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The New Mortgage Revolution: Walk Away
aol.com ^ | January 25, 2010 | Alyssa Katz

Posted on 01/26/2010 8:16:22 AM PST by TheThinker

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To: DonaldC

Developers don’t just walk away. The end up bankrupt. Returning the collateral (typically ALL of the developer’s assets) to the lender intact is a better solution than a pointless chapter 11 or a chapter 7. In either case (giving back the property or the chapter proceeding), the borrower typically doesn’t leave with assets that the lender has a right to. With the developer’s assets in hand, the income stream then goes directly to the lender.

The “little consumer” who “walks away” is often getting away with something the developer can’t - he has trashed the property and retains income (and sometimes assets) that were obligated to the lender. In any event, these “little consumers” aren’t victims, and the developers aren’t getting away with anything.


81 posted on 01/26/2010 9:41:48 AM PST by achilles2000 (Shouting "fire" in a burning building is doing everyone a favor...whether they like it or not)
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To: C19fan

BK law?


82 posted on 01/26/2010 9:42:35 AM PST by John.Galt2012 (I'll take Liberty and you can keep the "Change"!)
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To: SycoDon

Pay them off and be done with them if you don’t like their business practices.


83 posted on 01/26/2010 9:43:16 AM PST by brytlea (Jesus loves me, this I know.)
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To: Paradox

its even worse than that their are lawyers out there that for $1 per day $30 per month will intervene and deliberately delay a foreclosure action, which is not all that difficult given the overwhelming backlog of cases, at least for the near term indefinitely.


84 posted on 01/26/2010 9:43:51 AM PST by scottteng ( IMPEACH OBAMA and elect Snitker as Florida Senator)
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To: John.Galt2012

My apologies BK = Bankruptcy.


85 posted on 01/26/2010 9:45:00 AM PST by C19fan
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To: brytlea

Ahhh, The Forgotten Man or maybe we are Obsolete Man. So what happens to the system if everybody (and I mean everybody) decided on Friday I stop paying?


86 posted on 01/26/2010 9:45:54 AM PST by John.Galt2012 (I'll take Liberty and you can keep the "Change"!)
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To: Paradox

The lendrs weren’t allowed to use normal credit standards, because those are “racist”. Just ask Barney Frank and Franklin Raines.


87 posted on 01/26/2010 9:46:29 AM PST by achilles2000 (Shouting "fire" in a burning building is doing everyone a favor...whether they like it or not)
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To: John.Galt2012

It would collapse and make a few people very happy.


88 posted on 01/26/2010 9:49:05 AM PST by brytlea (Jesus loves me, this I know.)
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To: SycoDon

I agree that banks should not be able to simply change the terms of the credit card agreement. But that’s a bit different. First off, the agreement with the credit card company will disclose that the terms might change (not that its right.) For the mortgage, the terms did not change one iota. The house declined in value.

A prudent purchaser would have not assumed that home prices would continue rising astronomically. Like in the old days, you put 20% down and made sure that the payments were no more than 25% or so of your take home pay. Had we stuck to that old-fashioned principal, much of this real estate blow up would have been avoided, IMO....


89 posted on 01/26/2010 9:51:41 AM PST by dashing doofus (Those who are too smart to engage in politics are punished by being governed by those who are dumber)
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To: jazminerose
I have seen this again and again as a realtor in Los Angeles. People with good credit, who qualified for an 80% loan in 2005 are now completely upside down. One client had a job change to West LA. Bought the house for 1.2K, put $500K down from his sale of a home in Wisconsin. Now the house is worth 800K. Job layed him off last year and so, he just stopped paying because the bank refused to modify until he was deliquent.
Not going to judge this. We’re not talking about people who had no business buying a home ever anymore. It’s so much more than that people.
90 posted on 01/26/2010 9:51:47 AM PST by Wonderama Mama (Socialism is great until you run out of someone elses money - Margaret Thatcher)
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To: rlmorel
AUTHOR OF ECONOMICS BOOK: “Well, here’s the thing, Dick. I need to use that money I owe you for something more important to me. My retirement account hasn’t been building up quickly enough, and my wife needs that new kitchen put in. She still has those old turquoise appliances from the Fifties in there.”

Add to this: "And, your knowledge isn't worth as much as it was when we contracted with you. With the economy, there are lots of guys who would do it a lot cheaper, so we figure why should we pay that price for something that is worth less? So, we're walking away."

91 posted on 01/26/2010 9:52:47 AM PST by keepitreal ( Don't tread on me.)
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To: twigs
would NEVER ever again bid on a short sale

Short sales are a joke. The banks often take so long to realize that they need to stem their losses NOW, vs haggling into the future. Went through all the ways to buy a cheap home, tried REO's, Shortsales, Foreclosures, and then I finally scored by going downtown and purchasing a house at auction. Not for the faint of heart.

