Here’s my personal response to my question: Would You Ever Walk Away From Your Mortgage? I didn’t initially mean to make this a separate post, but it ended up being a bit long. Ethics are always a fuzzy area and very difficult to explore clearly on paper. The question also hits close to home, because it’s quite possible in the near future that I could also owe more on my mortgage than my house is worth. Hurray leverage!
Ethics and Debt
Everyone has their own ethical standards. When thinking about this problem, the first example I thought of was unsecured debt like credit cards. Let’s say you could extract $100,000 cash from credit cards (actually not that hard just a year ago). What’s to keep you from running away with it? Besides an sense of honor, one major deterrent would be that your credit score would be junk for 7 years or so.
But what if that obstacle was removed? Let’s say you knew you were going to move to Thailand forever. Then you could keep the money and there would be no financial consequences. (Heck, $100k would probably fund a few years in Thailand…) Now, I think most people would agree that this would be unethical. I do. Of course, some might point out that Citibank or American Express knew this was a possibility, so too bad for them, right?
Going back to mortgages, the only addition is that your house is now placed as collateral. Does the addition of collateral change the ethics of paying the loan back? I don’t think so. If somebody walks away, then they’re basically saying their collateral isn’t worth much anyway. So I must conclude that there is still an ethical obligation to at least attempt to repay any loan.
Practical Matters: Hardship and Math
Now, it’s easy to say you’ll always repay your loan when you’re not staring down the possibility of bankruptcy or losing decades worth of saving.
Extreme Example #1: Easy Money
Let’s say you have $100k in the bank, but you decide to go ahead and buy a $300k house with 0% down. The local economy collapses, and the house is now only worth $100k. Certainly, you could suck it up and keep paying your mortgage even though you have $200k of negative equity to overcome. How can anyone not be tempted to just walk away and go buy the house next door for cash with only $100k? You’d be walking away from $200,000.
Here is a video from CNBC about a guy asking about if he should walk away from his home (via TBP). Starts at 0:30.
He bought the house for $600k and says it is only worth $270k now. His outstanding balance is $350k, so he’s underwater by about $80k. All of the show’s hosts tell him that it his is obligation to keep paying. They even suggest that he is irresponsible for having a interest-only mortgage which resulted in some negative amortization. However, this guy initially put up a 50% downpayment on this house. Yes, the guy has already lost $300,000! What if he had put down nothing? Can these they each honestly say they would walk away from $330,000?
Sure, if I was only $10,000 or probably even $100,000 underwater on my mortgage, I wouldn’t walk away if I could still make the payments. The phrase “good faith effort” comes to mind. But to be honest, I think there would be a point where practicality would step in. It might be high, but the point is the number exists. Would I be willing to work for an additional decade in order to feel better about paying off a mortgage? I don’t think so. So I can’t necessarily judge others who have done the same, even if their tipping point was lower.
Extreme Example #2: Impending Bankruptcy
This time, imagine you just lost your job. Your ARM loan has reset, you can’t refinance, and your mortgage payment is now $3,000 per month. Rent on a comparable house would be $1,000 per month. You have $25,000 in savings. You can either walk away now, and make a go with your $25,000, or wait it out and face probable bankruptcy. Then you’ll not only lose your house but also be broke. In this situation, I’d definitely cut my losses. I would not sacrifice the financial security of me and my family over a house loan.
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Why home values might take decades to recover
It’s one thing to keep paying your mortgage, knowing that one day, it will be worth more than you paid for it.
It’s another thing to keep paying your mortgage, with the chance that your house might never reach the price you paid for it in your life time.That would be pretty demoralizing, and it wasn’t even your fault to begin with!
‘Fate’ hasn’t been ethical to them, so maybe it’s time for them to throw ethics out of the window. There’s more on the table than just ethics: That person might have planned to build his house as an asset so he could sell for his retirement, or stuff like that.
I think that’s how some people would feel, and that’s probably why some of these people would walk. What I don’t understand is why are there such laws in place, that allows people to walk away from their houses without recourse. Isn’t that the main issue here?
isnt there something in the bible about debt being bad? we’re talking about ethics and morals of walking away from a house and giving a bank back what you agreed to give back should you not pay back.
let’s say a guy rents a house from a bank and thus has a mortgage and is in debt. then he finds god, realizes debt is bad, cant sell being underwater. would it be immoral of him to walk away? ironic.
What if someone took out a loan and invested in the stock market instead? Would they still be justified in shirking their repayment after the market crashes?
What about the savers (like us!) who see their investments or their interest rates decimated because someone else thinks it’s just the big, evil banks that will pay the bill? Aren’t we all the ultimate victims of people walking away from their mortgages?
@GT
I don’t think there’s anything in the Bible that explicitly prohibits debt (though some forms of Islam have taken a strict stance against “usury”). Even if there is, I think “thou shalt not lie” and “thou shalt not steal” would trump such a passage when it comes to considering walking away from a promise of repayment.
To walk away from a debt is STEALING. Walk away from $100k on your house, no matter what you’ve put in or what it’s worth, and you might as well be walking into a porsche dealership and just driving one off the lot. The ripple effect of walking away always HURTS someone (not just the bank), usually the person who has enough honor to keep paying. Don’t be so f*ing selfish.
The only numbers that matter in a situation like this are numbers that going to change with the decision. (Other qualitative charachteristics has to be considered as well).
Why there is talk about ethics, where there is a clear objective decision to make. Ethics have nothing to do with it. If you are able to buy another comparable house for half the price of your mortgage – its a no brainer decision.
Why would you have to move out of the country just for maxing out your CC balances and leaving your mortgage? Take the 50-500k (whatever you have in savings and CC balances), meet a cutie in Santa Barbara or Austin, move in with her and cancel your cell phone.
I think a lot of it has to do with the feeling of community. At some level we know that the responsibilities we shirk come down upon the community, but at the same time we have to lookout for ourselves and those around us.
If you live in a small town and knew that abandoning your house would send the property values of those near you down, and left them having to deal with the property in a local bank you might be more willing to stick it out, because you feel a sense of community with those that will be hurt most.
If you live in a suburb and your mortgage was bought by a multinational corporation, and you’re neighbors are people whom you only know because of proximity. You are probably less willing to sacrifice because you don’t know or care about those whom the burden will fall upon.
I think all of us know that staying in an underwater mortgage and keeping on paying is best for the economy as a whole, but it’s hard to accept the fact that ‘losing’ 100K. Sure the nation is losing much more when that person walks away, but what about me. How much personal sacrifice are people willing to make to do the right thing for the community, and at what point are they strictly worried about themselves?
-MBirchmeier
You know, the banks went into the contracts under the same assumptions of most homeowners – that home prices would continue rising forever. The banks were comfortable with the terms of these contracts. Specifically, if the homeowner defaults, the bank gets the property. They’ll have an asset to cover the “loss”. So they thought.
