Would you Walk Away from your Home

[tripods68]

Setting aside any ethical feelings or the importance of honoring a contract that you may have about people "why they shouldn't "walk away" from their home". I won't argue this to you.

I'm talking about "strategic" default. So assuming you are up-side-down on your home like many Americans, yet you can still afford the payment, but can't stand the idea of your home have LOSS tremendous value. Some Economists think your home value may or may not reach the original loan balance again. It might take decades to recover. Knowing this reality....

From the pure business sense, would you "walk away", knowing in the next few years you can buy another home at lower price after your credit improved?

OR,

Would you simply hold on till the housing market value improves again that may or may never happen?

[bjl584]

If I wasn't planning on moving, then I wouldn't care how much the house is worth, unless I was looking to refi.

But, I think that strategy is risky at best. You might end up with a better deal a few years from now, but then again you might not. That's a pretty big gamble to take being that your credit will be ruined in the process.

[Snodog]

Originally Posted by tripods68

Setting aside any ethical feelings or the importance of honoring a contract that you may have about people "why they shouldn't "walk away" from their home". I won't argue this to you.

From a strictly financial view walking away makes sense. Businesses do it all the time (while sometimes hypocritically publicly shaming homeowners who do the same) Check out this hilarious skit by the Daily Show.Mortgage Bankers Association Strategic Default - The Daily Show with Jon Stewart - 10/07/10 - Video Clip | Comedy Central

[PetMom]

This is going to be an increasing problem as so many people are in this situation.

The decision would blast your credit record and you have to realize that is at
least or right at 7 years.

With a lower credit rating be aware now how much that is being used to judge you.

Employers now request this, anyone moving into an apartment and more surprisingly
you probably will pay more for car insurance and any type of collaterized loan
you might need to get if you could get one.

Others are walking away, but how are they getting into other homes or apartments
or work.

[Joan.of.the.Arch]

Originally Posted by tripods68

From the pure business sense, would you "walk away", knowing in the next few years you can buy another home at lower price after your credit improved?

Hell, no. My house absolutely has nothing to do with business. This is where I live, bud. I don't need my house to maintain a certain value.

I understand that many people do have to be able to move at the drop of a hat, or need to be able to downsize in retirement, or need to be able to sell the house to move in with family, or need to feel like they have financial security built in to the value of their house. But I don't need any of that. So I would just stay put regardless of house values.

[tripods68]

Originally Posted by Snodog

From a strictly financial view walking away makes sense. Businesses do it all the time (while sometimes hypocritically publicly shaming homeowners who do the same) Check out this hilarious skit by the Daily Show.Mortgage Bankers Association Strategic Default - The Daily Show with Jon Stewart - 10/07/10 - Video Clip | Comedy Central

I floored watching this...

[disneysteve]

Originally Posted by Joan.of.the.Arch

Hell, no. My house absolutely has nothing to do with business. This is where I live, bud. I don't need my house to maintain a certain value.

Agreed 100%. We didn't buy our home as an investment. I don't care if it is worth more, less or the same as what we paid for it. I wouldn't sell it just because it increased in value. I wouldn't default on the loan just because it decreased in value. I simply can not comprehend people walking away from a house they like and can comfortably afford just because the value has fallen.

[Cassius King]

I'm kind of torn on this. A little bit ago I would have said no. I like my house and yard. However, my surrounding neighborhood is full of foreclosed/empty homes. I can't even get a refi right now because it has crushed my home value so much. I can afford my house, I like it. I just want to take advantage of lower rates. The banks created this problem. Now I'm getting hurt with a decreased home value and not able to refi. I would consider walking away and starting anew.

[tripods68]

Originally Posted by Cassius King

I just want to take advantage of lower rates. The banks created this problem. Now I'm getting hurt with a decreased home value and not able to refi.

Your point is well taken. So many people wants to lock in a lower rate, but no lender wants to touch upside-down mortgage.

