Would you Walk Away from your Home

[disneysteve]

i wouldnt fault anyone for walking on an underwater mortgage. this notion of a loan from a bank as some kind of gentlemanly agreement amongst honorable parties that should be upheld due to dignity and personal constitution all became horsedoody, AFAIC, in light of the behavior of some of the loan issuers.

if an auto loan issuer behaved in a similar predatory, unethical and unscrupulous manner in which some of these mortgage issuers behaved, my sympathies would still lie with the borrower.

You can't overlook, however, that ultimately it was the buyer's decision to sign on the bottom line and accept the terms and conditions being set forth. Maybe those terms sucked. If so, you should have said, "No, thank you" and walked away. If you didn't do that and instead accepted and agreed to the terms, what the lender did is no longer relevant IMO. You can't take out a 300% interest payday loan and then go around complaining about the sky high rate being charged. Either you accept the terms and deal with the consequences or you forgo the deal because you don't like the terms. You can't have it both ways.

Certainly, lenders made made loans that shouldn't have been made. But buyers accepted those loans. It isn't the lenders' fault if buyers went in blind and stupid and didn't do their homework.

[littleroc02us]

i wouldnt fault anyone for walking on an underwater mortgage. this notion of a loan from a bank as some kind of gentlemanly agreement amongst honorable parties that should be upheld due to dignity and personal constitution all became horsedoody, AFAIC, in light of the behavior of some of the loan issuers. really sickening stuff.

a

as is true in researching anything, i think one must ask the age-old question: "who benefits most?"

Then let me answer this question, if that is the way the public should think, then please tell me what I should honor or not, because I'm completely confused. In the future when I sign a contract for a loan whether it be for a car, a house a business loan, I'm going to walk away assuming that if I don't feel like it I'm not going to pay it back. Thanks for the clarification!

[tripods68]

You can't overlook, however, that ultimately it was the buyer's decision to sign on the bottom line and accept the terms and conditions being set forth. Maybe those terms sucked. If so, you should have said, "No, thank you" and walked away. If you didn't do that and instead accepted and agreed to the terms, what the lender did is no longer relevant IMO. You can't take out a 300% interest payday loan and then go around complaining about the sky high rate being charged. Either you accept the terms and deal with the consequences or you forgo the deal because you don't like the terms. You can't have it both ways.

Certainly, lenders made made loans that shouldn't have been made. But buyers accepted those loans. It isn't the lenders' fault if buyers went in blind and stupid and didn't do their homework.

Steve,

It's a narrow view but I get where you are coming from. Let give credit, today's consumers have become far more sophisticated financially, especially information is available at a click of a button. It's not a knock on the 'old school' way of thinking, but the idea of "walking away" stand is made on pure economic sense which is vital for family to survive and preserve capital.

A sound minded people know the consequences of not fulfilling a contract. Let's make that assumptions and no debate on that.

Companies/Corporation breaks contracts all the time, they 'default' on loans, bonds, which they have a right to do "if it no longer make business sense". Airlines files BANKRUPTCY protection and "eliminate" pension obligations. Those are business decisions which made daily for their own self-preservation.

So why can't a family do the same thing that make economic sense for them?

Is this a reason enough to "walk away" and simply throw out excellent credit scores, and not have credit for a while? I think so. But very idea of itself by "walking away" have created true value that trump "old school" way of thinking, replaced by pure business economic sensibility. It comes back to what makes good business sense. Considering the consequences, if the benefit far outweight the cost by "walking away" consumer will act accordingly. They have.

[disneysteve]

the idea of "walking away" stand is made on pure economic sense which is vital for family to survive and preserve capital.

Companies/Corporation breaks contracts all the time, they 'default' on loans, bonds, which they have a right to do "if it no longer make business sense". Airlines files BANKRUPTCY protection and "eliminate" pension obligations. Those are business decisions which made daily for their own self-preservation.

So why can't a family do the same thing that make economic sense for them?

I don't think this relates to your original question. There is a big difference between walking away out of necessity for your family to survive and walking away just because you don't feel like paying anymore.

Companies don't make a habit of defaulting on debt when business is good and income is flowing. They default on debt when they get themselves into a situation where the debt obligations exceed their ability to service them.