This is nothing more than a business decision. Frankly, if you’re deeply underwater, I think you may be a complete idiot for staying in that situation. You made a deal with the bank, follow it. If you decide that you want out, just call them up and tell them you can’t pay. Most banks have a “cash for keys” program. There is nothing unethical or immoral about this.
Now, those who are looting and destroying property on their way out – that’s ugly.
It’s easy to come up with extreme examples that would compel people to give up and declare bankruptcy (or walk away). The guy in the video can still afford his payment – so pay it. Yes, he was stupid for doing a negative amortization loan, but so what? Pay your debts!
The 90% of Americans that bought homes that they could afford shouldn’t have to bail out both the banks and the other 10%. But, as always, the responsible will pay for the irresponsible. (I’m not including people that have hardships as being irresponsible – having a home go down in value is not a hardship, though).
I wonder if some of these people that are now underwater were feeling pretty good about things when their houses were going up 20% per year. But now that they’re down again – “life’s not fair” anymore.
One thing to consider is whether the mortgage was a recourse or non-recourse debt. Whether this is allowed is a matter of state law. If the mortgage is recourse, then even after the bank forecloses it can seek a deficiency judgment that would create a judgment lien against the debtor for the balance owed. In that case, “walking away” wouldn’t get you very far.
At some point ethics go out the window and practicality takes over. The scenarios described in the post are real, and it’s just not practical to stay in the home. In fact, it’s quite foolish to stay. It’s one thing to not be able to afford the mortgage payment because you bought way more house then you can afford and had 100% financing interest only ARM (that’s a dumba*s thing to do), it’s another to be $200K+ underwater or be facing bankruptcy because you lost your job and lenders won’t refinance your loan.
I was wondering what y’alls point of view was regarding more luxury mortgages…specifically boats, RVs and 2nd homes.
A retired client of mine who did not have a home, purchased an RV, and had intended to live on it full time…did so for about 18 months, then decided to return to the work force because his retirement and social security wasn’t allowing ends to meet. Now he has a 180k mortgage on a 120k present value RV.
While he does live in a recouse state, he cannot afford the payments. My suggestion has been to try to work a short sale with the lender, however there has been absolutely no interest in this RV during the past 18 months…even though it is in mint condition with warranty remaining.
I think it is a simple question of the dream of home ownership versus buying a home as an investment. If you are trying to live the dream, then you would try to stay in the house till the bitter end. If you bought the home thinking it would make you money, then you will cut your losses and walk away.
I believe in ethics and integrity, but I don’t believe many other people do. Think about it: How many people do you know who would NOT file a lawsuit if they were rear-ended in a car accident? Therefore I don’t think ethics or integrity comes into play with any financial situation for most people.
It is an interesting thing to think about if you are thinking of plowing money into your house to pay it off early. A concept that I’ve always been on the fence about, this guy’s story may be giving me some clarity.
I think that in our current system, the penalties for skipping out on your obligations are not severe enough. The system should be set up such that it’s a no-brainer that someone with the means to keep paying should do so. Faced with the prospect of 10 years in debtors prison, I’m sure all but those in the worst financial condition would choose to keep paying.
That said, anybody who is in this situation needs to evaluate the value of their credit rating. Is your credit rating worth $100,000 or whatever amount you stand to save? Probably not. Since that is the only penalty in non-recourse states, why not break your contract? If you sign a 2 year contract for a cell phone and 2 months later decide you don’t want it, you cancel your contract paying the early termination penalty. The cell phone companies were wise enough to create this penalty for breaking your contract, such that getting out of the contract hurts.
The banks were foolish. They loaned money to people they shouldn’t have. They eliminated downpayment requirements. They failed to create a system of penalties for non-payment. Just because the banks were stupid, doesn’t mean you have to be. If it makes financial sense: walk away.
Now if I were running the banks, this is what my fix would be for this moral hazard. Create a bank blacklist. If you have a foreclosure in your past, you won’t get credit for 30 years, period. No credit cards, car loans, mortgages, margin trading, nothing. Faced with 30 years of having no access to credit, I think I’d keep paying and I’m sure others would as well.
gt,
The bible also says slavery is okay, you can stone your own children and that you can’t eat shrimp… I wouldn’t put to much weight in a literal interpretation of the bible when it comes to finances. : )
Interestingly, Dave Ramsey addressed this quote the other day when he was telling someone to walk away from their loan. He said something to the effect that the bible tells people to take care of their families as well.
Man this is a crazy world we live in these days. It amazes me that discussions like this are normal and divided because I don’t think they would have been debatable a few years back or even at any other point in our lifetimes. I’d bet that other than the last couple years the consensus of society would be the overwhelming belief that walking away from a mortgage is wrong; now however, we rationalize it and it becomes debatable and often socially acceptable.
If you lose a job you should be able to find another but today it’s tough so that becomes a “good excuse”. For some reason people these days feel that if you lose 20% of equity value (equal to that of your down payment) you feel wiped out but if you gain 20% you feel like you doubled your money. In times past this would be a moot point for the average homeowner (i.e. not investor) because the value of a house has simply moved by 20%. No matter what you put down you own the whole house but carry a living expense called a mortgage. Everybody today views home ownership as an investment when it should be viewed as an expense. When viewed as an expense a homeowner should care less about whether they are under water or whether they have increased their equity. They simply have a cost of living expense just like they did last month, last year, and ten years ago.
My opinion right now is that walking away from a home, though not illegal, is unethical in every situation. If you walk away to avoid going bankrupt you are smart (in fact I would advise it) but you are still being unethical; there’s no way around it.
I would do everything in my power in either situation to NOT walk away from my mortgage. It was my responsibility in the first place, I need to deal with the consequences, and so does the rest of America. I find it hard to believe that someone like yourself or myself in that matter, who I would say is financially intelligent would find yourself in that second scenario in the first place. I would never put my self in a financial situation where I was unable to pay the mortgage whether myself or my spouse lost their job. I understand situations like this arise all the time, but I think we can partly to blame this on the financial institutions, where if someone comes in and applies for an ARM, and currently they can afford the loan, but after the initial rate expires, and the person can not afford it. That is partly to blame on the financier and partly to blame on the borrower. People need to be educated, there needs to be more regulation. Dont just give out a loan because they can afford the loan now, but in five years they can not because of the rate significantly increasing.
Pat said it well in a comment to a earlier post when he said the current “value” of the house has zero to do with the contract you signed where you agree to pay the mortgage. If you can afford to pay the mortgage, continue paying it. DUH!
This line of reasoning just doesn’t make sense to me. Close to 100% of things you would buy using credit cards will go down in value. Are you going to say – “Crap that big screen TV is worth half of what it was worth last year, so I guess I’ll just not pay for it”. Sadly, many people say this exact same thing and it’s the reason this economy is in the shape it is. And some people wonder why it’s hard to get a loan? Jonathan, why not take your money out of online savings accounts and just made a direct loan at a higher rate to a consumer who wants to put 0% down on a six-figure house? Why not? — because chances are you wouldn’t feel comfortable with the risk. But in the case of Fannie Mae, they had no choice – they were ordered.
