wouldn't happen in a world where mega-bonuses are paid for ruining corporate performance, and corporate officers are generally sheltered from liability, but i can always dream.

[Jim Richards]

Why was mortgage debt permitted to be so heavily leveraged by Wall Street? Especially mortgages based on liar loan applications?

[m21sniper]

Originally Posted by tc-sacto

Scenario
House Value $250,000 (assuming neighbors house short sells...Listed at $250,000, most recent short sale closed for $299,000)
Mortgage $460,000
underwater $210,000

Option 1
keep existing home. (no emotional ties, could take it or leave it)
In 7 years the mortgage would be paid down to $371,343. *Assuming 6.5%annualized growth from here the house would be valued at $393,000. So It takes me aproximately 7 years to get back to breakeven.

Option 2
Buy a nicer home, in better area at current depressed prices with 20% down. After closing, walk on first home.

cons: deal with bad creadit for seven years. (I don't really care as I pay cash for everythnig... except for the house of course.

*(6.5% is the average increase in median family homes from 1968-2008. )

Walk. Why should you be the only SUCKER that plays by the rules? Don't listen to these saps, these guys have all taken a FLEECING in their accounts and retirement savings by doing things the right way. Nice guys most of them, but nice guys apparently never learn.

Walk, don't look back. I wouldn't feel guilty for one second. Not now.

[the]

Originally Posted by Jim Richards

If he has not acted wisely (needs taxpayer bailout to prevent bank collapse), perhaps the non-breaching party needs some jail time. Corporate malfeasance? I realize that wouldn't happen in a world where mega-bonuses are paid for ruining corporate performance, and corporate officers are generally sheltered from liability, but i can always dream.

Sure, corporate officers can go to jail for malfeasance, it happens.

But in this case, I guess they can use the "Greenspan" defense.

After all, the Genius Alan Greenspan himself said in 2006 - "There is no housing bubble."

If that were really true, none of this problem would have happened. So if the Smartest Economist in the World said it was true, how could a poor banker be faulted for simply agreeing?

[m21sniper]

Or the poor buyer for buying?

[Jim Richards]

Originally Posted by the

Sure, corporate officers can go to jail for malfeasance, it happens.

But in this case, I guess they can use the "Greenspan" defense.

After all, the Genius Alan Greenspan himself said in 2006 - "There is no housing bubble."

If that were really true, none of this problem would have happened. So if the Smartest Economist in the World said it was true, how could a poor banker be faulted for simply agreeing?

Greenspan will be vilified in history for his role in this collapse.

[CRH911S]

Even this blue dog liberal finds the recant disingenuous. And FWIW, liberals and conservatives, Republicans, Democrats and everything inbetween are now suffering due to 4-5 years of greed that will ultimately set this country back, financially, 20 years. I certainly don't have the answer to the current set of problems but I know one thing that will not work and that is failing to hold people accountable for their actions. Debtors prison isn't the answer and neither is another loan for having failed to live up to the promises in the first one. Instead of 7 years I would increase that to at least 21 years. Why? Don't these same sort of people end up right back where they were previously?

[Dottore]

Originally Posted by turbo6bar

Put me in the minority. I personally would never get myself in that mess, but I don't blame a person for walking. The banks and credit bureaus have made it too easy to walk. There is no penalty for this action. Those fuchers (lenders, investors, etc) quest for profit at all cost overrode all caution.

I have some sympathy for this view. In contract law there is generally a concept of "force majeure" that excuses a party from walking away from a contractual commitment in certain limited circumstances.

"Force majeure" is generally considered to be an unforeseen factor that so completely changes the bargain that was made in the contract, that it would be inequitable to hold parties to their contractual terms.

In my mind the catastrophic drop in housing values is very close to being a "force majeure" event. At least I think there are cases where a compelling argument for this can be made.

In any case, I wouldn't put too much of a moral spin on this—especially with the bank at the other end of the stick. Banks certainly are not generally burdened by moral scruples in these matters—so why should the OP be? (I'm assuming here that he's giving sufficient weight to the issue of future credit wothiness etc.)