Do it for economic survival? Don’t do it because you see it as a moral issue? Do it to get back at the bailed out bankers who profited at the public’s expense? Don’t do it because you love your house more than the money you’ll never get back on it?
No Help in Sight, More Homeowners Walk Away
In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.
“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”
After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.
New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.
[...]
The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.
You signed a contract to buy a house for XXX dollars, at YYY terms. If you agreed to pay too much for the house because it was overvalued, that’s to friggin bad…. you overpaid during an expensive market.
You have a debt, now pay up or pay the consequences. Buying the overpriced house was your choice.
Being “under-water” is irrelevant, since your payments are still what you agreed to originally. If you couldn’t stay in the house for long enough for the equity to match the remaining debt, you should not have bought the house in the first place. So if the house dropped 50% in value, that’s too bad… you can just imagine that your payments have gone to rent instead of equity.
There was this couple on TV that were abandoning their house because it was worth $350,000 instead of the $750,000 that they bought it for. Big 3 car garage, 5 bedroom place, kitchen bigger than half my current house. Boooo hoooo… “it isn’t worth what we bought it for”… booo hooo.. pity us… guess what… your house was worth $350,000, it was stupid you that jumped into teh bubble and agreed to overpay.
If I buy stock “on margin” (borrow money to buy the stock) and it goes from $50 / share to $20 / share… booo hooo…. pity me.. I’m walking away from that debt… yeah right…
I think the only people that are answering “Yes” are a) underwater or b) too stupid to realize that when someone walks away from a house, the rest of us get stuck with the bill.
Remember, those mortgages are someone else’s savings accounts. When you tell someone to bail on their house, you are basically telling them you don’t mind that they just took money out of your savings account and threw it to the home’s previous owner or builder.
The banks signed our economic death warrant years ago by giving hundreds of thousands of dollars to people with no documentation (no doc loan), the ridiculous adjusted rate mortgage, and emphasizing profit before selling with crazy ill advised equity loans. Can you really expect the people that got these loans not to take the easier road? Really?
If you have a knife to cut yourself out of a python that is slowly digesting you than I’d suggest you do it.
Now that personal honor is officially considered a weakness, walking away from a foolishly obtained and now underwater mortgage is the perfect way to exercise your closet socialist desire for a taxpayer-funded handout (face it: what you fail to pay, the rest of us will pay by way of bailouts, bank fees, etc) while still maintaining your guise of a don’t-mess-with me rugged individual.
You’re welcome.
Banking and banking ‘laws’ are a total con game.
#21: You have a debt, now pay up or pay the consequences. Buying the overpriced house was your choice.
I’ll pay the consequences, thank you very much.
Lending me the money – with only the “overpriced” house as collateral – was the lenders choice.
Both parties gambled the price of homes would continue going up.
Both parties lost that bet.
Both parties pay the consequences.
You know, nobody’s giving Bernie Madoff any money to “invest” for them anymore.
If you’re the victim of a well organized con game, you aren’t obligated to keep paying in to the scam after you discover that you’re being ripped off.
Just sayin’.
#5: Goddamn corporations have the perks of citizenship, without the consequences.
Agreed.
Its what I was thinking when the “new” GM pulled-out of their partnership with Toyota at the NUMMI plant in California- and everyone was complaining when Toyota shut it down… as if having their partner [ the "old" GM ] walk away from a joint-venture wasn’t to blame for Toyota’s inability to keep the plant open by themselves.
http://www.nytimes.com/2009/06/30/business/30auto.html
“G.M.’s withdrawal from the venture, which is half owned by each of the companies, creates an uncertain future for the Fremont plant, which has more than 4,700 employees in five million square feet of assembly space.”
Everyone should do what ever they think is best for themselves. Period
Staying and walking both have costs, use what ever criteria you feel you should use and figure out what is best for you and then do it.
And for the record I don’t owe a penny on my house.
I remember Vietnam – do the right think go fight the commies. Die if you have to, no problem you are doing the right thing, body parts blown off no problem you are doing the right thing, went nuts from watching your buddies blown to bits no problem you did the right thing. What you made it home and need help? Tough sh** we just want you to go away.
What is “right” or “moral” is to protect yourself and your family.
@ #11 – You’ve answered your own question!
i.e.
“That is what people get for thinking of their home as an investment… why does that change because others now have changed thier opinion on the value of your home?”
Because we have been indoctrinated to believe that home ownership is the “American dream”, and the biggest investment most of us will ever make in our lifetime.