In November 2000, Fannie Mae announced that the Department of Housing and Urban Development (“HUD”) would soon require it to dedicate 50% of its business to low- and moderate-income families. See American Bankers Association Banking Journal from Nov 2000: http://findarticles.com/p/articles/mi_hb6632/is_200011/ai_n26424963?tag=rel.res1
This is just another case of unintended consequents from government action.
If anyone is advocating that those who can afford thier mortgage to walk away because the apparaised value declined, then why stop with the house? Why not walk about from that $10,000 stock investment you made with borrowed money? If the stock is not only worth $2000, but you still owe $5,000 on you loan, just walk away. If you car is worth less than you owe, just walk away — after all, the value of the car will probably never go up in value. At least a house has a potential to increase in value. Why not just walk away from your car payment??
I for one would love to see all of those crazy Biblical literalists put the Bible’s rules on finances into action.
If forbids usury (goodby credit card industry) and demands that all debt be forgiven after seven years.
I’d have to agree with the folks on CNBC, as long as that fellow is able to make the payments, he has no business walking away. Other situations are less cut and dry for me, but in that case it seems clear.
while i’ll admit the idea does cross my mind every now and then, i’m still holding on to my “i’ll never do it” guns. i don’t think house values would go down enough to make me seriously consider it (80-95%) in all honesty or else we’re all screwed.
So ethics is a fuzzy area? Let’s suppose for the sake of argument Jonathon that your integrity means more to you than ANY amout of money. Wouldn’t that make everything a lot clearer?
The only time walking away is OK is when you simply cannot meet the terms of the contract. Then you try to have a short sale and repay your lender while you live with you mother-in-law. Or, if absolutely necessary you declare bankruptcy.
You can lose money, and others can take your money. Your character and your integrity are yours. They can’t be repossessed, they can’t be stolen, they are unaffected by your circumstances. They can only be lost if you choose to give them up.
The irony of the matter is that the vast majority of people who value their character most highly, also have success in their financial life.
Trust people’s word, but get it in writing…
The fact is, the banks making these loans were also taking on risk… To say it is immoral to break a contract means that the banks could essentially write any contract they want and provide it to anyone who would sign it without worrying about the risks of repayment… (Oh wait, that is kind of what happened…)
As the banks were the people writing up the lending contracts, it is their responsibility to include terms that they are comfortable with should the borrower default. If they were willing to take on the additional risk associated with providing an interest only loan, then they bear the downside when that contract fails.
Is it immoral of someone to get out of their phone contract?
In the words of the godfather, it’s not personal, it’s business… Home loans are simply another contract. The borrower loses their house as punishment for not paying. That’s the deal the banks put forward and the borrower accepted.
@DCnTN
“The irony of the matter is that the vast majority of people who value their character most highly, also have success in their financial life.”
Do you have anything to back that up DCnTN? Or is that just the normal internet comment bullsh*t?
If you open up your daily paper (assuming your city still has one) you might be surprised to find that those people who our society considers most successful have been suddenly found to be completely lacking in any integrity or ethics.
And your statement implies that the reverse is true — people who aren’t successful are lacking in integrity, which is just insulting to billions of people all over the world.
Integrity is great and all, but so is education, opportunity, intelligence, ability, luck, and a host of other factors in determining financial success.
As for ethics being a fuzzy area? Yes, DCnTN, it most definitely is. Lucky you that you’ve never been faced with having to make some very hard ethical choices where your values and morals were pitted against each other.
DCnTN,
Is it immoral of someone to get out of their phone contract if the contract states penalties you are both comfortable with for switching over? Would that be a blow to someone’s integrity?
A home loan is simply another contract. A larger amount sure, but the lenders wrote the contract with terms they were comfortable with if you defaulted. You can’t forget that the lenders took on risk too in that they would have to take over the property if you defaulted. If they weren’t comfortable with those terms, they would have written different ones. (e.g. required a greater down payment, insurance, etc.)
If the banks eat a few loans, perhaps that will encourage less predatory lending in the future?
To quote the godfather, “it’s not personal, it’s business.”
Walking from a mortgage: You have a contract, you break the contract, you suffer whatever consequences are laid out in the contract. And don’t be surprised if a future lender refuses to give you another loan. Duh. And why should I be sympathetic?
However, what is infuriatingly wrong about what is happening today is the way banks and investment firms are passing on THEIR trillions in bad investments (ie a loser mortgage walker) onto the taxpayer through all of these bailouts. That is the real outrage and moral hazard as far as I’m concerned.
FWIW, I would never walk away from a mortgage if I could pay it. But then I didn’t buy an overpriced house so who cares what I think.
What if you weren’t talking about a mortgage but about a debt from a friend. Let’s say you borrowed 10K from a friend and paying it “doesn’t make financial sense” for you. Would you still feel it’s OK to walk away?
What if it had been the other way around? What if someone borrowed 10K from you then didn’t pay. Would you feel it’s fine?
IMHO – you should try to make a good faith effort to repay. If you can’t, you should try to negotiate with the bank.
People view banks as this abstract single entity, a rich corporation, and that it’s fine to steal from a rich corporation. But when this rich corporation loses money everyone is hurting. These people who feel it’s fine to walk away from the mortgages are hurting all of us.
I don’t know but I was taught that we are supposed to return whatever we borrowed. Doesn’t matter if it is a dollar borrowed from a friend or 300K from a bank. And I am not even religious. So much for religious people’s morals.
Some of you don’t seem to understand that a loan is an agreement between a lender and a borrower.
Lender: I loan you this money, you pay it back. If you don’t pay it back, I get the house.
Borrower: I agree!
… time passes …
Borrower: I don’t want to (or can’t) pay any more.
Lender: Ok, give me the house and get out.
It’s a private contract, between two parties. There’s nothing wrong with “walking away”. The lender took the risk.
@kitty, did your friend take collateral against the loan? No. The banks usually do, in the form of your house.
When you “walk away”, you are NOT stealing, you are NOT breaking some fuzzy bible-mythology garbage rules, you are NOT being unethical or immoral. You are returning your property for the balance of your mortgage. Simple as that.
A coworker put it this way – what was your ethical promise?
Are you promising that you’ll pay your credit card debt as long as it is reasonably possible?
or
Are you promising that you’ll pay your credit card debt even if it means you have to sell your home, your car, and your left kidney first?
Yes, the penalty matters when talking about values and ethics, because it was included in the implicit promise that I made when entering the agreement.
@Stephen Waits…”You are returning your property for the balance of your mortgage. Simple as that.”
The voice of reason at last. Thank you.