I will continue to disagree with "strategic" defaults. If the value of my home drops, that doesn't make it any less my home. It doesn't change the practical value of the home to me and my family, even though it changes the monetary value. We have to live somewhere. Why not stay in the home that we obviously liked enough to spend 6 figures to purchase?

[rj.phila]

Then let me answer this question, if that is the way the public should think, then please tell me what I should honor or not, because I'm completely confused. In the future when I sign a contract for a loan whether it be for a car, a house a business loan, I'm going to walk away assuming that if I don't feel like it I'm not going to pay it back. Thanks for the clarification!

1-you should honor whatever your moral compass tells you. i never told anyone-including the public- to do anything. the OP posed a moral question; i weighed in.

2-i think you know this, but nobody halts paying on a loan-ever-cause they "dont feel like it", in the same way people dont enter INTO loans cause they "feel like it". lets talk apples and apples here.

3-nobody ever proposed default as a smart, fun, elective move. lets be realistic-any family or person who bought a primary home THAT CAN STILL AFFORD to service the debt probably isnt thinking about this. hell, my primary home i bought last year dropped 30k in the course of 1 year, of course it doesnt make sense to move cause of that. noone is thinking about walking on a loan that can afford payments but had their homes' value shift ~10%.

we're talking UNDERWATER-this term implies, you know....

and fyi, i respect everyone's opinions on the matter. i hope those who are looking this issue in the eye are getting some valuable insights from both sides via this thread.

[maat55]

The truth is that the government/federal reserve promoted a housing bubble that has created extreme winners and loosers. It is not the individuals fault that housing prices went up unnaturally due to government distortions.

If the government were doing its job, we would not have had 0 downs and unnaturally low interest rates. There should have been stricter oversite of gimic financial products. GSE's are largely to blame for this crisis, along with corrupt blind government.

As people walk away, these loses are mostly being absorbed by F&F and FDIC. They who stay in their homes are accepting a larger portion of loss as apposed to pushing that loss into the pool of debt to be absorbed by the masses.

You can bet the big banks walked away, so it is not unfair for the individual to do the same.

My only regret is that this debt is being passed to future generations. I personally would rather see the government go bankrupt.

[cschin4]

I don't get the constant drama about what one's home is "worth". It isn't worth anything until you sell it. Presumably you bought it and plan to live in it, make your life and enjoy living. I really don't care what my home is worth today. What does it matter? Prices go up and down. But, if you foolishly bought a home way beyond your means then maybe it does matter. I don't know because I wouldn't put myself in that situation. It seems others who are responsible are supposed to pay for the mistakes of people who want to live large.

[maat55]

I don't get the constant drama about what one's home is "worth". It isn't worth anything until you sell it. Presumably you bought it and plan to live in it, make your life and enjoy living. I really don't care what my home is worth today. What does it matter? Prices go up and down. But, if you foolishly bought a home way beyond your means then maybe it does matter. I don't know because I wouldn't put myself in that situation. It seems others who are responsible are supposed to pay for the mistakes of people who want to live large.

Under normal free market conditions, I would agree with you. But, we did not have normal free market conditions which caused the housing bubble.

How is someone to blame for buying a home at the peak? The government caused a situation where there would be extreme winners and loosers. I have no problem with those caught in the net wishing to get free.

Unless you are someone who plans to stay in your home forever, it is not wise to keep paying into a home that is drastically under water. We build equity in order to move up and in some cases, to build a second nestegg for retirement. Anyone who may rely on a reverse mortgage later will not want to keep paying on a home that has major minus equity.

[KiwiJo09]

I don't think that walking away would be in the homeowner's best interest. Does it suck that your house lost a lot of value? Absolutely. It'll suck more if you walk away and it ruins your credit. Then, you can't do anything really! I would pay off the house, then look into selling it. That way, it's as close to pure income as you can get.

[disneysteve]

The truth is that the government/federal reserve promoted a housing bubble that has created extreme winners and loosers. It is not the individuals fault that housing prices went up unnaturally due to government distortions.

I agree that the government dangled a bunch of carrots in front of the American people. Still, though, I come back to personal responsibility.

