Pro and Cons of Mortgage Strategic Defaults.

[kiwilrdg]

It's probably safe to say that most of the "Live Up To Your Obligations" crowd would have had the sense not to get mixed up in a deal like that in the first place.

That was something I did not really want to say, but I have done my share of dumb things that I have had to pay for later.

 

[Noirblack]

I certainly hope you aren't including me in the "crowd" who make "pronouncements" about "how a person must live up to any and all obligations."

What I read is that the young fellow can afford to make the payments but is considering staying put, living rent-free, for the several months minimally it would take to get him and his out of the house.

Even if he were so far underwater (owing a million on a house now worth a quarter of that, to cite your hypothetical), well, I shed no tears for anyone who buys a house for a million bucks. And if he wishes to be out from under the deal, his remaining in a place, living rent-free while the eviction process runs its lengthy course, is truly the moral equivalent of theft. If he could afford to make a mortgage payment on a house now worth less than he paid for it, it seems a safe assumption that he could afford to pay rent.

Even if he can afford to make the payments, it might not make sense to make the payments if the house is worth little compared to what he owes on it. Ability to make the payments is only part of the equations.

If he stays in the house while not making payments, that is the moral equivalent of squatting, not the moral equivalent of theft.

My overall point is that we don't know enough of the details to say whether he should consider a default or not. I wouldn't be so quick to judge him. You wouldn't shed any tears for him if he was deep underwater. But would you condemn him for doing what any rational person would do -i.e. not paying a lot more than the asset is now worth? Remember, lenders take on risk when they lend. The know any borrower can default.

 

[Noirblack]

It's probably safe to say that most of the "Live Up To Your Obligations" crowd would have had the sense not to get mixed up in a deal like that in the first place.

Anybody who bought a house in the run up to 2008 might find themselves in this situation. Nobody has control over how much the value of a house will drop.

 

[LizzieMaine]

Pfft. I doubt very much that anyone who is concerned about keeping up their obligations is going to buy a million dollar house if they know they can't afford to pay for it. Give it a rest, moral relativism doesn't go over big here.

 

[PrettySquareGal]

I bought my house to live in, not make money.

 

[LizzieMaine]

Most sensible people do. When I'm dictator, sleazy bankers and high-rolling welshers will be sentenced to the same chain gang.

 

[Noirblack]

It isn't about making money on it. It is about not overpaying money that you will never see back. I just cannot judge this young man without knowing the particulars.

 

[PrettySquareGal]

It isn't about making money on it. It is about not overpaying money that you will never see back. I just cannot judge this young man without knowing the particulars.

If one buys a house to live in, one doesn't plan to see the money "back." No money is lost until it's sold for less. If one isn't forced to move and has the means to pay, then there is no loss.

I am judging his decision.

 

[Noirblack]

The way a normal person's life works is that they buy a house, raise their kids, save money for retirement, sell their house and downsize. The house isn't an investment per se, but it would be detrimental to a person's finances if they paid more for the house than they eventually sold it for. Do you wish the young man to have poor finances?

 

[tonyb]

It isn't about making money on it. It is about not overpaying money that you will never see back. I just cannot judge this young man without knowing the particulars.

I accept that. And I accept that sometimes there is little reasonable alternative to a bankruptcy filing.

But the OP says he's looking to stay in the house, paying not so much as a dime, for something on the order of 20 to 24 months, during which period he expects to save himself something like $72,000. So, on the high end of that time range, it would work out to approximately three grand a month.

Like you, I accept that all these situations are unique, and that there are precious few absolutes, moral or otherwise, here in the "real" world.

But I'm quite comfortable passing unfavorable judgement on a person who can afford to pay for a roof over his head but chooses (yes, chooses) not to because he can get away with it. It's the sort of practice, whether it's committed by a person or an institution, that threatens to undermine our economic system here at home and damage its credibility around the world.

 

[PrettySquareGal]

The way a normal person's life works is that they buy a house, raise their kids, save money for retirement, sell their house and downsize. The house isn't an investment per se, but it would be detrimental to a person's finances if they paid more for the house than they eventually sold it for. Do you wish the young man to have poor finances?

"Eventually" sold it for. He doesn't need to sell now.

To answer your question, *I* don't want to have poor finances and am tired of bailing out people like him via taxes that bail out banks that bail out people that bail. I don't give a damn about his finances after reading about the situation.

This is my last reply to you as you routinely bait me without interest in understanding and accepting differences.

 

[tonyb]

Even if he can afford to make the payments, it might not make sense to make the payments if the house is worth little compared to what he owes on it. Ability to make the payments is only part of the equations.

If he stays in the house while not making payments, that is the moral equivalent of squatting, not the moral equivalent of theft.

My overall point is that we don't know enough of the details to say whether he should consider a default or not. I wouldn't be so quick to judge him. You wouldn't shed any tears for him if he was deep underwater. But would you condemn him for doing what any rational person would do -i.e. not paying a lot more than the asset is now worth? Remember, lenders take on risk when they lend. The know any borrower can default.