I’ll help you avoid this whole mess… move to Ohio where everything has been worth next to nothing for years. When you have nothing, its hard to lose anything.
I bought my house in 2004 for $169,000.00
I got an appraisal as part of my refinance last week.
Current value… $173,000.00.
Of course I have to sell it at that to realize that, but its the most accurate number I have to go on. Based on local sales I think its possible. Most of the online sites say I should get $155-160.
Wow! I’m impressed by the all the high holy indignation and biblical wrath that this question has provoked. How people can be so adamant about the terms of a business contract is beyond me. There may be a place for cut and dried, black and white morality, but seriously, is a mortgage contract that place? God help me if these kind of people are ever in charge and I get caught jaywalking.
uh what? has it right…
The problem isn’t that people are backing out on their loans if they can’t make the payments, or event that the banks made these bad loans in the first place. That is business, and that happens.
The problem is neither of these groups can write a check for the full amount of the risk they took on.
They enjoyed the benefits if things went well, while the responsible folks bear the burden through taxes if things didn’t.
So we have two things going on.
1. People breaking contracts (normal business, nothing immoral)
2. So many people breaking contracts that responsible people suffer (moral hazard).
I have no problem with people breaking contracts so long as I don’t have to bail them out…
The party at fault in all this is the government for providing my money to folks I didn’t authorize it to go to. I didn’t take on these risks, but I’m stuck paying the consequences.
The only one acting immoral in all this is the government.
This whole thing would sort itself out with out any question of ethics or morals had the government not stepped in. (People who couldn’t afford homes would lose them and have their credit hurt so they couldn’t do it again… Banks with bad loan practices would fail and other banks with good lending practices would thrive.)
@Maury. You are spot on!
We all want people to stay in their homes but I think the question can be asked another way. Why should a bank that made a poor economic choice by lending the money in the first place benefit from that poor economic choice, they are receiving an unsustainable interest rate on their loan or they loaned too much money for an asset that is not worth as much now. Banks are doing what the homeowners are essentially doing they are walking away and asking us for a bailout. The banks at least retain their share price to a point, they maintain their jobs, the homeowner lost any equity, their credit is shot, and they are living in mom’s basement.
didn’t read all the comments…but the agreement is “house loan in return for house as collateral”. If banks decide that 0% or 10% down and 100% interest is appropriate (and yes we know that was an incorrect call) then they were willing to make that deal. If you stopped paying; the result was foreclosure…no ethics, simply trigger what the contract says. I see walking away as an identical response but from the side of the borrower.
Now I’m not saying I would walk away nor am I saying that I wouldn’t consider the effect foreclosures have on my neighbors…but I don’t really see the question itself as being one of morals or ethics between lender and borrower
@Maury I agree the government is immoral. However, the immorality by the government occurred prior to the bailout, the asset bubble should never have been allowed to occur in the first place (cheap money always always leads to disaster). Power accrued completely in Greenspan’s hands, he was the maestro, nobody questioned him, always question power. His hubris is not with what he did but in thinking markets are always self regulating. He had to know AIG took on a trillion dollars of risk with about 1 billion in capital.
By the way California housing is going to be bad for a long time, the subprime market started there years ago and these subprime companys mostly concentrated in Southern California have been perfecting their trade in SoCo since the 80s now a great unraveling has begun. Greenspans cheap money after 9/11 is when they took their show on the road.
What is amazing is how quickly these CDOs full of subprime loans from about 4 states turned toxic. It justs shows there was no real economic decisons being made. I would be willing to bet that loans were going bad before they were even packaged into a CDO and sold to the Australian Teacher’s Pension Fund.
I have lived in the midwest all my life and nobody and I mean nobody talks about their house as an asset the way people on the coasts talked about their house–welcome to reality. Now college tuition is going to go down for the rest of too because you will not be able to pull all that home equity out of your home to artificially jack up the price of college on us house poor midwesterners who want to send their kids to USC.
Jonthan I am confused by your answer are you saying it is unethical but under certain circumstances you would do it?That is sort of like saying stealing money is wrong unless you steal alot of money.
Just wondering if the high rate of divorce among those going through bankruptcy is not only due to the stress of the financial situation, but because it takes the same non-comital personality to walk away from the responsibility of debt as it does to walk away from the responsibility of marriage? btw… I have never been married nor bought a house because I understand myself and my financial situation well enough to know that I am not prepared for either.
I decided against commenting.
i wouldn’t have any problem walking in this situation. i agree that we should pay our debts, but these are not personal loans without collateral — your mortgage allows you to transfer an interest in a property over time as per the payment conditions of your note. in short, you are buying your house from your bank over time. i wouldn’t have any moral dilemma about letting the bank “take back” the house and sell it to someone else. they aren’t doing this for good will — they are trying to make a buck and they should be well aware of the risks involved.
So riddle me this… when you buy a car on credit, you are upside down on your loan the minute you drive off the lot as you car has just depreciated by 20% and it only continues to drop from there.
Yet, when you buy a house and it drops in value “it’s different”?
It seems like it all comes down to entitlement to me – people feel they are *entitled* (or should I say guaranteed) to make a profit when they buy real estate. Well, no matter if your property has gone up in value or down – you still committed to an obligation to repay the note for the money you borrowed to buy that property.
This is a difficult topic to discuss because there are two sides to it. Suppose that everybody decided to walk away from their credit card debt, HELOC debt, mortgage debt, and car debt. The system wouldn’t work and everybody would be a lot worse of. Somehow, the expectation of honoring one’s debts is central for the exchange of goods and services.
On the other hand, you can’t really ask people to sentence themselves and their families voluntarily to 10 years of financial hardships, trying to keep paying a mortage they can’t afford, to own a house that is worth a lot less than what they’re paying.
But there are all sorts of things to keep in mind. I have a co-worker who bought a SECOND HOUSE as an investment, interest-only, $550K outside Portland, Ore., back in 2006. Why should the rest of us taxpayers have to subsidize the greed of that person?
I see myself and my loses in my 401k. I didn’t buy a house like others did. I’m still renting (thank goodness!) I decided to save up my 20% down-payment and by the time I was getting ready to buy, the bubble exploded and I thought to myself: “for once, it paid off for me to do the right thing”.
I already lost a lot of my retirement funds. I don’t want to have to pay also for people who decided to buy houses they should have known they couldn’t really aford.
If he had bought the house and it was worth the same or more than he paid, he would be happily living in the house and making his payments. Quantitatively, how does his quality of life change in the next 12 months if the house value drops 50%? Not one bit! (Except that he will get a break on his property taxes because they are based on value.)
Maybe he FEELS worse because his property is worth less, but that’s it.
I feel that the financial services industry brought this problem on the country through irresponsible lending. Clearly they didn’t do their due diligence on the assets they were funding (either via mortgages, or the slice-and-diced pieces of mortgages they bought), nor on the borrowers. The fact that the outsourced their responsibilities to third parties such as mortgage brokers, appraisers, etc., doesn’t change anything.