I would not buy a home with zero down.
I would not buy a home with an interest-only loan.
I would not buy a home with a payment that exceeded 28% of my monthly income.
I would not buy a home costing more than 2.5 times my annual income.

The government can offer me anything they want to offer. It isn't going to get me to make a move that isn't in my own best interests. Millions of Americans, however, allowed themselves to get sucked into the madness. They didn't do their homework. They didn't follow the rules. They didn't take 5 minutes to run the numbers through a simple online calculator to determine whether or not they could actually afford the deal they were signing up for. That isn't the government's fault.

[disneysteve]

How is someone to blame for buying a home at the peak?

Had they done their homework, it wouldn't have been too hard to see that prices were skyrocketing for no fundamental reason, which is what defines a bubble. That isn't the time to buy. It is just like all of the lemurs out there buying gold today, whose fault is that? When people get blinded by greed, bad things happen in the end.

We build equity in order to move up and in some cases, to build a second nestegg for retirement.

I don't look at our home in either of those ways. We have no plans to "move up" and I don't count the value of our home in our retirement planning at all. It is simply a place to live. Yes, someday we may sell it and it will have some value at that point. I don't know how much and it really doesn't matter. Whatever value it has will be more than if we had rented for 30 years. Plus, if and when we do sell, we will then need to live somewhere else so the money obtained from selling the house will likely just get turned over to pay for the next place. We'll never actually see that money in our pockets.

[MonkeyMama]

About 99% of the people I know who bought a home and foreclosed (& that would literally be 99% of the people I know in my age group in the city I live in) lied on their mortgage apps and/or couldn't afford the homes they bought. Plain and simple.

Likewise, it never crossed anyone's minds that home prices could fall.

Most people who bought at the peak simply were not thinking!

I am sure there are some who bought at the peak and can afford it just fine. I'd think that is a rarity.

The lowest home price we looked at in the city we grew up in and wanted to live in was, about $500k (in 1999). That was well before the peak. The same house cost $900k at the peak and still costs $600k today. Like DisneySteve said, without 20% down, an ability to afford it on one of our incomes, and a fixed rate mortgage, these homes were all obviously unaffordable to us. So we didn't buy. It's really that simple. I can not fathom why so few people gave this any thought.

Some other factors? Median home prices were well over 10 times median income, etc. Even if we weren't so strict with our lending standards, it was pretty obvious the market was unsustainable, and LONG overdue for a correction. To anyone who could put aside their greed for 5 minutes and think about what they were doing. The real estate market has a long history of rise and falls. I remember pondering a graph in 2004 or 2005 and seeing how huge and unnatural that run up had become (home prices versus median incomes, in California). It wasn't "if" the market was going to correct, it was "when."

[disneysteve]

Like DisneySteve said, without 20% down, an ability to afford it on one of our incomes, and a fixed rate mortgage, these homes were all obviously unaffordable to us. So we didn't buy. It's really that simple. I can not fathom why so few people gave this any thought.

Imagine that. Before making the largest purchase of your life, you took a moment to figure out if you could actually afford it. When you determined you couldn't, you didn't buy it.

If more people would have taken that simple step, the whole housing mess would have been a minor blip rather than the catastrophe it became.

[littleroc02us]

I agree that the government dangled a bunch of carrots in front of the American people. Still, though, I come back to personal responsibility.

I would not buy a home with zero down.
I would not buy a home with an interest-only loan.
I would not buy a home with a payment that exceeded 28% of my monthly income.
I would not buy a home costing more than 2.5 times my annual income.

The government can offer me anything they want to offer. It isn't going to get me to make a move that isn't in my own best interests. Millions of Americans, however, allowed themselves to get sucked into the madness. They didn't do their homework. They didn't follow the rules. They didn't take 5 minutes to run the numbers through a simple online calculator to determine whether or not they could actually afford the deal they were signing up for. That isn't the government's fault.

You speak exactly my feelings.

[littleroc02us]

We bought at the peak of the market in 2006 with a 30 year conventional loan, we calculated that we could easily make the payment and we bought. I haven't blamed anyone for my house going down in value from 224k to 193k. And like the rest of you have said, it's my home and not an investment. I do agree with that.