View Full Version : the mortgage question again
please remind me who it benefits for me to continue to pay even a modified mortgage payment on a house that is worth almost 50% less than i owe on it based on the sale price of the foreclosure next door. i can pay it, if i keep driving my 20 year old car and keep not saving for retirement. but why?
thanks, i'm glad i found you guys again.
When you sign up for a mortgage, you should understand what you’re getting into, and not be buying a home that you can’t afford.
I just think that if you sign a deal and a contract, you should live up to your end of the deal. IMO, there are more important things in life than money.
Peace
loosechickens
6-14-11, 1:48am
Well, it benefits the exercise of integrity, if that is important. Also, houses will not always be worth half of what you owe on it, and at some point, you may recoup much of that loss. It will also protect your credit rating, and make it easier to face that person in the mirror every day.
On the other hand, those benefits might not be as valuable as just cutting your losses and walking away. Plenty have done so. Really, in the end, only you can judge, and only you can know what is the best decision for you.
Good luck, whatever you decide.
What the home is worth only matters if you want to sell it.
You are paying to keep a roof over your head right?
I'd look at buying a house as a business transaction between you and the bank (well, actually, whichever pool of investors ultimately buys the mortgage backed securities (MBS) that your mortgage is bundled into). The buyers of those MBS bundles understands that there is risk in purchasing (of course, there's a whole other conversation on the heat up and meltdown of the market).
Basically, from my viewpoint, choosing to stay and pay or walk away is an amoral decision. I won't feel sorry for anyone that claims they didn't know what they were getting into or fell prey to predatory lending (except in maybe a few cases, sure)... but I'm also not going to judge anyone that chooses to walk away for any reason.
You should look at the cost/benefit of the decision, though. If you can rent for much less, then you could very well be in a good position to rent for 7-9 years until your credit rebounds. If housing prices don't rebound nicely by then, then you may be able to pick up a great house for still much less then you're currently paying and you'll have a nice down payment from the savings built up over the time you'd be renting. Otherwise, assuming that you've properly factored in the cost of owning a house when you bought it and have no problems covering the payment, then you might decide owning is a more comfortable proposition for now.
You may have a hard time renting. Most places run a credit check. Also many employers if you may need a job. Also what a home brings in foreclosure may not reflect what homes would sell for in the normal way. I would think that a home that sell's in foreclosure may not be in the best of shape, and many don't have the means to buy a house in that way.
this is the domino effect. it would be nice, if you have to move, to be able to swap out a house with someone else who is also under-water. hehe.
You may have a hard time renting. Most places run a credit check.
Also what a home brings in foreclosure may not reflect what homes would sell for in the normal way. I would think that a home that sell's in foreclosure may not be in the best of shape, and many don't have the means to buy a house in that way.
I understand that the normal route is to move (rent or buy the replacement place to live), then default.
Agree that as long as there's some market activity for non-foreclosed houses in your area, a sound and occupied house is worth more than the foreclosures.
When you sign up for a mortgage, you should understand what you’re getting into, and not be buying a home that you can’t afford.
I just think that if you sign a deal and a contract, you should live up to your end of the deal. IMO, there are more important things in life than money.
Peace
I'm not saying there's not a moral issue, but there's another side of destroying one's finances, career, and self-worth because of a single mistake in buying a house. If the shoe were on the other foot, there is no large corporation that wouldn't default if it were to their overall advantage after considering legal sanctions (such as a deficiency judgement), effect on credit rating, and loss of reputation, as well as benefits. They would be obligated to do so to preserve the assets of their shareholders.
Sometimes, the only moral choice is to move on, whether the situation is marriage, a job, a mortgage, or a place to live.
Beating one's head against a wall is a sign of mental illness, not integrity or resolve.
I'm not saying there's not a moral issue, but there's another side of destroying one's finances, career, and self-worth because of a single mistake in buying a house. If the shoe were on the other foot, there is no large corporation that wouldn't default if it were to their overall advantage after considering legal sanctions (such as a deficiency judgement), effect on credit rating, and loss of reputation, as well as benefits. They would be obligated to do so to preserve the assets of their shareholders.
Sometimes, the only moral choice is to move on, whether the situation is marriage, a job, a mortgage, or a place to live.
Beating one's head against a wall is a sign of mental illness, not integrity or resolve.
I hear ya!! Don't get me wrong I think that main street is paying the price for the decisions made by wall street but I try and ignore the morons as much as possible.
What if everyone just decided to bail out? What if we all decided that it would be in our financial interest to default on our financial obligations? What would the world look like then?