By the way, one issue I would like to see addressed is all the sellers who made out like bandits selling their homes at inflated prices. How many of the people currently “underwater” previously owned a home? And shouldn’t we be going after those retirees and forcing them to give up their excess profits?
Whatever other arguments we make, can we stop comparing buying a house to buying a car? No one who buys a new car expects anything other than a dramatic and immediate depreciation in value. There is no expectation at all of ever getting your money back. Real estate is qualitatively different, and has always been understood as such. Comparing the two is not like apples and oranges, it’s more like apples and smoke.
To all those concerns about the ethics here, I have a question. Is it unethical to break a cell phone contract? You signed on the dotted line to maintain service for 2 years. If you later decide you don’t want the service for 2 years, are violating some kind of ethical code if you pay the penalty and cancel?
Don’t try to tell me this is any different than signing a contract for a loan. You agree to pay the loan back but if you later decide to take “the penalty” instead, have you done anything ethically wrong? I’ll say once again, that the problem here is the size of the penalty. Giving back a devalued house and having crappy credit for 7 years just doesn’t seem very severe. Because of the weak penalty we’ve got all these high and mighty types chiming in about morals and ethics.
Enough of the Cell phone analogies. Give me a break. The cell phone company makes a PROFIT even if you do dump the plan and pay the penalty. If you owe 400K on a mortgage and the house is worth 200K, the mortgage holder loses 200K. Now, if you turn in your keys and the Bank sues you for the balance (in states it’s allowed), then there would be a lot less people wimping out on their debts.
Like, I’ve said before, without some kind of hardship involved, I hope the people that don’t own up to their debts not get another mortgage for a very long time. They’ll do it again.
People just don’t get it. Many of us didn’t lose just 20%. Many of us never got the experience of having a home go up. Some people like me bought their first home ever in 2006 and have lost 60%, $200,000 in only 2 years. We didn’t understand the market or that homes could go down so intensely. When you buy a home you expect that you should have equity within 7 years should you ever need to sell it and move. I appreciate this article shedding a little light on what has happened. You can’t compare what is happening now to any other point or say what people would have done. Housing has never lost as much as it has in the past 2 years at least in areas like CA. In the past when it did lose people had reason to stay because they had put a 20% investment of their own money into the home. I put nothing down on my home and I face the prospect of 2 decades of paying before I can even get even with what I paid. It would probably be 15 years before I can sell my home without taking a loss. It was supposed to be a starter first home. I know many will never understand this and try to act like it would have been different 50 years ago, but you are are idiots. Morals have not changed in that time frame what changed was banks stopped making people put down payments and therefore they had no investments in the places they were buying.
Things start from the Top Down not Bottom Up.
If the financial institutions didn’t force these loans to the person who doesn’t work hard and save, then this would not have happened.
They unfortunately were greedy, wanted to turn their dimes into dollars and the old motto of work hard, save money, THEN buy a home becomes, as simple let’s all buy a home.
Thus inflating the prices of homes so hard working savers like me can’t even afford to buy one to begin with.
Am I mad, yes, I work hard, save and then get taxed. What do I end up with? Tax dollars to bail others out.
The greedy corporations are the villains here, brainwashing society. Raising the standard of living in an unsustainable way and then turning my savings into be peanuts.
Also with the idiot car analogy. Have you ever had a time when you bought a car from a dealership and you could go rent the exact same car for half the price? If you did people would stop buying cars and only rent I guarantee you that. And millions of people would allow their cars to be repossessed. That is the case in the housing market. People can walk away from their homes and go rent one for half the price. If you really thinking the housing issue is analogous to buying a car I feel sorry for your brain.
I believe in most cases if you walk away, the bank will come after you for the difference in what you owe and what they sell it for. You are going to pay either way, so try to keep the house.
DG,
Why did you buy a house when you didn’t even have money to put down? Yes, I suppose you can blame the bank for giving you the loan, but I’m not sure why you bought the house in the first place. Anyway, I’m sorry you’re in the position that you find yourself. Hopefully, you’re still young and things will get better eventually if you hang on.
I was actually testing the waters when I bought my house. I didn’t really have a huge expectation I’d be able to buy without a down payment. My wife and I were going to move into a 1 bedroom apartment for several years and save a down payment. I got huge raise at my job because I relocated from Northern to Southern CA so I figured I’d test it out. Homes in the crappiest areas were just barely in reach and prices seemed to be eternally spiraling upward. They had some special programs for first time home buyers that I decided to look into. The bank qualified me for the program which offered down payment assistance and a really low interest rate and told me to go find a home to buy.
So we did find a home and went through the whole process. Literally the day I was supposed to close the bank calls and tells me oh by the way we forgot to tell you that you make too much money(because of a few bonuses I received the previous year) to qualify for that program so we put you into an interest only loan but it has about the same payment as you would have with the program and you don’t have to put any money down. I nearly walked away from the whole thing. I told the bank I would never get an adjustable or interest only loan of any kinda and if they couldn’t get me into a fixed I was out. This actually probably turned out to be a mistake because if I had gotten the adjustable loan I’d be more eligible to ask for help.
They did come back and got me on a fixed 40 year loan on my first (80% loan) and then my piggyback loan was a 30 am year with a balloon payment at 15 years. It was a few hundred more a month than I wanted to pay, but like I said we went through the whole process, my wife and I were both excited about moving into a home and I figured my income would continue going up so I signed it(didn’t bank on a huge recession that would keep wages flat). I might also add that when I went to sign the paperwork I was pretty nervous as the payment was huge and I actually mentioned I thought prices were a bit inflated and they could go down a little(I never in my worst nightmare would have guess 60% though). The bank actually told me(verbally) there was no way prices would go down in this area that the economy and real estate was solid. I guess I’m a gullible moron, but look who will have the last laugh now? I fear my house won’t even recover by the time the 15 year balloon payment is due especially given that is been 2 and a half years and prices are still on a downward spiral. I realize I signed on the dotted line and I’m willing to pay the price of bad credit for 7 years. I’m not willing to pay $500,0000 (when you include interest) for the banks artificially inflated the value of homes and me getting sucked into it at the worst possible time.
I posted a big long deal explaining why I bought and it didn’t post. Going to make it short now. I was planning to use a first time home buyer program for down payment assistance. A day before we were ready to close on the house the bank says they forgot to tell me I make too much money for the program, but they put me on an interest only loan. I refused that loan, the payment went up, but they got me on a 40 years fixed 1st and a 30 year 2nd with a 15 year balloon. Probably will still more owe then the house is worth even when the balloon comes up. Signing the loan was the biggest mistake I’ve ever made in my life and not a second of any day goes by that I don’t regret it.
Calling for debtor’s prison or comparing it to stealing are both wrong ideas. Stealing is against the law. Walking away from a mortgage only carries credit penalties.
