Posted on 05/31/2010 12:22:29 PM PDT by Lorianne
In areas hardest hit by plunging real-estate values - including the San Joaquin Valley - some people who can afford their mortgage are opting to walk away from their loan and let their bank repossess the house.
"It's very stressful to get to that point," said James Graham, a 48-year-old power-plant worker who walked away from his home in Bakersfield last fall. "You're raised up to do the right thing and pay your mortgage, pay your bills."
"But when you get to that point where it's time to walk, it's time."
It's called "strategic default," and experts say it stems from frustration with home values that have plummeted since buyers bought or refinanced at the peak of the real-estate boom, and banks dragging their heels on loan-modification requests.
(Excerpt) Read more at fresnobee.com ...
You are the only person who allow yourself to become ENSLAVED. You don’t purchase things that you cannot truly afford.
This level of strategic defaults is a cancer on the mortgage industry and economy. It seems that the penalty for defaulting is paltry. If this level of strategic defaults is not devasting the mortgage industry, we must now be experiencing government control of the industry. In a rational world, future mortgage terms would reflect the losses from strategic defaults. It seems that the ability to escape bad mortgage decisions has become another entitlement. With the already crushing weight of existing entitlements, new entitlements are even less sustainable.
You couldn’t rent for enough to cover the mortgage and prices were hugely inflated. (People don’t like to hear it, but they still are.) Especially in places like SoCal. You’re talking about being in a situation where you’re on the hook for a $5k/mo mortgage for a house that wouldn’t sell for half that now.
The RE market has a lot more pain coming its way before it starts to rise again. When TBTB decided to create a real estate bubble, they doomed us to decades of trouble.
They signed papers that they would repay the amount of the loan in FULL. Again, you don’t purchase things that you cannot truly afford. Hubby and I bought our house on the condition we had ONE income, not two like we have always had. We wanted to sleep at night. Even with our two incomes, we would have NEVER purchased a home for $400,000.
Some people need to learn things the hard way. We had all these loan people and RE agents trying to get us to take out a stupidly big loan for a house we couldn’t afford. It was ‘conventional wisdom’ that the price of the houses would just keep going up. We didn’t buy into it, but a lot of folks did.
And yeah, they made a mistake. They’ll pay for it with crappy credit for a few years and the lesson is learned. It’s not like they put the house in a duffel bag and ran off to Timbuktu with it.
Example. I could go out right now and purchase just about any vehicle that I want. Instead, I purchased a Focus for $10,000 cash. Do I really need a minimum $35,000 SUV? NO. I sleep at night and have excellent credit.
This is what we in my house are facing. Ever since we bought here in Southern California in 2006, we have been making our payments in time, never missing one. In August of 2009, trying to make sure we could continue even as we faced a loss of income, we proactively asked our bank for a loan modification.
We followed the bank's instructions to the letter, complied with every document request, idiotic as it may have been...and all we got was a very nice (sarc) form letter from them saying "sorry, your 'mortgage vs income' ratio doesn't qualify you for the Federal program, and because you haven't been paying your full monthly payments for 6 months, now you're not eligible for our own in-house program and we're notifying all the credit bureaus that you've fallen behind on your payments."
Nevermind the fact that we never asked to be in the Federal program, or that we missed the cutoff for that program by 0.5%
And yet, there are people who'll say that this is all my fault "for buying more house than I could afford."
Now I am looking for jobs outside of Southern California, and if one comes up, I'll just walk away from the house, and let Wells Fargo worry about it...hell, my credit rating's already messed up thanks to them, anyway.
Sure, but with a very clear limitation. That is, those same papers (or the law itself under which the papers were drawn up) allow the borrower to walk away from the deal by simply handing over the keys to the lender, and the lender has no further recourse in most circumstances.
In other words, the borrower's duty to repay the loan is not absolute. It is limited, at the borrowers discretion, to the actual market value of the property that secured the loan.
That's what the contract itself says (or maybe the law under which it was written).
The lender agreed to that contractual provision. The lender is presumably a large institution that has on-staff lawyers. The lender knew exactly what it was doing. The lender chose to take the risk that the borrower would exercise his rights to limit his exposure under the loan contract to the value of the property.
The lender will not now be heard to complain about the borrower exercising his contractual right to limit his losses to the value of the property by turning the keys over to the lender.
Again, there's never anything immoral or unethical about standing on your contractual rights in an arm's-length business deal.
The article is talking about this:
some people who can afford their mortgage are opting to walk away from their loan and let their bank repossess the house.
Not about down and out people who cannot pay.
OR RETURN THE HOUSE. I know you have to be pretty thick headed to be a Mitt Romney supporter, but I would think even you could understand that simple fact.
That's nice that you didn't buy one of these houses. We didn't either. This guy did. He made a mistake. There was a remedy included in the loan for such an event and he made use of it, rather than keep himself in servitude to the banks for the rest of his days. What do you want him to do? Go to debtor's prison?
“The trick is to get a short sale on another home before foreclose on the 1st house”
Lenders are well aware of this slime bag trick; it’s called buy and bail.
Granted, those folks made a stupid decision to buy the house in the first place, but when you’re looking at paying twice what the house is worth, PLUS the prospect that the house will never again see the value that you paid, PLUS the bank won’t do a short sale or work out some kind of deal with you, then why the hell not walk away?
What incentive is there to stay? Some sense of duty that you signed a contract with the bank? Lemme tell you, I’d get over that real quick. There’s a remedy in there for people who no longer want to continue in the contract. They’re simply making use of it. What’s the big deal?
If The government had stayed totally out of it no one would have ever bought a home with less than 20% down and less than 30% of net income to pay mortgage, taxes and insurance.
Crucify anyone that reneges on a mortgage or any other loan!
“.Blame gas prices,food prices and high taxes”
I blame irresponsible people in many cases.
Can I get a free house and a car, just because hamburger might cost 10 cents more per pound?
Let me be frank, I’m just SICK of a lot of people here bringing up everything that I say and/or believe has to do with Mitt Romney. That’s childish. No where in the article was his name mentioned. It’s time for this to stop. I could say the opposite and say that’s why good people like me support Mitt Romney. I don’t walk away from my responsibilities and obligations. I make a promise — I see it through. The #1 lesson in life is that CHOICES HAVE CONSEQUENCES and you live with them. My real estate agent told me that I could afford double my house payment. Is she making the house payment or am I? DUH.
Wrong.
The banks did their due diligence and made the loan to people who could afford the payments in these cases. These are not “sub prime” loans.
These people are simply walking away because THEY made a gamble that didn’t work out in their favor and are unwilling to bear the burden of THEIR choices.
It is immoral.
EXACTLY.
I’m not talking about minority loans, which in itself is a whole topic. I am talking about making loans on properties that were never worth the price, such as making loans at $250/foot when the property was recently built at $75/foot.
Banks use a ridiculous system of measurement of price. They use recently closed prices. That means everything goes up for every purchase. They failed to use such metrics as actual costing models; meaning, if a home was built for $45 to $75 per square foot, and many are, how the Hell does it wind up being a $250 to $400 a square foot property? How does an average home both in size and finish become 5 times the average income in cost when the 30 year previous market has only been 2.5 times?
Banks are filled with just as many uneducated illiterates as any other corporation. They know nothing of math or science or business.
The reason banks underwrite these loans I because they sell them to the government. As long as the paper work is good the loans are purchased. The government is as much to blame as the buyers or bank.
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