walking away from a mortgage

[disneysteve]

You are indirectedly harming your family because the money saved could be used for somethingelse: EF, Retirement, 529, etc. You are making a financial decision based on the best return of your money

I guess that's where I have a problem with that line of thinking. Our house is not a financial asset in the same way as a share of stock or a bond or an ounce of gold. If the value goes up, I'm not going to sell it to harvest the profit. If the value goes down, I'm not going to dump it to take the loss.

By your reasoning, if the value of your house shoots up, you should sell it, buy something cheaper and put the profit into your retirement fund or 529 plan. That just doesn't make sense, though, at least not to me.

We bought a house that we could afford. We've lived here for 15 years and plan to live here another 15 until I retire. When we sell it, we'll get whatever we get and that will be the end of the story. Most likely, over 30 years, we'll make a profit, but that has no bearing on anything or any decision that we make.

[floridaharris]

I'm with you. We're upside down in our home (who isn't in central Florida?) and plan to stay in it for a good long time.

[imsospiraleyes]

Not all crimes are punished with jail time. There can be fines. Wages can be garnished. Something could be done to make the deadbeat repay what is owed. Skipping out on a loan that you can afford to repay isn't okay no matter how people try to justify it.

So you want to make it a misdemeanor? I'd like to hear, practically speaking, how you would like this to be enforced.

[disneysteve]

So you want to make it a misdemeanor? I'd like to hear, practically speaking, how you would like this to be enforced.

Don't know. I just don't think people should be able to walk away so easily. I realize there are already consequences in that it trashes your credit score, but obviously that isn't enough of a deterrent to stop people from doing it. Impose a fine of some sort. Garnish wages like they do for spouses who don't pay child support. It just seems to me that if you forced the borrower to pay some significant monetary penalty, he might think twice before doing this.

[Radiance]

What I find most interesting is that although it makes financial sense for many people to simply walk away, the fact of the matter is the vast majority stay and continue paying their mortgages. Brent White's research paper that was referred to earlier indicates that a major factor is the sense of "moral obligation" (and shame) the borrower feels so they don't walk away..

But from the bank's perspective, if the vast majority continues to pay and only a small minority simply walk away, there is less incentive for the banks to compromise with the borrower to decrease the terms of the loan. I've heard so many stories of people sending in requests after requests for loan modifications, but the banks are not in any rush to help, because for them this is a business decision: make as much money as you can/minimize your loss and make the borrower pay for the loss [of the value of the home].

I don’t agree with voluntarily walking away. HOWEVER,markusk makes a great point.

I was having difficulty paying and my bank refused to work with me.

They would not extend the duration of the mortgage
They would not reduce the interest rate, I bought at 8.0% and the current was 5%. All I asked them was to bring my interest rate current, nothing special, I had excellent credit at 730. With that I would be able to pay them 270k for a house that was worth 170k. They approved it just to take it away 7 months later

When it got to the point where my only way to pay was to use credit cards, I stop paying. 15 days later THEY asked me to short sale.

It seems to me banks are too looking for the easy way out. They would have been paid more than the house was worth, buy they opted to cut losses instead.

For those who are wandering and before I fall victim judgment again,. I became unable to afford my payments due to separation.

[disneysteve]

I was having difficulty paying and my bank refused to work with me.

That's a totally different situation and not the focus of this thread. If someone is having financial difficulties due to job loss, illness, divorce or some other legitimate reason, I can certainly understand that person having trouble making their loan payments.

Here, though, we're talking about folks who have not experienced any financial catastrophe. They still make good money and can still afford to make their mortgage payments. They just choose not to.

[Radiance]

Here, though, we're talking about folks who have not experienced any financial catastrophe. They still make good money and can still afford to make their mortgage payments. They just choose not to.

Agree, and I see how they choose not to, just because they can.
It should go hand by hand. I believe that people should be required to demonstrate they can not realistically pay they debt. Then, in the absense of a negotiation with lender, they might need to file bankrupcy.

What I wanted to point out is that I also believe that lenders should offer realistic options. Instead, they become even more blood thirsty almost pushing otherwise well intended people into unnecesary walking aways and unnecesary settlements.

There is everything under the sun. I do have a coworker who has "voluntarily" stopped paying her investment property just becauce it became a bad investment. She will have more consequences than those defaulting on primary residence, but still she will be "better off" financially by letting go of that property.