But I think if this guy and his family enjoy living in this house, and they can afford it, they should continue paying the mortgage. If his family well-being was affected by burning thru their entire savings, then they should walk away. His losses are only paper right now. It may come back or maybe it won’t. But as long as he can make the payments, stick with the house.
How about this scenario.
I own rental property in Florida, purchased in 2004-2005. 9 units in a mix of duplexes and condos.
Total purchase price = 630k (~70k each unit)
Total down pmt = 80k (a mix of 10s and 20%s)
Current value = 150-200k
So, I’m underwater ~400k. My wife and I are both professionals, and work really hard. With occupancy at 60%, and rents down 40% from when we purchased, we’re losing ~$4000/month on these units.
We’d like to start a family, but as it is, are living very frugally to stay break even on a monthly basis (we own our own home, bought in 2004, which probably has no equity at this point). We’re saving nothing.
Looking at a decade or more of paying 3-4k a month, and saving $0, before we get back to EVEN, makes me really want to just walk away. In that decade, putting that 3-4k a month into savings, would be $400,000 in savings. Kinda makes the decision easy.
Wondering what judgement I’d receive in this scenario (which is real).
I should probably note that we likely wouldn’t save that entire 3-4k/month. We’d buy things. We’d travel. We’d renovate our home. We’d hire a maid, and a gardener. And a nanny, eventually. I’d probably go back to school, become a better contributor to the marketplace.
In short, we’d do all kinds of other things to stimulate the economy.
Would that spending offset the harm done in “walking away?” Hard to measure, but when you hear that statistic that says “every dollar spent equates to xx more dollars diffused into the economy, it might just be better.
For those of us looking at our house as an investment, and not as an expense: if you look at the value of your house now. its like looking at your an investment after it has gone down in value. if you sell or walk away now, wont you be selling after your “investment” went down? buy high and sell low, is not a good financial strategy.
for those of us who think of our house as an expense, then who cares what its worth. if you dont have an ARM then the payment is the same, and your getting the same utility out of the house today as you were yesterday. if you can afford it. then stay.
Walking away from your debt is immoral, regardless of the amount or whatever collateral or recourse your lender has, or whoever the lender is.
Stealing is immoral, regardless of the amount or whatever recourse your victim has, or whoever the victim is.
However, many times immoral things are legal. And I can understand why some people would do immoral but legal things at tough times. I can even understand why some people do illegal things at tough times – like stealing to feed his child.
So you bought a $600K house that is now worth only $200K. That was your mistake. Your mistake does not relieve you from your obligations, legal or moral. Simple.
@invertron
“stealing is immoral”
This is the crux of the tsk-tskers who want to make a legal contract into some moral issue.
The banks applaud you all, btw, for doing their dirty work for them by trying to increase the cost of loan default by making it a moral issue.
But I have yet to understand what is being stolen? The home has not been stolen — it has been returned to the lender as stipulated by the contract.
The only thing that the lender doesn’t get is the anticipated future profits. Which is the same thing that the buy is losing as well.
Both buyer and lender took a risk that the property would continue to increase in value.
It didn’t. And now people want the buyer to assume all the downside.
The sad fact is that the banks didn’t care about the future value of anything. They were all and only about generating loan processing fees in the short term. That is why they were offering 0% down loans with all the fees rolled up into the loan. The financial institutions spent a decade lobbying congress to relax the mortgage rules and they got what they wanted. They spend hundreds of million educating the public to the new “reality” that you could buy for the same amount you could spend on rent. It wasn’t true, of course, but that didn’t matter. They conned people into high-risk loans. And when it all went South, they got congress to give them hundreds of billions of dollars.
And people here are upset at the morality of the buyers?
Oy vey.
Yes, a few of the commenters here were greedy mo’fos. No less so than the banks lending them money with nothing down.
Still … the banks wrote all the rules and they wrote the rules people who walk away. So if people decide to walk away, they pay the consequences and go on with their lives.
That’s how it works in business. I can name a dozen major corporations that have declared bankruptcy over and over and over again to get out from under their debt and the “free” market rewards their actions as smart business moves.
Why is it different for individuals?
My 2nd attempt at leaving a message, Might have done something wrong.
A previous poster sad mortgages are contracts. Right he is.
Lets look at the other side. When a corporate business has made too many wrong decisions (contracts), they can declare Chapter 11 (reorganization) bankruptcy.
Meaning, they get to keep most assets, their jobs, salaries, operations, etc. They can accept or reject most obligations such as lease. Loans are reset, canceled or reduced.
They screw stockholders (investors) and creditors.
So why is this tool (getting out of bad obligations) wrong on our side but not on the other?
Something to ponder. Get rid of Chapter 11 in favor of chapter 7 (full liquidation) and now the playing field is level.
Otherwise, not.
To those who hold the view that a mortgage is a contract:
Yes, it is.
But the contract never says that if you give up the house, the loan is considered paid in full.
The contract says that you promise to pay back the loan principal plus interest according to terms.
The fact is, if you walked away from your mortgage, you breached the contract. That is why they leave a black mark on your credit report. Now, whether walking way is moral or not, that’s up to your individual standard.
I do like the idea about taking $100,000 from credit cards, and running off to Thailand (actually I might be more comfy in India), you could literally live like a king for for a good 5-7 years (with at least 2-3 servants).
You could even start a really big business operation, since most of the third-world still works on a cash-only basis – you probably wouldn’t be traced down.
Although, they may hunt you down if you ever come back to the States, you would probably have to lay low for a while.
To Maury and Bucky:
Maury if you get out of a phone contract by paying penalties, you’ve fulfilled the contract.
Bucky, you kinda made my point instead of disproving it. If they have their names in the paper for their misdeeds, then they were probably succesfull for a season, then lost their success ala Madoff.
However, I stated that people with integrity are usually financially successful. That doesn’t mean the reverse is true. One of the Forbes Richest this year is a Mexican drug lord. It is sometimes possible to rape, plunder and pillage, then die peacefully in one’s bed, but it’s pretty rare.
And I don’t know if my opinion is “internet bullshit”, but yes it is my subjective observation, not published research. And I came at it not by oberving who is financially successful, but by a lifetime of watching those I know best, and still respect.
Lastly my life has been full of moral dilemmas, and I sometimes disappoint myself and don’t always live up to my own standards. I work for myself and own a very small business. Simply paying my taxes honestly is very hard since I pay WELL over 50% when you add up business taxes, FIT, my SS, my single employees matching SS, my self employment tax, property taxes (both on my house and on a small commercial building I own), sales taxes and so forth.
invertron,
The whole way the mortgage industry worked from 2003-2006 was basically a huge scam. Should the people who invested with Bernie Madeoff lose every penny because they made the mistake of investing with a criminal? The government will step in and help them. The banks were basically doing the same thing for the past few years. They created an elaborate ponzi scheme and anyone who got caught up in it is now screwed. I’m sure if you had been caught by this scheme cooked up by the mortgage companies you’d be singing a different tune. How does it go? Judge not less you not be judged? Maybe you not to apply that morality to your own life.
