It makes ZERO financial sense to stay in a home that's crashed in value, if you owe significantly more than the home is worth.
But still, it must feel so wrong to just walk away. Good honest people, professionals, folks who'd never ever think of filing for bankruptcy or welching on a debt. But they're doing the math, facing the reality, and smartly walking away now.
Welcome to post-housing-crash-America. Where foreclosures and bankruptcies aren't just for yucky people anymore. They're for anyone who listened to a realtor on commission and 'bought' a home these past few years.
Let the banks sort it out now.
America's house price time bomb
Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.
In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.
By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.
So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.
"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."
28 comments:
Weren't these the same people who would turn their noses up in the air and call renters losers and poor financial managers?
Why would someone commit to a mortgage of $500,000 for an apartment in the first place?
That makes even less financial sense.
However, the desire to "be on top" out-ways logic for most of these folks - they are their stuff.
"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."
F*ing bitch!
Did it make financial sense in 2006?
You got that right.
Our definition of "loser" is anyone not "smart enough" to take on debt they have no intention of every paying back.
That's changing now though, as these same people will now be forced to down-size their lives to "second class status".
karma said...
Weren't these the same people who would turn their noses up in the air and call renters losers and poor financial managers?
She should've borrowed $500,000,000 or so on the apartment. That way Bernanke would bail her our.
Let's not forget that defaulting on your mortgage has disastrous effects on your credit. Having your home foreclosed upon is even worse. It would be better to work out some type of deal with the bank, if at all possible, rather than simply walk away. In the past, if the bank agreed to forgive debt owed by a homeowner, the amount forgiven would be considered taxable income. Recent legislation changed this rule for many home owners - but only through 2009. This makes short sales a much more attractive option. I have more info on this topic on my site if anyone is interested. http://nutsandboltsrealestate.com
Right, it didn't make 'financial sense' in 2005 or 2006 to take on a $500,000 mortgage for an apartment. I'm sure they spoke of it as an 'investment' at the time of purchase but that wasn't the real reason they bought. These people are natural born followers.
And now they say they are walking away from their mortgages because it makes 'financial sense'. But that's not the real reason because these people have proven they don't have any financial sense of their own.
They are walking away because everyone is doing it. The cool kids are all walking away so these sheeple are too.
They will all be walking away and claiming how smart they are for doing it.
They lost the gamble.should have went to vegas instead.Ass another short sale to the list.I find it truly amazeing how we let off people so easy in this country who do pay their debts.It is especially true in the housing arean.Virtually all the losses can be put on the banks and the homeowner make up million excuses why they can't pay their bills.
Dominos. Falling.
And how do you think our gas tanks and insurance companies will like the hurricane?
Oh, it's ok. Ms. Palin will save us with her good looks and executive experience.
If she had taken out a realistic loan with payments within her means and planned to actually live in her home - it shouldn't matter how much the market changed. You buy a home to live in at a price you can afford. You can't blame them for walking away - there is apparently no penalty for lack of fiscal responsibility
"Privatize Profits and Nationalize Losses".
The New American Way of cowardice.
The Yuppie Mantra:
Me. ME, ME, Fuck YOU.
What a rotting in the hot sun steaming pile of smelly shit country full of dishonest greedy assholes.
It's a shame people get caught up in bubbles and manias, but the fact that she made a bad, bad decision concerning what the apartment was worth doesn't change the fact that she made that decision.
Yep, the value has gone down. Nope, paying the mortgage no longer makes financial sense.
On the other hand, she borrowed the money and promised to pay it back. Now she's decided she spent that money poorly so she shouldn't have to pay it back. Excuse me? She took on the the debt and promised to pay it back. The fact that she spent it foolishly does NOT free her from the moral obligation of repayment.
It doesn't make "financial sense" to pay for something if you can steal it without getting caught, but that doesn't make stealing right.
This is what people realized in the 91 crash.
It was common for home debtors to buy a new debit trap before they foreclosed on their old one.
This way their credit would remain in tact long enough for the move.
you have to check out "hope for your home" on TLC.
my wife saw an episode the other night.
a couple getting bogged down making their mortgage payment.
a realor convinced them to put 10k into "fixing up" the home.
value went from 435k to.....drum roll....hands couple the envelope...waiting...waiting...525K!!!!!!
YAYYYYYYYYYYYYYYYYYYYYYYY!!!!!!!!!!!!!
Used Housing market = Used Car Market
From my earliest days, I never under stood why a Used Home's value is any different than a Used Car's Value? Nobody walk away from a 5 year old car just because its not worth the same as they paid for it! It still has useful value AS TRANSPORTATION. So by the time it's payed it off, it's been used up.... but still has some value . Housing is the same......... Useful AS A PLACE TO LIVE & STORE YOUR STUFF. Anyone have a Used Car Equity Loan??? It time to start treating housing like a the deprecating asset that it is.
Income =Asset
Home (over priced) (Used Car) w/ Payments = Liability
Positive cash flow Commercial= Asset
Positive cash flow Rental Positive cash flow = Asset
Did you guys see the price of oil tank today? Down about 4.50.And the crooks at goldman are still calling for 150.00 crude at year end.They make bets and then try to pump the market in that direction.Abby joseph is the biggest bullshitter out there.
I think oil is heading back to 80.Then you have the screwballs come on cnbc and say there wasn't any speculation in crude.I guess they target their audience to the same sheeple who bought homes with subprime credit.
Go short oil via etf DUG!!!!!!!!!!!
BULLSH!T Troll. You are an idiot.
