I don't usually cover the microeconomic homedebtor-in-distress stories out there, and trust me, there are millions of 'em, but this one caught my eye.
Here's what's happening all over California, and all over America today. And this is why Congress should make it illegal to 'buy' a home without 20% down. Period.
Here's the process of home'buying', circa 2005:
1) Listen to a realtor on commission
2) Rent money from a bank in order to overpay for a home that's not yours
3) Watch home plummet in value in a matter of days
4) Even though you can make the payments, walk away, screwing whoever owns your mortgage
5) World economy melts down
6) US taxpayer pays for your stupidity by buying up the bad mortgage
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. Is the bank going to pay for my retirement because I was a good girl and paid my mortgage."
As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded. Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment. Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.
"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."
October 01, 2008
Posted by blogger at 10/01/2008