@DG:
You made a mistake and are now rationalizing it. I know you admitted fault, but then you said that it’s “an elaborate ponzi scheme” which is putting all fault on the banks. Greater fool/ Survivor Investing doesn’t equal Ponzi scheme. At all.
You believed a salesman. How did you not know that was a mistake?
Why should I have anymore sympathy for you than for someone who bought into the stock market in fall of 2007 because their adviser told them too? You actually have the better situation because you have a house to show for the money you’ve paid.
“We didn’t understand the market or that homes could go down so intensely.”
If you make a huge purchase like a home you should probably do a little research so that you do “understand the market”. RE crashes aren’t unheard of. Look up the Houston RE crash in the 80s.
Walk away from your mortgage and the rest of us will pay for it with our taxes, but learn from your mistake. Maybe you should stop feeling sorry for other people’s brains and take a look at your own.
PLEASE check your state laws before just walking on your mortgage. As several others have said, many states are not walk-away and if you decide to stop paying your mortgage because “you don’t feel like it”, the bank forecloses on you and petitions for a mortgage deficiency judgment for whatever money they don’t make on the resale of your house. This can mean liens on your bank accounts, wage garnishments, further asset seizure, etc.
“Wow! I’m impressed by the all the high holy indignation and biblical wrath that this question has provoked. How people can be so adamant about the terms of a business contract is beyond me.”
Maybe it is because these people who walk away from houses have hurt and are still hurting all of us who have been responsible? Did you notice that the economy is a mess and that millions of people lost their jobs just last month? Sure they aren’t the only ones to blame, but they are on the list of those to blame. They are hurting our retirement savings, they are one of the causes why so many people are unemployed, they are hurting their responsible neighbors. If they live in a condo as opposed to houses, their neighbors may end up paying their share of common charges.
I’ve been responsible all my life, waited and rented until I could save enough to buy; commuted for 50 miles one way for 2 years in 89-90 waiting for real estate prices in my new location come down while saving money so that I could afford to buy a place in the new area; bought condos instead of houses so I could easily afford the payments. Now these people who are walking away are partially responsible in losses in my investments. They are also one of the reasons some friends of mine lost their jobs just a month ago; and why I am scared as hell for my job.
To those who say how they thought that house values can only go up. Where were you in the 90s? There were areas in the US where the prices dropped over 50%. For example, on the East Coast, some co-ops that were selling for over 90K in late 80s was selling for 30K in the 90s; condos that were selling for 160K in late 80s were selling for 90K in the 90s. When I bought my current home in late 90s, the sellers wrote an additional check to their bank since the amount of money they could get didn’t cover what they owed the bank. 1990s aren’t exactly last century. Were you all born in 2000s? I didn’t know banks were giving mortgages to children…
Actually, the 1990’s were last century.
And this was caused by the insane monetary and fiscal policies of the Federal Government and the Federal Reserve.
The consequences must be faced, now or, much worse, later. Better now.
Rush Limbaugh knows the truth.
This whole problem was because Congress forced banks to loan to black people and other minorities.
End of argument. He is right 99.8% of the time, good enough for me.
I didn’t ask to be bailed out by tax payers. My loan was always written in a manner that if I didn’t pay the bank would take the home and not come after me for a deficiency. You can call it rationalization, but banks were the ones who pushed up prices with their policies. I only paid the amount I did for my house because I was told it was worth that by the bank. I would be a complete fool not to use the non-recourse policy when my house is upside down $200,000 from what I owe. I’ll take being called an idiot from people like you for the rest of my life for $200,000. At least I’ll be able to afford to send my kids to college without taking out huge student loans like I had to do. I also still argue the current housing bubble is unlike any asset bubble the world has ever seen. CA pricing is likely to fall 75% from peak to bust.
Kitty,
I was in 7th grade in 1990. I also lived in a exceptionally rural area and the internet wasn’t around yet. The only 7th graders that know much about what is going on right now are the ones that have been made homeless by the banks.
Before bailing on a house though — you could try to rent it out. Even if you are underwater, there is a chance that a rental could cover most if not all of your mortgage. And if you ran short, say a few hundred a month, or like $2K a year, you could treat that as an investment, if there is a good chance the properties value could turn around in a few years. You could save your credit and maybe your initial investment too.
Why only borrowers/homeowners are being reminded of obligations or ethics? Where was it when lenders were making bad loans? where was it when banks were buying bad loans from lenders? where was it when bad CDO’s were made?
Why only homeowners are said to be greedy when the whole economic crises has been triggered by lenders, banks etc got greedy and made bad loans for short term gains.
How could you talk about obligations/ethics when bank themselves are selling the same house for half the price in a neighbourhood of a person who bought the house paying double.
I would say its totally unethical to drop your kids out of good college so as to save money to pay your mortgage for house thats worth nothing. The result would be uneducated new generation and what would they do….. guess what??? another meltdown.
So, please stop teaching people about obligation and ethics. Homeowners and banks needs to get together to fix this problem. Homeowners and banks both needs to take their part of pain in order to bring up the economy.
Ofcourse those people would also have to take the pain who were not responsible for this mess, through tax. Ultimately only taxpayers can bring up this economy.
If you already paid 300,000 dollars then you have taken your part of pain and the other part belongs to lenders/banks.
It all seems fine to sit back and say you’d never do something if you’ve never been faced with it. We are looking at foreclosure too something I never dreamed I’d be going through. We bought in Southern California where the home prices have plummeted. We bought in 2005. Our mortgage is about $600K and yes we can afford the payments. However, we have 2 interest only loans w/ the first adjusting to variable rates next year. When that happens we will sink.
I bought this home fulling intending to refinance into one loan a year or two after we moved in. I knew I could afford a higher monthly payment so I wasn’t worried. I was encouraged by my lender and by my friends that interest only loans were perfectly fine as long as you refinance w/in a few years. So when we went to refinance we found out that we were much too upside down to do it. So that leaves us no where to turn. Our home is now worth $270K and dropping. We have not hit bottom in Riverside country which has one of the highest foreclosure rates in the country.
So my family is faced with no way to refinance to a fixed rate loan and shoveling money into a bottomless hole we can not dig our way out of. Saying it is unethical is sickening when I fully intended to meet my obligation. Should I just continue paying $5000-$6000-$7000 a month until I am absolutely bankrupt? And now that my home is worth so much less does it even make sense to pay decades on a loan that will still have us walk away with nothing at the end? My family has to come first.