[disneysteve]

Originally Posted by Cassius King

I'm kind of torn on this. A little bit ago I would have said no. I like my house and yard. However, my surrounding neighborhood is full of foreclosed/empty homes. I can't even get a refi right now because it has crushed my home value so much. I can afford my house, I like it. I just want to take advantage of lower rates. The banks created this problem. Now I'm getting hurt with a decreased home value and not able to refi. I would consider walking away and starting anew.

Walking away won't help you take "advantage of lower rates." It will just destroy your credit and you won't be able to buy anything for a number of years.

I don't agree that "banks created this problem." Greed created this problem and that wasn't confined to the banks. People buying houses with zero down and interest-only loans betting that the home value would only continue to rise and bail them out of a deal they couldn't possibly afford was a part of the problem. People buying homes to hold them for a few months and then flip them at a profit (because again, prices only go up) was part of the problem. People buying homes for which they needed every penny of both spouses' incomes to support was part of the problem because the instant anything happened to reduce income, they were screwed. The banks absolutely were part of the problem, too, because they made those ridiculous loans, letting people buy homes for 5 or 6 times their annual income, nothing down, interest only or ARMs. So plenty of blame to go around.

[disneysteve]

Originally Posted by tripods68

no lender wants to touch upside-down mortgage.

Of course not. Why would they? What lender in their right mind would lend you $300,000 against collateral only worth $250,000, for example?

[MonkeyMama]

It depends.

While I would keep my house if I could "comfortably afford it," the fact is that the majority of people pondering this can not "comfortably afford their home." So I don't think it is that simple.

It would depend how upside down my house is. For me, personally, there is no point where I would probably feel it is best to walk away. I think it's pretty safe to say home values will never fall below $100k in my neighborhood, and we never borrowed much more than $200k. So, if I was several hundred thousand dollars upside down, I might consider it kind of stupid to stay put, I can't ever see being in that situation. By following the rule of only buying something we could "comfortably afford."

So you can kind of go round and round to square one. My initial reaction may be more like Steve or Joan's, but I know MANY people who owe $300k+ more than their house is worth. I understand the draw to walk away. In fact, it may be financial suicide not to walk away. Then again, none of these people can comfortably afford their payments.

Cassius King touches on the other side of it. My story is we paid $300k in our house (low cost region from where we moved from) and my local relatives thought we were totally insane. They warned us that prices were high and I remember saying I could care less if the value fell to $0. Was a good deal, considering our own perspective. Not much has changed about that, BUT since we live in "foreclosure central," I could see our neighborhood falling into huge disrepair and being in a situation to walk away. In fact, I am surprised it is not worse at current and think we have a long ways to go for home prices to rebound. I personally think they have a long ways to fall where I live. Oh, anyway, home prices on our street were $300k when we bought, $650k at the peak, and back to about $275k today. I stand by my initial feelings for the most part. Though others thought we were crazy. We knew we could comfortably afford it and is all that matters. If more people stuck to that, they wouldn't have paid $650k for the same house just a couple of years later.

The fact that a home has lost value, in itself, is little reason to walk away. But there is a lot at play here. Though my house is not primarily an investment, lord knows if I spend $300k on an asset, I expect for it to hold its value. & that I will be thinking about the math if it plummets in value. Hopefully I will never get to that point where I have to think about it. I can tell you that I Could care less that my house may only fetch $250k today. Still far more than I owe on it. I have no plans to sell any time soon so plenty of time to wait it out.

[MonkeyMama]

Originally Posted by tripods68

From the pure business sense, would you "walk away", knowing in the next few years you can buy another home at lower price after your credit improved?

My short answer is no. KNOWING in the next few years you can buy a home at a lower price?? No one knows that.

[MonkeyMama]

P.S.S. If people actually put 20% down on their homes I don't even think this would be a discussion. Less people would be upside down. & those that were upside down would think a little more carefully about leaving that 20% down payment behind.

[disneysteve]

Originally Posted by MonkeyMama

While I would keep my house if I could "comfortably afford it," the fact is that the majority of people pondering this can not "comfortably afford their home." So I don't think it is that simple.