Go to: Fedupusa.org and learn Asshat
FMW
__________________________
Let's not forget that defaulting on your mortgage has disastrous effects on your credit. Having your home foreclosed upon is even worse. It would be better to work out some type of deal with the bank, if at all possible, rather than simply walk away. In the past, if the bank agreed to forgive debt owed by a homeowner, the amount forgiven would be considered taxable income. Recent legislation changed this rule for many home owners - but only through 2009. This makes short sales a much more attractive option. I have more info on this topic on my site if anyone is interested. http://nutsandboltsrealestate.com
Don't forget, the banks are NOT taking the losses, we are, the Government is. So, waling away, jingle mail, No Big Deal.
Taxes will cover z banks. Contracts mean nothing.
Thanks Paulson.
We will tax ourselves into posperity.
FMW
michael
'hope for your home' is a few years old
if it was 2008 the episode would go like
"so we put 40K into your homes improvements and the value went from $445k to oh shit
fuck
$70k"
michael I honestly cannot believe this world has folks like you that are as dumb as a box of rocks
get an mba you really need it
Perhaps this is the most important story yet - implied - The End of the Social Contract. . .perhaps a new blog??. . .why indeed should anyone keep paying - Democrat and Republican alike would agree that the government lies, big business ships jobs overseas, big international banks are not local anymore, and Countrywide, et.al. lied cheated misrepresented, etc.etc. . . .walkaway is the best advice for anyone. . .the Social Contract is dead, and it is everyone for themselves. . .
Well, yeah, you do make the payments. At least until you line up your financial future, so that you can weather the financial storm you are going to take. If you CAN afford the payments then you need an attorney to make sure your remaining assets are protected. Contrary to popular myth not all mortgages are without recourse.
If you can NOT afford the payments then it is best to try to do a short-sale. This will at least save your credit.
This nation and most of its citizens, residents, dwellers, occupants have no ethic, no moral, no responsibility, no duty, no honor, and last but not least, no brain. What it has in plenty is greed, self-centerness, self-righteousness, ignorance, pompousness, lust, materialistic craze. An Easter-Island society comprising of no family value, no respect or caring for the world and the land they live in, the surrounding environment, no caring, husbandry for the long term future
The housing bubble is a shiny mirror in which the Americano can look at itself and ponder upon what may the future brings upon this land of the Snapper Turtle AKA the land of the Skunk.
A nation that mostly comprises of wallowing, scaby pigs feeding, tearing, roosting, chomping at the trough.
A nation with most of its dwellers obese, fat, diabetic, and plain ugly like a chimpanzee.
A nation where a Walmart cashier can buy a house for $500K.
A nation in which its citizen's brain IQ is lower than a snapper turtle.
A nation which rules by turkeys, skunks, and rats.
The Americano nation is as toasted as a roasted armadillo skewered from mouth to ass sizzling, fat popping, juices oozing with melted golden fat over a bed of white hot charcoal.
::: Yummy grilled Snapper Turtle :::
::: Yummy roasted the Americano nation and the Housing Bubble :::
Keith, thanks for you blog. First post and it would be great if you had a flag alert, maybe even a direct link, for new posts by Andrew Hac. So many of the others (franksucksScottsdale, etc) are boring but Andrew Hac always inspires. Please do this, for those of us with very limited time to read all comments.
Contrary to popular myth not all mortgages are without recourse.
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@ Toby,
You are so un-informed. They can not prove they even own the mortgages!!!!
They sliced and diced the mortgages so fast during the ponzi that the banks do not even have standing to foreclose on the home owners and do not even have proof of who owns the debt. Come on!!! Read dude bro. Then post. The home debtors that know this are living for free DUDE. Pay attention.
"get an mba you really need it"
Isn't that like becoming a licensed realtor? LOL
"...the banks do not even have standing to foreclose..."
FAR worse than that is the very-real possibility that there is nothing to foreclose on.
@ Keith,
This REALLY needs a thread of its own, imho.
@ Anon 7:06 AM
Holy Shitaki mushrooms, Batman!!! My mortgage may have 9 dups that are phoney, and the profits were taken 10 times, possibly. What a hugh mess and a true con game. Thanks for the post.
I can really see that this is true, because of the research I have done, but the average man will not believe, trust me. Anyway, this is really big news.
FMW
SNIP:
What this means is that Freddie and Fannie Mae must be converted to essentially government debt. Such conversion means that investors simply don’t care if the mortgages have a real lien on anything real or not (at least for the meanwhile). Otherwise there would need to be a process by which all the defaulted mortgages can be sorted through to determine which of the mortgages are legitimate and which are not.
Creating and managing such a process would indeed crash the global financial system. It is hard for a multi- trillion dollar financial system to maintain liquidity when contracts and laws are meaningless.
The challenge for Hank Paulson is that by increasing the national debt by $5 trillion — whether collateralized by real estate or phony paper — he can delay the day of reckoning, but he can not cancel it.
http://solari.com/blog/?p=1357
@ Keith,
This needs a thread of its own, imho.
"Mark In San Diego"
Very well said!! The Gov. lies to us so badly, CPI, healthcare, etc. it is a new ball game now. Yeah Mr. Banker I realize inflation is only 2%, so I should be able to keep up with my payments but milk is $5, gas is $4, car insurance up 20%...... and I know GWB says healthcare is affordable but mine just went up $400 a month so take your mortgage and insert it where the sun don't shine.
The agreement was to pay back the loan OR, OR, OR return the investment/house back to you the bank. That's the agreement, here's the keys, oh and I left the bathroom faucet running with the drain shut. Tell the broker sitting over there that told me this ARM was a good idea and houses only go up to go shut it off. And have him bring a snorkel!
GT Charlie
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