We bought a home we could afford. We are not frivilous people who take tons of vacations and drive expensive luxury vehicles. In my 22 years of marriage we have taken 3 awesome family vacations. That’s it! We are the only ones in our neighborhood who didn’t put in a great backyard. Ours is still dirt because we didn’t want to do it until our loan was fixed and then we’d pay cash to have it done. My car is paid for w/ 135K miles and my husbands car has 91K miles on it. Our oldest child is in college and we are not eligible for any financial aid. We pay for what we need and are not asking for a bailout.
Until you are in this kind of situation I would ask you to stop being so judgemental. I had no control over the fact that my home would lose such a substantial amount of equity. I had no idea we were even affected by this mortgage problem at all until I went to refinance!
Debtors prison and not being able to get a mortgage again for 30 years??? Please. We are not criminals. We were swept under by something we could not control. And I don’t feel I’ve compromised my morals or values either.
before we bought our home our lender pre-qualified us and check our income and our credit. they told us that after 2 or 3 years we can refinance our home for lower interest rate. we bought our house for $680k and our monthly payment before was affordable. now my current monhtly payment is $3,700.00. I checked the worth of my house thru zillow realty.com and it’s only worth $325k. I called my lender for refinance but they told us that we are not qualified because the house is underwater and no equity. we asked them for modification because were behind 3 months on our mortgage. so we call our lender if they can modify or lower down our monthly payment . the lender saidthat they will only do it for 3 months. that is the short story about the mortgage house. my point here was that i was a responsible creditor and try hard to pay my obligation but it comes to a point that I could no longer afford to pay all these payment because of unfortunate circumtances and economic situation. I went to my bank lender for help and they could not help me. this is the bank institution that i have business with for so many years and now they cannot help me. I was in the military to served this great country. so some of you people who are talking about moral value are probably bunch of hypocrite. I believed that God is involed in our economic situation because of many greedy investors. right now I am facing foreclosure and I am still hoping that this bank lender will negotiate with us.
I just googled the question of walking away from a mortgage: when does being unethical become being “smart?” I am personally struggling with this question. We are planning on moving in about a year. Our house is currently about 225-250K underwater. We can afford to pay the mortgage which is quite steep. But we have put off moving on in our lives. My husband is making a career change and it will mean we will be moving. There is no way we can sell our house. We have been to the lenders. But when you have an 850 fica score and you are current on your loans they can’t help you by lowering your interest rate because you’re upside down! We weren’t even asking them to re modify the loan, we just wanted a lower interest rate so we could rent it out and at least get a close enough rent amount per month to help us cover the mortgage. .Lenders in our area will are not approving very many short sales. Loan remodification is for those people who are behind in their payments. So, long story short, we are running out of options. Do we do the honorable thing next year and continue to pay the mortgage on a home that is over 200K underwater, or is it now smart business to walk? I’m not feeling sorry for myself or moaning about any of this. I feel that we made choices regarding our home because of financial info we were given by lenders and appraisers etc… However, bottom line WE made the decisions that we made. I don’t think we are the only ones questioning ourselves. Any thoughts?
PTR – I assume you have a normal mortgage and Bank has normal rights in foreclosure. My position is that it gives you two options, pay or be foreclosed upon. Carefully consider the ramifications of each make your decision and proceed accordingly. And when you are done accept those consequences with your head held high.
I do not understand why others look at this as a moral issue. It is a simple business decision. Look at the world today, how many employers out there are keeping their employees? A simple business decision is made to terminate an employee regardless of its ramifications to the former employee. Where are the morals in that?
My advice if you choose foreclosure is to approach it like a business transaction with the Bank – look for someone important with decision-making authority – and tell them your intent. Tell them it is not what you want but unless they are willing to work with you “Sorry this decision is the best for my husband and I”. I realize you have tried talking to the bank but you need to get someone outside of the simple minion status. Look for someone close to the top by reviewing the Banks’ SEC Financial reports and get in touch with them.
Just my 2 cents
The problem I have is that to say “when a home goes down in value” The consumer has no control or say in the “value” and that’s where I can’t stomach it. We just bought in 2007. I know in 2007, they could not have been thinking the prices were still on the rise. They weren’t. And yes, just 2 years later, one of the homes in our neighborhood sold for over $130K less than what we paid. We knew the market was on the decline and expected to take a small hit but we needed a place to stay. Our lease was up and the landlord wanted to raise the rent 25% for the privelege of staying. No fault of ours. He was making a financial decision. He just knew he could get more and welcomed us to stay if we wanted to pay the increased rent. We had to move and didn’t want to be put in the same situation again so we bought. Not a sub-prime, interest-only loan or anything like that. The banks dictate the “value” Why did my home’s value go down? I didn’t damage it. I didn’t move it to a less desireable neighborhood. The neighborhood is as nice as it was. My tax assessment is still higher to say that the “value” is as high or higher than when I bought it yet now it “went down in value” We didn’t go out and refi. We didn’t buy our house as an investment. I do feel that I would be stupid to continue to pay on the bank’s house. Hey they were the ones to say it was worth a certain amount and then they just say, “Sorry it’s not worth that now nothing you did -you just keep paying though.” I do feel victimized. The bank knew that the true value of the house was less and yet they get these bogus appraisals to support their decision.
My problem is my husband had a good sales business that went south, we would make the monthly payment 4 years ago but now he has had to close his and his bother’s business and my business does not pay all the bills. We extended out our car payment to make it smaller monthly but the house is just to much now. I love my house but we just don’t make the money we use to. Sales last year was 1/2 for the year before and I am scarred about this year. My husband now has a job but it is 1/5 of what he use to make. Sometime things happen and it is hard to keep going.
do whats best for your self the hell with the big banks when you signed on that loan the house was worth it now its not thats there fault not yours i paid 130 for my house and now the house next door that BOA owns is selling for 85 the hell with the big banks if they would clean up all the forecolsed houses and sell them for the original prices than i could sell mine for that now there just trying to make a ouick buck g-hell big banks
It’s funny how much has changed in our economy, since this was posted. I fought my husband on walking away from our home for 2 years, and now we have no choice. We bought our house for $267 in 2006 and it is now worth $71. We can’t refinance. Even when we were able to make our full 30 year payments, we couldn’t refinance because the value of our home was less than the principal of our loan.
We have had 3 children since purchasing our home. Our third child was an absolute surprise, that we had taken the proper steps to prevent, but he was a blessing we were meant to have. I had to quit my job with 3 children under the age of 4, as the cost of day care would have exceeded my income. Unfortunately we used every last bit of savings we had to try to stay in our home for the last few years, so now we’re in quite a difficult place, financially.
We never meant to live in this house forever, and it’s not big enough for our family now. While watching doctors, lawyers, dentists and other prosperous individuals in our community walk away from bad investments, we kept paying. We have given up everything we can. We share a vehicle. I cut coupons. We never go out to eat. I buy second hand clothing for my family. We have done everything in our power to be responsible and pay for our home. And that is my biggest regret.