Media is definitively a factor, it is because of the awareness created that people even sees walking away as an option. At the risk of adding to the problem, I will just say that the consequences are rather mild.

I know I got burned and I know I will be waiting 7 years for my credit to be clean and I have a hefty downpayment before I buy a house again.

[KTP]

I used to think this way (that walking away from a mortgage would be an immoral thing) but now I realize there are too many unfair events in our financial life to worry about morality in finances.

Where is the morality in taking more money from one group in order to spread it around to the other groups (the soak the rich philosophy that is currently so "in")

Where is the morality in denying one group access to enticing retirement vehicles that another group with THE SAME financial situation gets. I am talking here about a person who makes $10,000 over the Roth limit and lives in So. Cal. or NY city vs the person who makes $10,000 under the limit but lives in Mobile, Alabama. In this case, the person in AL probably has MORE discretionary income.

When there are these and other inequalities going on, who am I to say a person is immoral just because they see a legal way to get rid of a debt. Go for it.

[feh]

I used to think this way (that walking away from a mortgage would be an immoral thing) but now I realize there are too many unfair events in our financial life to worry about morality in finances.

Where is the morality in taking more money from one group in order to spread it around to the other groups (the soak the rich philosophy that is currently so "in")

Can you explain how the rich are being soaked? Looks to me like they've never had it so good:

[disneysteve]

who am I to say a person is immoral just because they see a legal way to get rid of a debt. Go for it.

Is it legal? I would say it constitutes breach of contract which would make it illegal.

[disneysteve]

Where is the morality in denying one group access to enticing retirement vehicles that another group with THE SAME financial situation gets. I am talking here about a person who makes $10,000 over the Roth limit and lives in So. Cal. or NY city vs the person who makes $10,000 under the limit but lives in Mobile, Alabama. In this case, the person in AL probably has MORE discretionary income.

This is a great point, though not relevant to this thread.

The structure of the retirement plans and eligibility limits needs some reform.

1. The Roth contribution limit is way too low. $5,000/year won't get anyone a decent retirement. Half of all workers don't have 401k plans so a Roth is often the only option. Let's make the Roth limit $16,500, same as the 401k limit.

2. The cost of living issue is important, too. I just read that the standard of living for a person in Chicago earning $50,000 is about the same as that of a person in New York City earning $100,000. Using the same income and contribution limits for each of them doesn't really make any sense.

[KTP]

Can you explain how the rich are being soaked? Looks to me like they've never had it so good:

Maybe I should have said moderately rich.

See Obama's new plan to eliminate tax cuts for married couples making more than 250,000 /yr but keep them for everyone else.

See Oregon's plan to have a special tax on those making more than 250,000/yr and Washington state eyeing that too.

Oregon approves ballot initiative to soak the rich on clarkhoward.com


Just because you choose not to see something doesn't mean it doesn't exist.

[feh]

Maybe I should have said moderately rich.

See Obama's new plan to eliminate tax cuts for married couples making more than 250,000 /yr but keep them for everyone else.

I'm all for it. We need to increase revenue. Those making more than $250K can afford it. Those making $1M+ can really afford it.

See Oregon's plan to have a special tax on those making more than 250,000/yr and Washington state eyeing that too.

Oregon approves ballot initiative to soak the rich on clarkhoward.com


Just because you choose not to see something doesn't mean it doesn't exist.

There's nothing to see. Look at the graph I posted - the tax load on the wealthy is very low by historical standards.

[GREENBACK]

There's nothing to see. Look at the graph I posted - the tax load on the wealthy is very low by historical standards.

By historical standards the rich have really been "soaked". That they paid a tremendous percentage in the past doesn't mean that they should now in my opinion. The rich still overwhelmingly pay the most in taxes. I like your graph becuase it seems we are moving towards a more even playing field. I'm a flat tax believer but that's another thread starter in itself.

[feh]

By historical standards the rich have really been "soaked". That they paid a tremendous percentage in the past doesn't mean that they should now in my opinion.

I guess everybody has a different definition of "soaked"; at certain times, it certainly has been excessive. I think the top tax rate is currently 35% - too low, in my opinion.

The rich still overwhelmingly pay the most in taxes. I like your graph becuase it seems we are moving towards a more even playing field. I'm a flat tax believer but that's another thread starter in itself.

I feel tax rates should be progressive. And, indeed, it would be a topic for another thread. We're already off on a tangent from the original topic.