Walk away from your mortgage!

[SallyMander]

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.

Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html

A very interesting read -- basically advocating that people start acting like banks! Hopefully this hasn't already been posted, a search didn't turn it up.

[ORDagnabbit]

1. walk away but stay in the house. demand to see the original paperwork and never ever ever believe

anything they tell you.

demand original documentation on everything.

[WeDidIt]

4. GMTA

I posted something similar below.

[Andy823]

5. I agree.

My nephew hasn't paid a house payment form almost 2 years now. He tried getting a new loan, but kept getting the run around. He just stopped paying the monthly payment and has never heard a thing from anyone. He is till paying the property taxes so the state doesn't come and try to take it from him, but the bankers seemed to have lost the paper work, and his lawyer said if they don't have the paper work, there isn't much they can do to kick you out! I have heard of others who were going to walk away, but were advised to just sit tight and wait till someone could come up with the paper work, and they too are not paying payments. Seems like a lot of contracts were sold and resold so many times nobody knows for sure who holds them now, and without proof they can't do much to you. My nephew was paying over $1500.00 a month, and has been putting that money away instead of sending in his payments each month! If they do come up with the paper work he is ready to move, but until then he is staying put.

[dkf]

8. Might not make sense for the bank to foreclose.

They want to keep inventory low and not be stuck paying taxes and upkeep on the house.

[Better Today]

7. Problem is,. . . can't do that without a lawyer, and they're expensive and

usually do little or nothing to actually help unless you hire a really expensive one.

We on DU should find a way to get some of our lawyers and other liberal Dem lawyers in all states to organize to help DUers who honestly are in default as well as those that just want out, based on a sliding scale, maybe additional consideration through donations/contributions.


Just a thought.

[jtylerpittman]

2. He can go to hell!

[WeDidIt]

3. It's solid financial advice

Walking away won't hurt their credit for too long.

In many cases, though, walking away even while under water may be stupidity, especially if the person who holds the mortgage has changed multiple times. In those cases, you may be better off letting them foreclose, then demand they show the note in court. Many cannot and that will result in the mortgage being null and void. After that, you file a quit claim deed and the house is yours with no more payments, just any back taxes and any insurance you buy.

[jtylerpittman]

10. do they like lose the note. wow

i would think they have a digital copy

[SoCalDem]

6. "Business types" know how this works

The "shame" factor... and the loathing for packing up all your stuff, is keeping lots of people in mortgages that are totally unrealistic now. In some caes, if one is young enough, the value may return ...somewhat..but for people who bought at the tippy-top of the bubble, their homes will NEVER "pay off" for them..

Business types bail out, fire people, declare bankruptcy when their bottom line is no longer profitable..and they never look back.. they usually manage to just start another business with a new name, in a new place..

My husband worked for a guy once who had a company that had declared bankruptcy almost every 7 years.. The guy AND his wife drove new Mercedes, they had a gorgeous home in Anaheim Hills and a spiffy new condo in Palm Springs, and a condo in Cabo..

The "system" always accepted BK as a logical "business decision", but kept the stigma (or tried to) on personal BK.

People start to feel like chumps in this market.. If you are paying $3500 a month for a house , and the person right next door bought the exact house for 1/3 what you paid a few years ago..and they pay $1500 a month, it;s easy to see why so many people just walk away.. Saving $2k a month is hard to pass up these days..

[SallyMander]

11. OT, but

your sig picture is *so* cute!

[Fire1]

13. Sure is! n/t

[Igel]

9. It was an interesting article.

Of course, it rested pretty much entirely on the assumptions buried in an article from a lawyer who specifically focuses on shame and whether it's good or bad. The parallel with business looks good, but only goes so far.

For example, a business might liquidate a holding when it's not profitable. It doesn't have to move and hurts the balance sheet, meaning that its financials look worse than they need to be and the CEO and board aren't happy. If you think it might still prove profitable in 10 years, but only marginally profitable--or a wash--you walk. Write it off and you get a tax write-off--it looks bad but you recoup part of what you put into it. All you've lost is what you put into it, and the money you save from continuing to support it you can invest someplace that makes you money.

If you have a house, you do have to move if you walk away from the investment. You're financials are going to look bad or not, but the standards are different. You're not going to be fired from your "job" as family member because your profits aren't as high as they could be, and you get no tax write off. If it'll be a wash in 10 years, well, most people tend to think (or should think) in longer than a 10-year window. When you walk away, you don't typically immediately sink the cash you'd be putting towards the mortgage into a new investment--it goes for rent. What you save is the difference, minus moving costs and inconvenience.

For example. However, if your focus is on shame and its effect on legal behavior, then the non-shame aspects tend to be less crucial.

You'd also overlook some of the other factors. For example, whether your home insurance and mortgage rate assumes a certain rate versus whether your business insurance and loan rate assumes a different default rate. I could go on. Again, for thinking critically you look at the assumptions, not just the analogies and facts offered. The assumptions for this article are that businesses and individuals are the same, fiscally and morally, with a slightly different set buried in another article and included by reference. The result is that it's really hard to know exactly how accurate the comparison is.

And that's where I leave it.

[leveymg]

12. Meanwhile, most mortgage lenders won't restructure, forcing people into foreclosure.

The idea that most people who lose their homes are doing so voluntarily to protect their net wealth is an industry meme.