Did most people see the Phoenix area focused 60 Minutes report on mortgage walkaways? (Surprise: sales, lenders)

[zox]

Originally Posted by asufan

Yep. If you have a $250,000 mortgage on a home that's worth $125,000, the odds are that you'll never dig out of that hole. It may harm how your family can live their life, whether or not you can afford to put your kids in college, you would have no flexibility to move if you wanted to, and you may have to work the rest of your life, instead of retiring at 65, or whenever. It's kind of a big deal, and we are only on this earth once, so why shackle yourself with something like that if the state allows you to get out of it? Like I said, it's a business decision, and family comes before anything else, including banks and morals. If you can reduce your payment from $1,800 to $900 for the same house, and be in a better equity position eventually, it certainly would be tempting. So I can say that I understand why people do it. Luckily, I am not underwater on my mortgage, but if I were in the position that I described above, I have a feeling that I would be inclined to start over.

The faux pas with this business decision is the damage done to one's credit. Many are making this decision assuming they will still be able to receive services with poor credit. What they fail to realize is having poor credit today does not afford one the same services it awarded in the past. Nearly every organization has placed strict limitations on credit. What a 650 scored once afforded someone now requires a 750 score and so on. I just can't imagine destroying my credit in this period. It would be nearly impossible to acquire many services. I don't think people have given that much thought. Sure you might be able to escape the burden of your mortgage, but good luck trying to rent from a respectable apartment complex, getting a car loan, acquiring credit cards with more than $1000 credit limit and interest rates less than 30%, and getting a bank loan among other things. In the past, it didn't really matter if you had poor credit because you could still attain many of these services listed. Some companies now use a person's credit status to make hiring decisions as people with poor credit may be seen as being less responsible. I would hope people weigh these factors when making this decision instead of assuming it is a golden parachute. There is no such thing as a free lunch.

[asufan]

I hear what you're saying Zox, and I would never want to do that myself, but I think the ruined credit thing gets blown out of proportion. There's plenty of landlords out there with homes that they are renting to people that just had a strategic foreclosure. Usually those people are flush with cash, because they have not been paying a mortgage for 9-12 months. Plus, in the cases we are talking about, these individuals are gainfully employed. I've heard that people should be able to improve their credit in 5-6 years, but I'm not a credit expert, it seems reasonable. But it all boils down to dollars and cents and simple math. Using the scenario I talked about above with someone with a $250,000 mortgage on a house worth $125,000, and mortgage payments of $1,800/Month PITI, here's what we have:

-Skip house payments of $1,800 X 9 Months = +$16,200

-Live in a rental for 6 years for $1,000/Month= 1,800-1,000,
= $800 savings X 72 months = +$57,600

Add those together, and we have +$73,800 extra cash after 6 years that the homeowner has in their pocket that they would not have if they stayed put.This of course doesn't factor in any interest, but that would be offset anyway due the the tax benefit of paying a mortgage.

If the homeowner decides to stay in their house, without doing an ammortization schedule, their mortgage balance may now be paid down to ~$235,000, and maybe the house has increased in value to ~$150,000 - $160,000, if they are really lucky. If they stay put, not only are they still upside down on that mortgage to the tune of -$75,000, they don't have the $73,800 in savings over the 6 years. That's a swing in net worth of +$148,800 over a 6 year period, and now this person that left their home has their credit repaired, and can live wherever they want, and get a house at a good price with a chance to actually build equity. The person that stays put is STILL stuck in the bad mortgage, which means if a job offer comes up 500 miles away, THEY are going to go through foreclosure, or a short sale and ruin THEIR credit, without reaping the benefits. It really is a no-brainer to me. I get the moral arguement, I just think if the cost of staying in the house is your kids college education or quality of life...

[Rick Lee]

Originally Posted by asufan

Yep. If you have a $250,000 mortgage on a home that's worth $125,000, the odds are that you'll never dig out of that hole. It may harm how your family can live their life, whether or not you can afford to put your kids in college, you would have no flexibility to move if you wanted to, and you may have to work the rest of your life, instead of retiring at 65, or whenever. It's kind of a big deal, and we are only on this earth once, so why shackle yourself with something like that if the state allows you to get out of it?

Not exactly. If you have a fixed rate, 30 yr. mortgage and you continue to pay as agreed, you will be out of debt in 30 yrs. The value of your home at any given time has nothing to do with that. Your payoff amount and date are not related to your home's value. If you bought based on a bet that you'd be able to later refi out of an Option ARM or take out a HELOC to afford your lifestyle, that's your own fault, not some unjust fact of life. If you plan to put your kids through college by HELOC's, then that's a bad plan. How are you gonna put them through college otherwise after you've walked away from a mortgage and trashed your credit? And where in this country does someone have a right to retire at some arbitrary age, unless they can afford it?