Beside the question of integrity the main issue is this - if you continue to pay your payments with no obligation to move what difference does the value of your home matter. It only matter if and when you sell. Sorry but I do not view a home as a liquid asset, it is a home, when you leave that one you will get another and it is not something that should be viewed as a financial instrument. That attitude is what got us into this present mess.
If you can't afford a mortgage then the issue is not about choice - you default. But if the decision is whether you can afford it but choose to spend your money in another direction then that is another story. The concept of credit is destroyed without some sort of obligation and since most people live on credit then I think we need to seriously need to think about the concept of default.
BTW - farmgrrl, my reply is not about your particular situation just my opinion on walking away from a mortgage. Everyone's situation is different and your decision is yours.
Peace
Mangano's Gold
6-16-11, 9:29pm
I don’t begrudge people for walking away from their underwater mortgages. I don’t think that the ethics are straightforward at all. Context matters.
There was a frenzy going on. A mania. Sanity was temporarily lost and it should be taken into consideration. The realtors were caught up in it. Sleazy mortgage brokers were pushing crap, and the crappier the deal the better for them. The paper was packaged by intermediaries making hefty fees, then sold and resold and resold again. It was split into pieces, by others making big fess. And bet on and against by fat cats all over the world.
Everybody was getting rich, then it collapsed, and some of the worst actors were bailed out. The bondholders were let off free of pain. Nobody had to give any of the money back. And now you’ve got schmuck sitting with a house worth half of what he paid for it.
If you can't afford a mortgage then the issue is not about choice - you default. But if the decision is whether you can afford it but choose to spend your money in another direction then that is another story. The concept of credit is destroyed without some sort of obligation and since most people live on credit then I think we need to seriously need to think about the concept of default.
I agree that the downsides are substantial and need to be carefully considered.
It may be possible to pay one's mortgage by not saving for retirement or emergencies, doing without health insurance, or leaving young children at home alone overnight while working a second job. At least two of those aren't worth it---and at least one is clearly immoral.
Morality has to be taken as an overall picture and needs to be carefully considered, including getting advice from others. I'm very hesitant to call any legal act in a business context immoral. Everybody else is playing hardball, and individuals need to be ready to do the same for themselves.
What about looking at yourself in the mirror when you're in your late 60s and you have nothing/very little saved for retirement? From what I understand of personal finance, retirement saving should be #1 in almost everyone's priorities unless you're close to retirement and have enough saved or are living off saved income/investments. If one is driving an ancient car, it's also prudent to be saving for the next one assuming a vehicle is needed in order to secure an income or other life necessities such as medical care, etc. I wouldn't kill myself to pay for a house at the expense of not saving for retirement.
As for what would happen if no one fulfilled their obligations to pay back credit extended to them? Penalties for defaulting would increase and available credit/credit standards would tighten. We've seen both in recent years in the US. That scenario would likely never happen except possibly in the case of massive deflation. If credit is more difficult to get it becomes more valuable so the incentive increases to be more credit-worthy.
CBS news said that 1/4 of all mortgages are under water. Of these, 1/3 of the people believe it is "ok" to walk away.
It would be interesting if we moved in to a period where people looked at houses like all other things. For instance, no one expects their car to go UP in value or their clothing or their furniture, etc. Furthermore, if a person had to save 700,000 dollars before they bought a 700,000 dollar house, they probably, after all that hard work, look at the house and say "that was soooooo not worth the 30 years of hard work I had to go through!" and perhaps setttle in to something a bit more modest or in to a different area of the country. I think this is especially true when most of the large expensive homes still only have 3 bedrooms in them and perhaps an extra "living room" or perhaps they only have a grand room.
Perhaps, the middle/lower class, if they had to pay up-front, would very much realize how little we all actually have. It seems mortgaging our entire lives to having to work in order to simply buy the essentials, is giving us the illusion that we have as much as the upper class.
I agree that the downsides are substantial and need to be carefully considered.
It may be possible to pay one's mortgage by not saving for retirement or emergencies, doing without health insurance, or leaving young children at home alone overnight while working a second job. At least two of those aren't worth it---and at least one is clearly immoral.
Morality has to be taken as an overall picture and needs to be carefully considered, including getting advice from others. I'm very hesitant to call any legal act in a business context immoral. Everybody else is playing hardball, and individuals need to be ready to do the same for themselves.
What has changed? When someone takes out a mortgage did they not know what the cost were? Did they buy a house and then stop paying the health insurance and start leaving their kids locked up in the closet?