Coupled with the move from pensions to IRAs, 401ks et.al. means we’ve also been taught that there comes a point where we’ve got to manage our investments instead of just letting them “tank”. We’ve been trained to “cut our loses”.
Lenders have ben trying to up-sell us the “American Dream” the same way DeBier’s has been indoctrinating people getting married that a diamond ring is the only way to go, and that it should cost ~20% of your income…
Well if you have negative equity the house is already over 100% NOT YOURS. If you want to rent a building go ahead.
People who refinanced to take money out of their house almost certainly have a recourse loan, which means the bank will chase them for the remainder.
If you bought a house with a traditional mortgage and paid it properly it’s a very different situation. If you have a non-recourse loan and face serious negative equity you’d be insane not to drop the house if the bank refuses to write down the loan a bit.
Strictly speaking no taxpayers are out because someone walks out on a loan. The investment banks weren’t killed by foreclosures. It was high leverage and a fragile cash flow model that really got them.
Only a fool would walk away now (if he has the income to make the payments).
I expect inflation to reach 10%+ in the next five years, and stay there for 10 years. Your house payment is fixed, you did get a fixed 30-yr loan didn’t you, so you’ll make out like a bandit in a few years.
While stupid me keeps renting while I have the cash to buy.
#32 Hmmmm, could be… if things get worse and you have a fixed interest rate loan, maybe you’re right…
Under normal circumstances I would have said no, but after the bailouts I say yes.
>> Lou Minatti said, It’s not a moral issue, it’s a business decision. [...] in the contract that you signed.
And on top of that the banks should not make crappy loans in the first place – thats a big part of this mess.
Dump the damn thing.
If we were as crooked as the god damned congressmen and bankers we would burn the underwater houses down and let the banks settle with the crooked insurance companies.
You should have high morals and feel indebted to the very people who ripped you and your grandchildren off. They aren’t losing any sleep at night for ruining our economy and sending our children off to fight bullshit wars.
What a world full of narcissistic whiny little b’trds we have become.
This is a matter of principle and ethics. Two words that seem to have no meaning in today’s world.
I do not believe the banks held guns to anyone’s heads and said ‘you must take this loan!’
If the banks made insanely deceptive offers, maybe the buyers should have remembered the old saying, ‘if it sounds to good to be true …..’
As has been mentioned. A mortgage is a contract. The bank did not set the price, although they did set the payment. They already paid out the money for the homeowners to buy the house. No-one is blaming the previous owners for asking too much for their homes. Now people are stuck with homes they feel they paid too much for. How about people who bought flat screens when the prices were higher. Should they be able to forgo on paying for them now that new units are cheaper?
There is something called opportunity cost. These people got these homes because they were in the right place at the right time with the money that was asked for. (Ok maybe the wrong place at the wrong time…) They chose to buy. They now must live up to their end of the bargain.
If the deal they signed was bad, it is their fault. They were responsible for doing the research on loans. They CHOSE to pay the price asked. If they signed loans they did not understand, it is their fault. Again, the banks did not ‘make’ them take the loan. If the terms of the loan were illegal, then they should pursue legal recourse. If not, then again, only they are to blame.
But no-one wants to hear that. No-one wants to admit wrong. Someone else is always at fault. Someone else is always responsible.
#32 I agree that 10% inflation is easily possible in a few years, or maybe sooner.
#37 In the simple case of a non-recourse mortgage on a house with large negative equity the borrower would have significant leverage with the lending institution.
In the simple case the borrower can demand restructuring or walk. If they decide to walk there is no moral dimension to the decision.
If a bank makes “insanely deceptive offers” isn’t that fraud? If I sold a Ferrari to you and delivered a Yugo that would be wrong. Scale that behavior up a million times. Isn’t it still wrong?
“If a bank makes “insanely deceptive offers” isn’t that fraud? If I sold a Ferrari to you and delivered a Yugo that would be wrong. Scale that behavior up a million times. Isn’t it still wrong?”
“If the terms of the loan were illegal, then they should pursue legal recourse. If not, then again, only they are to blame.”
If I try and convince you a Yugo is as good as a Ferrari, and sell you a Yugo, I did not commit fraud. And you are the fool for believing me.
Chris, you are my proof. You can do no wrong. You are always right. You did not make a bad choice, it is the other person’s fault for deceiving you!
Morality and ethics only have survival value (Their only real purpose.) if everyone in the group is playing by the same set of rules. If you are the only one doing so, it’s the equivalent of playing poker and showing the other guy your cards and not being able to see them yourself. If the high and mighty aren’t using the same rule book, why should you?
Sauce, for the goose.