I would argue that in this case, squatting is the equivalent of theft. This fellow can afford to make his payments, so it isn't that he and his family would be out in the cold.

People do all kinds of things -- having children, to cite a popular choice -- that make no sense financially. People forego career advancement for the sake of providing those children stable childhoods.

If the fellow wishes to default, fine, then pack up and go. Unless he's so far underwater that bankruptcy looms if he didn't, defaulting is still the sleazy thing to do. But staying in the house rent-free when he can afford to pay is beyond sleazy. It is the moral equivalent of theft.

 

[sheeplady]

It isn't about making money on it. It is about not overpaying money that you will never see back. I just cannot judge this young man without knowing the particulars.

There are many things I pay money for that I will never get my money back from. Renters don't get *any* of their money back they pay in rent. I'm sorry, but it's an entitled attitude that suggests that because someone can afford a home they are entitled to every penny invested, while ignoring that many people who don't own homes never see a cent of their "investment" in where they live back. And you can argue about taxes but renters pay taxes too.

We've turned into a really twisted society where home ownership has become something where it is less about making a better life for yourself and becoming a long standing member in a community and is more about making a fast buck.

I'm sorry, but it does cost something to live, and people who can afford homes aren't entitled to a free ride where every penny they put in will come back out.

 

[ButteMT61]

Seems this one hits close to home for Mr. Noir. Hey - if we're wrong about they guy, let the OP tell us more! As it sits, like others, I'm content in my judgement. For full-disclosure, we tried to refi during the big bust and got turned down as the banks were not wanting to help. We were advised not to pay our mortgage (which of course we pay a price for in bad credit) to get them to the table. It worked. No ill-intent, just wanted to force their hand to give us an interest rate that was currently competitive. They did it and everyone is happy. They just added the payments we were behind to the end of the loan. I call that playing poker - and I never would have done it without professional assistance. Playing hardball is one thing, welching - stealing is another. I sit comfortably with that opinion until data shows me I shouldn't.

 

[Feraud]

The "flip this house" mentality is rampant.

 

[ButteMT61]

The "flip this house" mentality is rampant.

It became worse when there was ~12 TV shows glorifying it. Made me wanna puke. Especially when they tore down historical homes or butchered them to become modern ****! A sad time in home history for this country.

 

[LizzieMaine]

Not in my family. My great-grandparents, grandparents, and mother all owned one house in their lives. My great grandparents and grandparents died in their houses, and my mother intends to in hers. The idea of "flipping" or treating a home as an investment to be cashed in is completely alien to our way of thinking. Pity that isn't the way "normal people" think.

 

[Noirblack]

But I'm quite comfortable passing unfavorable judgement on a person who can afford to pay for a roof over his head but chooses (yes, chooses) not to because he can get away with it. It's the sort of practice, whether it's committed by a person or an institution, that threatens to undermine our economic system here at home and damage its credibility around the world.

But does it undermine the system if he defaults? First, the mortgage agreement allows for him to default. The bank will take the house at its convenience in this event.

Second, the bank can better afford the loss than this individual. Even if the bank can take the loss as some type of tax write-off what is the impact of this house on the US taxpayers? Even if it was a million dollar tax write-off for the bank, this would work out to less than a penny per tax payer. Doesn't that make more sense than to hang what might be a huge financial albatross around this young man's neck? Why force him into a financial holw that he can never get out of?

 

[Noirblack]

Seems this one hits close to home for Mr. Noir. Hey - if we're wrong about they guy, let the OP tell us more! As it sits, like others, I'm content in my judgement. For full-disclosure, we tried to refi during the big bust and got turned down as the banks were not wanting to help. We were advised not to pay our mortgage (which of course we pay a price for in bad credit) to get them to the table. It worked. No ill-intent, just wanted to force their hand to give us an interest rate that was currently competitive. They did it and everyone is happy. They just added the payments we were behind to the end of the loan. I call that playing poker - and I never would have done it without professional assistance. Playing hardball is one thing, welching - stealing is another. I sit comfortably with that opinion until data shows me I shouldn't.

Full disclosure from me. My home is fully paid. I truly feel that there may be more to the story than a young man flippantly avoiding responsibilities. If he can afford to make payments and the house has not dropped greatly in value, then why is he considering this decision? Are there other non-financial factors at play in his life that are driving him to this decision?

 

[kiwilrdg]

Second, the bank can better afford the loss than this individual. Even if the bank can take the loss as some type of tax write-off what is the impact of this house on the US taxpayers? Even if it was a million dollar tax write-off for the bank, this would work out to less than a penny per tax payer. Doesn't that make more sense than to hang what might be a huge financial albatross around this young man's neck? Why force him into a financial holw that he can never get out of?

He chose to crawl into the hole by borrowing the money. He did not buy the house from the bank. He should not have tied the albatross around his neck unless he was ready to pay for it.

The owner realizes the capital gain on the sale of a property, the same is true on a loss. Otherwise the borrower did not live up to his obligations. He may only cost the taxpayers less than a penny each but I do not want to pay a penney for every person who does not want to pay back money that they borrowed.