I owe nothing on this house, except taxes and insurance, and my payments are very, very low. My sister, who is of similar means in a town 90 minutes away, pays something like $3000 per month on her just purchased home. I have another sister who re-fi'd her house to add improvements, but now she is upside down by hundreds of thousands. I must say that it is tempting for them to just walk away and start over, do something like I did.

92 posted on 01/26/2010 9:53:25 AM PST by Paradox (ObamaCare = Logan's Run ; There is no Sanctuary!)
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To: achilles2000
The lendrs weren’t allowed to use normal credit standards, because those are “racist”. Just ask Barney Frank and Franklin Raines.

But not in all cases. I've seen all types, actually mostly non-minorities, trying to pull the same stunts. I have no doubt though that it was the credit standard policies that got the ball rolling, especially if Fanny and Freddie "had your back".

93 posted on 01/26/2010 9:57:35 AM PST by Paradox (ObamaCare = Logan's Run ; There is no Sanctuary!)
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To: dashing doofus

You’re right. That is exactly how my father and grandfather explained it to us kids 35 years ago. Save 10%, Tithe 10%, House 25%, put 20% down on the loan.


94 posted on 01/26/2010 9:58:34 AM PST by John.Galt2012 (I'll take Liberty and you can keep the "Change"!)
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To: John.Galt2012

That is a good formula, IMO.

Its not that people aren’t hurting, and that some have to walk away from the mortgage. I understand that.

The point of the article, though, is that this is some kind of good strategy to homeowners who find themselves underwater.

Absurd. Its like saying if I finance a car, and then the car gets dented up and declines in value, I’ll just “walk away” and screw the greedy banks.

Pure rationalization of welching on your debts, intentionally, IMO. And screw someone else, like the bondholders (who might be someone elses pension fund investment or similar important asset).


95 posted on 01/26/2010 10:04:02 AM PST by dashing doofus (Those who are too smart to engage in politics are punished by being governed by those who are dumber)
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To: Paradox

Yes, some of them tried and did pull the same stunts - but that was because the new “standards” forced the banks to do it (the regs couldn’t be lawfully written to require only uncreditworthy “minorities” to get loans)


96 posted on 01/26/2010 10:05:07 AM PST by achilles2000 (Shouting "fire" in a burning building is doing everyone a favor...whether they like it or not)
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To: Paradox

For those with strong hearts, I recommend what you did. And congratulations! I envy savvy buyers. But it was not for us and we resolved never to try that again. Fortunately, we found the house we wanted soon after, and we had been looking for over 10 years. We tried to be smart on this one. We hadn’t sold our house and had to carry both for a year. When we sold the first one, interest rates had gone down, so we refi’d at lower interest, put half of the proceeds from that sale on the new house and are using the rest to update our new property. So for less than $100 per month, we have a 15-year mortgage and we plan to pay it off as quickly as possible. So we purchased the traditional way, but plan to make it work for us.


97 posted on 01/26/2010 10:06:46 AM PST by twigs
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To: Milton Miteybad
It's now fashionable, it appears, to stiff the lender

Well for the last 2 weeks banks have become the new demon in the Dear Reader's world. They paid back the money they took (sometimes after being forced by congress to take it). They paid interest on it and now they have to pay an extra tax as punishment. No wonder it's fashionable to stiff the banks especially among 0bamas core supporters.

98 posted on 01/26/2010 10:07:48 AM PST by YankeeReb
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To: TheThinker
I would have to be destitute and/or deathly ill or dead before I ever considered walking away from a mortgage like this, but the author does raise a good point.

Why should individual homeowners have any moral or legal qualms about walking away from a $200,000-$400,000 mortgage when a private equity firm can walk away from a $3 billion mortgage on a major apartment complex in New York City like that?

99 posted on 01/26/2010 10:09:17 AM PST by Alberta's Child (God is great, beer is good . . . and people are crazy.)
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To: dashing doofus
A prudent purchaser would have not assumed that home prices would continue rising astronomically. Like in the old days, you put 20% down and made sure that the payments were no more than 25% or so of your take home pay. Had we stuck to that old-fashioned principal, much of this real estate blow up would have been avoided, IMO....

Some people made a fair amount of money from flipping houses. The lenders made money on them too, through origination fees on a relatively short-term loan. A prudent lender probably wouldn't have assumed prices would always rise, or assume they didn't need to require a 20% down payment because prices were always going to go up.

I don't see a problem with having a system where borrowers and lenders can take a risk where they see they might be able to make a profit.

100 posted on 01/26/2010 10:09:55 AM PST by Wissa ("So this is how liberty dies... with thunderous applause."-Padme Amidala)
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