I think the basic theme is they felt they were making an investment and used borrowed money to do it. Now the investment hasn't panned out so they want out. The bank made a deal on the other end. I'm with Ziggy in that I knew what my home cost and I didn't plan on making money on it, it is where I wanted to live. If it keeps up with inflation, great, if not, O well. If you want to bail out you just need to weigh all the factors in your decision. I did not buy more house than I could afford, even though its paid off it only represents about 10% of my net worth. At least what I originally paid for it.
I don’t begrudge people for walking away from their underwater mortgages. I don’t think that the ethics are straightforward at all. Context matters.
There was a frenzy going on. A mania. Sanity was temporarily lost and it should be taken into consideration. The realtors were caught up in it. Sleazy mortgage brokers were pushing crap, and the crappier the deal the better for them. The paper was packaged by intermediaries making hefty fees, then sold and resold and resold again. It was split into pieces, by others making big fess. And bet on and against by fat cats all over the world.
Everybody was getting rich, then it collapsed, and some of the worst actors were bailed out. The bondholders were let off free of pain. Nobody had to give any of the money back. And now you’ve got schmuck sitting with a house worth half of what he paid for it.
I don't agree with the victim mentality. I lost more than many paid for a house when tech stocks crashed in 2000. I was down another house in 2008. You put up your money and you take the risk.
Mangano's Gold
6-17-11, 1:55pm
I don't agree with the victim mentality. I lost more than many paid for a house when tech stocks crashed in 2000. I was down another house in 2008. You put up your money and you take the risk.
Sure, and when people walk away from their mortgage they will have lost whatever they put into the house, just like you did with the stocks (if they went to zero).
When you sold your stocks I doubt it even crossed your mind that maybe you should hold onto the stock and insert additional money (beyond your investment) to make sure that all employees and vendors were paid 100% of what they were owed. Your liability was limited to your investment. You didn't hold some solemn oath between you and the other stakeholders in the companies you invested in.
Mortgages work the same way. It is de jure law in many states, and de facto in the rest, that your loss in limited to your investment (non-recourse loans). I'll concede that this is a technicality, and you shouldn't defer ethics to the technicalities, but it cuts all ways.
I owned the stocks 100%. If I had borrowed money to buy the stocks I still would owe the money. I understand that people bought houses that they thought would only go up in value. I also understand that the banks also took on the risk of people not paying and having to foreclose. But I didn't buy my house as an investment. I also didn't buy more house than I could afford. I bought it to live in.
If people want to walk away from their mortgages because their home value has dropped. It's up to them. Just be aware that the next time you want to borrow money it may be a problem. It will also be a problem with many other things as credit scores are used for many things. You may not be able to rent, your insurance will be higher, and you may be turned down for a job. These are just a few things.
I would hope that this will be a learning experience for many.
Sure, and when people walk away from their mortgage they will have lost whatever they put into the house, just like you did with the stocks (if they went to zero).
When you sold your stocks I doubt it even crossed your mind that maybe you should hold onto the stock and insert additional money (beyond your investment) to make sure that all employees and vendors were paid 100% of what they were owed. Your liability was limited to your investment. You didn't hold some solemn oath between you and the other stakeholders in the companies you invested in.
Mortgages work the same way. It is de jure law in many states, and de facto in the rest, that your loss in limited to your investment (non-recourse loans). I'll concede that this is a technicality, and you shouldn't defer ethics to the technicalities, but it cuts all ways.
A house is an investment as well as a place to live. If it is clearly a failed investment and you can't continue to gain benefit by living in it or renting it, as in being unable to find work in the area or the neighborhood becoming unsafe, it's time to move on. Many areas, both old and new, are never going to become normal suburbs or urban neighborhoods.
Business is business, and individuals have no choice but to play by the rules everybody else plays by. Business morality in the U.S. is whatever you won't go to jail for.
TVRodriguez
7-10-11, 12:01pm
We are in a similar situation, where we bought a house in 2005 and now it's worth a bit more than half of the purchase price. We are in a fairly good area, though, and even though there are many foreclosures in our neighborhood, it's an older established neighborhood with many longtime residents who aren't going anywhere. Plus, there are even some new houses going up since prices are so much lower for construction. We are paying down the mortgage aggressively. The mortgage is now only a bit above the recently appraised value (we tried to refinance without luck due to the low value). We figure if we keep paying it down, we can possibly refinance for a lower rate. Or maybe we can pay it off sooner and just own it. That would be nice. We figure that at that point we can either decide to stay or rent it and buy elsewhere. For now, though, we're throwing everything extra we have at the mortgage.
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