I know MANY people who owe $300k+ more than their house is worth. I understand the draw to walk away. In fact, it may be financial suicide not to walk away. Then again, none of these people can comfortably afford their payments.

You are mixing issues. If you can't afford your payment, that's a whole different question. Many people bought perfectly reasonable homes for their incomes and then proceeded to lose their jobs. If you can't make the payment, you can't make the payment. Plain and simple.

OP is asking about defaulting on a loan voluntarily despite being able to continue making the payments without difficulty. I would not do that.

[disneysteve]

Originally Posted by MonkeyMama

P.S.S. If people actually put 20% down on their homes I don't even think this would be a discussion. Less people would be upside down. & those that were upside down would think a little more carefully about leaving that 20% down payment behind.

True. Also, if people had kept payments to 28% of income and taken fixed-rate loans. Many of the problems arose with folks who put down little to nothing. Many problems arose when interest only loans had the principal payments kick in or ARMs adjusted. They could afford the initial payment but not the new payment, and they knew that when they bought the house but figured the rising value would save them and they'd refi before the new payment started.

[tripods68]

Steve,

There are two kinds of homeowners today IMO:
1. People who believes in doing the "right" thing. These are people who made responsible decisions, bought their homes before the bubble.

2. People who bought homes during the 'haydays' of the housing market and are now up-side down but still can afford their house payments. These people are responsible who wants to REFI but can't. So you have large populations that have made this transition.

In this sense, its easy to comprehend the state of mind of most people where they are. I fall in the 2 category, being up-side with our mortgage but its a decision that have cross my mind without a doubt.

[JoshuaHeckathorn]

Originally Posted by tripods68

2. People who bought homes during the 'haydays' of the housing market and are now up-side down but still can afford their house payments. These people are responsible who wants to REFI but can't. So you have large populations that have made this transition.

Are you 100% sure you can't refi? Check to make sure your loan isn't owned by Fannie Mae/Freddie Mac first. Here's a link for the Fannie Mae Lookup:

Does Fannie Mae Own Your Mortgage? Loan Lookup Tool

Through the Home Affordable Refi program (HARP) you can do refis for up to 125% LTV, and your lender should be able to close in 2-3 weeks. Unfortunately, a lot of people still aren't familiar with HARP.

[tripods68]

Originally Posted by JoshuaHeckathorn

Are you 100% sure you can't refi? Check to make sure your loan isn't owned by Fannie Mae/Freddie Mac first.

I've checked. My loan is owned by my credit union.

[snafu]

I've been through this scenario before. We live in an economic 'roller coaster' city. When our oil based economy is good, things are very very good, when oil prices drop suddenly, the economy suddenly goes into a tail spin. The bottom dropped out in '72 [I think] and my parents saw the value of their paid off home drop like a rock. People whose job vanished, walked away having 1st stripped their homes of appliances and even cupboards! Thieves were breaking into homes and stealing wiring!

It devastated the newer communities since there were so many empty, stripped houses. The banks were very good working with anyone who was willing to stay and tough it out. I saw the same thing happen in 1982-83 when mortgage interest rates went to 18%. Vast numbers of homeowners no longer qualified for renewal as it was over the 33% allowable. Again, the banks were key in stopping the chaos. Apparently there was a lot of 'creative' financing with houses evaluated using a different criteria.

In both these time frames, it only took a couple of years to restore value. I know a lot of young families were bailed-out by their parents but their houses weren't over-valued in a 'bubble.' Likewise, there was not so much emphasis placed on FICO scores. Today,
employers will reject qualified candidates because their credit rating is poor.

I know businesses do 'strategic defaults,' Enron type companies wreck havoc for swaths of families, Bernie Madoff [sp?] ripped off Charity Organizations, the Executive group pay themselves 200 times the average salary in their organization and the very Bankers who caused the maelstrom paid themselves handsome bonuses but do you see it as good business decision making? Is it what you would do if you were in the decision making chair...