Posted on 02/08/2008 2:09:27 PM PST by bshomoic
Who will pay the mortgage when the homeowner walks? You
Sean Olender
Friday, February 8, 2008
California's housing market may be entering a scarier phase: the point at which homeowners walk because the house isn't appreciating, not because they can't afford it. Banks are worried.
. . .
Bank of America CEO Kenneth Lewis said, "There's been a change in social attitudes toward default ... We're seeing people who are current on their credit cards but are defaulting on their mortgages ... I'm astonished that people would walk away from their homes."
If income indicates ability to pay, down payment is an incentive to pay - skin in the game.
In California, lenders are generally barred from getting money from a defaulting borrower. The lender gets the house and that's it, even if the borrower has $1 million in the bank. Only judicial foreclosure allows the lender to get the borrower's other assets, but it's slow, expensive and encourages a defense of loan origination fraud. Buying a house with little down is like having your cake and eating it, too. If the house appreciates, you keep the riches; if it doesn't, you walk and lose only what you put down, often nothing. It's wrong to insure such losses with taxpayer money.
(Excerpt) Read more at sfgate.com ...
I close on my first home on Monday. I’m excited and nervous, and all of my ducks are in a row. To say that someone would just leave their home for nothing seems ludicrous to me, but I’m a greenhorn in these matters, I suppose.
I got myself into something that I knew I could afford, something that would appreciate over time and something that is fixed and relatively static for the time I’ll be there (I anticipate 10 - 15 years). This article makes me think I’ve done something wrong while my heart tells me to keep on truckin!
My sister wound up in a situation where she owed a bit more than her house was worth during a steep downturn in housing prices, but she hung on and sold it for a huge profit years later.
On the lighter side, I’ve heard the industry term for these new loans are ‘Neutron Bomb’ loans - in 2-3 years the people are gone, but the homes are still standing ...
We are putting our SF home up for sale this month; we are fortuneate that in our area, prices have not fallen too much at all, sales are slower but the value is hanging in there. We plan on going to SoCal and sit on the sidelines in a rental for a year and then jump back in but with 1/2 the mortgage payment and twice the house.
Look, the overwhelming majority (and I mean something like 95% or more) of these situations where somebody walks away from a property, they are not the home the person lives in. They are ‘second homes’ which are actually investment properties turn investment disasters and ‘income properties’ turn income vaccuums.
BofA took loans with zero down and when the market goes down 20% the home is now 20% upside down. And if you are a homeowner in other financial trouble and you are now paying a mortgage on a home which will take more than a decade to be worth what you are paying on it, the idea doesn’t exactly lack sense.
The ‘cure’ to this (if the geniuses in Congress choose to ‘solve’ this problem) will basically destroy real estate even further than the whole banking screw-up which has turned a recession into a depression in many markets.
This would have been one of the normal downturns or corrections that we’ve seen in the last fifty years which would have been a little deeper because of the level of prior activity but also recovered faster because of the friendly tax treatment of capital gains. But the banking scandals with the over-collateralizing of mortgages on Wall Street by those scheming bastards are causing a total collapse in a number of markets and preventing otherwise healthy markets from either recovering or gaining ground.
And the Feds had no more idea that the banks were building a house of cards around every mortgage they took out than the Feds knew that Arthur Anderson was creating a house of debt-ridden scams in some of the countries largest corporations. But in both cases, it was Wall Street would profitted from it and failed to look behind the curtain as they promise their investors they do when they promote and recommend various companies stock.
As they revamp, Fannie and Freddie to “help” the irresponsible - guess who gets the bill?
YOU, YOU IDIOT!
So plan on using your welfare check (the “rebate”) to help finance that too. I suppose that's Bush's idea of "compassionate conservatism".
I feel so quaint if not a relic for having bought a house primarily as a place to live in for many years.
That’s GOOD!
Now, YOU get to pay for those who couldn’t afford their homes. Congratulations!
you also will be getting a tax bill from the bank if its foreclosed and they don’t collect enough to pay the mortgage off. So you don’t get to walk off without some recourse. If the bank loses $100k on it, you will owe taxes on that $100k. A rude surprise for some to come.
bump for later
Ouch - my neighbor just walked away from his $450K home this weekend - his mortgage is $550K and he can't afford the monthly payments anymore ...
“Bank of Amigos” again...
A Credit Card You Want to Toss
http://www.freerepublic.com/focus/f-news/1966742/posts
Bank of America’s New Credit Card Targets Illegal Immigrants
http://www.foxnews.com/story/0,2933,251672,00.html
I read a story last week about people buying a similar home at a current much lower price and then defaulting on their first home. Same or similar home, lower payment and walking away from the foreclosure.
Well, at least there’s a positive side to it all
/sarc
>> “There’s been a change in social attitudes toward default ... We’re seeing people who are current on their
>>credit cards but are defaulting on their mortgages ... I’m astonished that people would walk away from their homes.”
Why should he be surprised? The Bank of America was the vanguard in trying to change American attitudes toward debt. They issued the first true credit card. They encouraged Americans to regard no longer their revolving debt as shameful.
Meh.
Everyone gets buyers regret. You’ll be fine.
Congratulations! Home ownership is a wonderful thing. It’s meaningful to “come home” to your own home every evening.
Enjoy!
You’ll do fine. Just remember, DON’T use your home as an ATM machine. Refinance ONLY to get the interest down, or to do improvements. And NEVER accept an adjustable rate loan. If you can, pay a bit extra every month on the principal. And keep an extra payment or two in the bank, just for a rainy day.
Take a look at Dallas/Fort Worth prices, they’ll AMAZE you: http://dallas.craigslist.org/rfs/
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.