[asufan]

Originally Posted by Rick Lee

Not exactly. If you have a fixed rate, 30 yr. mortgage and you continue to pay as agreed, you will be out of debt in 30 yrs. The value of your home at any given time has nothing to do with that. Your payoff amount and date are not related to your home's value. If you bought based on a bet that you'd be able to later refi out of an Option ARM or take out a HELOC to afford your lifestyle, that's your own fault, not some unjust fact of life. If you plan to put your kids through college by HELOC's, then that's a bad plan. How are you gonna put them through college otherwise after you've walked away from a mortgage and trashed your credit? And where in this country does someone have a right to retire at some arbitrary age, unless they can afford it?

LOL, this is not about me. Luckily I'm not underwater on my mortgage, although it is valued at a little less than what I paid for it in early 2004. I am just speaking of the situation that SOME people are in (Not those that are a mere $30K underwater, for instance). I am also going with the idea that most people don't stay in their house for more than 5 years, be it to move into a larger house for a growing family, changing employers, etc. The math doesn't lie. The math in the EXTREME instances cannot be argued. The only real argument is whether it is morally acceptable or not.

I'm probably not going to change anyone elses mind, and from a business standpoint, nobody is going to be able to change mine either.

[Rick Lee]

I'm not disagreeing with you about the business decision of walking away from a bad situation. Banks do it every day and morals and ethics play no role with them either. It's just that being upside down on a mortgage has nothing to do with one's ability to pay. I've been upside down before, but it didn't change the payoff date or amount of my loan. If this kind of logic worked with cars, people would be abandoning them a few hundred miles from the lot.

[SOON2BNSURPRISE]

When those people bought those homes what were they thinking then? My thought is that you buy a home to live in it. My parents were in their home for 38 years before they sold it. They had plenty of time to pay it off. Then again they only paid $13,500 for it and sold it for $338,000. These people needed shelter of some kind and bought these homes at inflated prices and yet they still bought. When they bought did they consider that prices could go down? Did they consider the fact that if that happened they could hold on and just pay the place off over time? I am just saying that if it was a good deal to them when they bought and if their employment has not changed and their income has not changed then why move? What has changed now to make those deals bad? They lost value? OK big deal. I own a TV that I will watch the complete Laker Suns series on. (I hope to watch the Lakers Celtics series, but that is for another post.) That TV is worth nothing anymore and yet I still watch it. Then again it is paid off. I have a 10 year old car that is worth nothing. I bought it new in 2000 and love it even though it is a Hyundai. It is worthless for trade in value and probably was 3 or 4 years after I bought it. Yet I keep it in the family. It is a good car that gets you from point A to point B. It keeps running so we keep it. I am not saying that I don't get the motivation for moving across the street to virtually the same home for half the cost. I get that. I understand the business decision behind it. I get that. What I am saying is that sometimes we don't have to look back and keep going. Many people are not hurting when they walk away from their homes. They could cover the bill and they choose to walk. I am not in that position so I can't say how I would have handled it. I will say that being placed in the position would change how many would react I would guess. Just my thoughts from my limited perspective.

[smokemaster]

I see the roots of the credit crisis starting, when people would make purchases of cars based on what payment the finance person said they could afford (or make). They applied this same irrationality to housing, and wound up with chicken wire tool sheds, in the far flung suburbs. As long as the music kept playing; the illegals kept stapling and spraying together more and more of the same, and people kept buying the debt. Then the music stopped, and the meltdown came.

BTW, I submitted an offer on a house located about 1000 feet away from the second couple. Our finest and best was in by noon yesterday. Great location, great homes.....many people are in a very similar position; few are free and clear.

[artvandelay]

Originally Posted by SOON2BNSURPRISE

but you choose to walk away? Why? What changed in that scenario? To those that can make the payments I would like to ask how has the change in home value changed your personal economic situation

For one thing, jobs are not secure, and if you think they are, you're a fool.

Second, the reduction in home value often leads to steady neighborhood decline, which then makes price recovery less likely.

There's little or no morality in the decision. It's a business decision, perhaps unethical, but if it's for the future benefit of your family, then you deal with it.

[artvandelay]

Originally Posted by Bummer

Yep, SOON . . . blatant irresponsibility, isn't it?

Doesn't this scenario happen frequently with new vehicles yet most decent "adults" prefer to stick it out and honor their commitment.

It only takes 3 years of pmts to break even on a car, not 15.

[SOON2BNSURPRISE]

Originally Posted by artvandelay

For one thing, jobs are not secure, and if you think they are, you're a fool.

Second, the reduction in home value often leads to steady neighborhood decline, which then makes price recovery less likely.

There's little or no morality in the decision. It's a business decision, perhaps unethical, but if it's for the future benefit of your family, then you deal with it.

My point is focused on those that have not lost jobs and can afford the homes they are in.

Look I see the point that this is a business decision and you need to look out for your family and all. What I am seeing though is a lot of running away from obligations increasing the situation that everyone is in. Lets say that those that can stay put and pay on their homes, don't you think that things will improve faster? I know everyone has to look out for #1 and believe me I get that, my thoughts are that if more people rode this thing out then things would improve. You walk away from a home and add another home onto the list of available homes. Not bad for me because I plan on buying. What if those that can stay kept their homes off the market, won't things change for the better?