Are you an idiot to keep paying your mortgage?

[Kire]

Good question, I say.

Are you an idiot to keep paying your mortgage?
Kathleen Pender - SFGate.com

Sunday, November 16, 2008

Should you keep paying your mortgage?

If you have significant equity in your home, absolutely.

If you don't, it's getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.

Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.

Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.

But what about the moral obligation to pay off a debt?

Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he "recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford."

More: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/16/BUQR1442LQ.DTL

Warm Regards,

Erik B. Anderson
Independence Township, New Jersey
Established 1782

[Aviation Pro]

1. By this logic....

...why should anyone have to pay back credit card companies, student loan corporations or any of the other rapacious lending institutes that are like a festering sore on the economy.

[Kire]

3. no, wrong

you have to pay your credit card companies

but if it's a mortgage, just let them take your house if you can't pay and you have no equity

[earthside]

7. Why?

"... you have to pay your credit card companies."

This is unsecured debt -- if your credit rating has tanked or it you don't care about your credit rating or you believe that the economy is going to crash and ruin everyone's credit rating ... why do you have to pay your credit card companies?

[Kire]

12. they'll take the money when you die anyway?

I don't know, maybe I'm wrong.

This article raises a lot of questions, and I am sorry if my attempt at answering them don't meet your satisfaction the first time I post anything.

If you would like to tell me how you understand why you don't have to pay your credit card companies, I'd love to listen...

[Citizen Number 9]

2. I don't get this concept...

I was surprised when I heard people were doing this, but I don't understand it at all.

So you find yourself "upside-down" with your mortgage and all of a sudden;

You don't find the location you live in convenient anymore?

You don't like the house that once was suited to you?

You want to take a credit hit by defaulting?

You want to go put up with a landlord again?



Assuming you can still swing the payments, why not just wait until housing values come back?

[Kire]

4. some people don't know if they can "still swing the payments"

this article is trying to help them figure out whether they can or not

[Citizen Number 9]

5. Still don't get it...

There is a connection between being employed and swinging the payments. Depending on the kind of loan you took out there may be a connection between the Prime Rate and the size of the payment you have to swing.

But, I still don't understand the connection between the equity in the home and swinging the payment.

[Kire]

10. okay, then

if you had any specific questions about it, I might not feel like you're giving me the third degree here

[Citizen Number 9]

14. Let's take the long way around....

So, you want to buy a house. Maybe it's your first house. You're tired of renting, putting up with landlords and just generally feel like putting down roots. You take some time to learn about house buying, attend a seminar, read some books and do some research on the Internet.

Then, the real fun begins. Making lists of places to check out. You drive around to lots of places on Saturday and Sunday, both near and far. You meet with owners and Real Estate agents.

Do you choose the one with the good location, or the one that has a bigger backyard for the kids?
Which school district is best?

There's the anxiety of making your offer, the counteroffer and the inspections, which are now costing you money.

Ahh! The paperwork. Gathering your tax information and filling out form after form.

Is there a downpayment? Maybe, maybe not, but all this has cost you something anyway.

Your mortgage payment is a bit more than you were used to paying for rent, but hey, it's worth it for a place to call your own. Better yet, your payment will stay the same for the next 30 years.

Yay! You're an owner!

Moving day finally arrives and it's a hassle, but you are finally in your own house. Of course, there are a few things you want to attend to to make it really your own, like those new dining room curtains....

Oh, look! It would appear that housing values are in decline.

What you stretched to pay 212K for has now, apparently, dropped in value to 196K.

So, your immediate response is to get up and run away from your new "home", screw your (faceless) mortgage lender, trash your credit and go back to renting?

This is what confuses me.

[GliderGuider]

16. Again, this is a straw man.

The price of the house would never be the only consideration in such a situation. Every homeowner's situation will be different, and those differences will inform their decisions.

[Citizen Number 9]

17. .gov assistance only a new aspect of this

People were abandoning their mortgages upon finding their home value was "underwater" even before the .gov began tossing out help.

[Kire]

19. you took the long way round

but you forgot to move all of the rocks out of the long road

like the word "immediate", where did that come from?

[GliderGuider]

6. How do we know housing prices will come back?

At least within the next two or three decades? There is a perfectly reasonable case to be made that they won't. Believing that they will stay down is no more an article of statement of faith than believing that they must recover before then.

If an underwater homeowner has decided that prices are not likely to recover in whatever time frame fits their circumstances, then walking may be perfectly reasonable.

[Citizen Number 9]

9. Because they always do....

;-)

I'm not surprised that this situation could exist for some folks, but the attitude presented seems to be more one of "Mortgage underwater? Bail out!!' Like it's a natural thing to do.

That's what I don't understand.

[Kire]

11. well, it looks like you have some research to do

warm regards,

Erik B. Anderson
Independence Township, New Jersey
Established 1782

[GliderGuider]

13. What you do or do not understand is not my problem.

If you think that "Bail out!" is a general attitude here, you're taking an entirely too simplistic reading of the sentiments -- or perhaps just creating a straw man.

[Warpy]

8. How much is a roof over your head worth?

The only way to know how big an idiot you are is to watch what rents are doing in your area.

They're going up in most areas, making your fixed rate mortgage look like more of a bargain if the process continues, even if you owe more on your house than it's presently worth on paper. Plus, you'll keep a good credit rating, something that could come in handy down the line.

However, if you're struggling to pay an adjusted ARM on a pretentious heap of masonry in an area that's swamped with rentals and has stable prices, you might just be an idiot, especially if you're paying month to month on a high interest credit card.

[demnan]

15. I am being laid off

Unemployment benefits won't cover my mortgage. This looks like the only alternative to me if I can't get another job within 3 months.

[Citizen Number 9]

18. Looks like you're right.

The programs are designed to help people stay in their homes and you should look into whether you will qualify on all counts for some of this assistance. If you think you will, looks like you may have to stop paying your mortgage right now as one of the eventual qualification requirements.

It might buy you some extra time in finding a job.

[Kire]

20. are you trying to help the people in this forum?

Whether or not you are is something that I am confused about. Perhaps we can come to a mutual kind of satisfaction when this is all over, and neither of us will be confused.

Best of luck.

Erik B. Anderson
Independence Township, New Jersey
Established 1782

[Citizen Number 9]

21. I did offer advice

to one person, but I would say that the majority of my posts in this thread have been concerned with trying to understand the logic behind defaulting on your mortgage if you find you are "upside-down" on it.

If it appears certain that you are going to lose your home because you're unemployed or you signed a mortgage agreement that you couldn't realistically perform on, I can understand the logic of not making the payments in order to more quickly qualify for mortgage assistance. However, this concept first surfaced even before consumer mortgage revision was a reality. At that time, because of the decline in home prices, small or no downpayments and substantial upfront fees, people were finding they owed more than the present value of their home. They were choosing to walk away from their mortgages rather than make large payments on something that was worth less than they paid for it. This is what I don't understand.