Would it be in my best interest to stop paying mortgage loan?

[pcgeek11]

No, I think few of you understand. The problem really is, many stuck with these mortgages are in what is commonly put as underwater or up side down in the banking world. They bought at the housing market high, took out mortgages at that high market level, and suddenly, as the housing market drops like a stone, are paying for a house that can only command a resale value of between half and 2/3 of what they bought in at.

They have to be almost crazy to hold onto such a home and keep making payments on it, when they can simply walk away from the mortgage, rent for awhile, rebuild their credit, and then later buy the same equivalent house at 50% of what they bought their old house for.

And then as they keep making payments and the housing market finally recovers, they will build equity in their home, because its resale value will greatly exceed what they still owe on the mortgage. Having positive equity in your home is a good, having a negative $100,000 equity in your home is crazy. And if the bank will not work with such an individual, they may well deserve getting to eat 100% of that negative $100,000 equity if the borrower falls on hard economic times.

But silly me, I paid off my mortgage long before this collapse happened. And now my house is worth less if I want to resell.

So it is OK to go back on your word as long as you make out from it. Hmmm.

I know the housing market sucks, but a mans word used to mean something. Alas I guess honesty and fairness means nothing anymore.

 

[piasabird]

When you go to look for a job they check your credit rating.

 

[Jhhnn]

Something else that really hasn't been made clear is who actually loses money in the event of default. Generally speaking, it's not the bank at all, but the holders of various structured securities the bank sold and now services. The bank still gets their cut servicing the loans, acting as collector and distributor of funds, but the real losers are investors, often pensions, endowments, mutual funds like in 401K's, so forth and so on.

From there, it gets more complex, but it was investors' awakening that set off this crisis as securities they purchased failed to perform as advertised. Modern banks can't survive w/o securitization, and investors refused to buy, leaving them stuck with what had become increasingly non performing mortgages and MBS of their own making... not something they'd planned on keeping themselves... Huh-uhh... That's why they became known as "toxic assets", an interesting play on words if ever there was one...

I'm with Vic on this, and we don't agree on a lot of things. If it weren't for the various alternatives to default and foreclosure created in the wake of the collapse, we'd be in really bad shape. Being underwater is one thing, being hopelessly so is entirely another, and that would be the position of many, many homeowners if market prices continued to deteriorate. At some point or another, people will swallow their pride and their integrity, just screw the other guy if it's their best rational choice. Enough of that, and the situation wrt defaults just cascades downward- only stubborn fools will hold on if it gets bad enough...

 

[Lemon law]

Gotta love the PCgeek 11 contention of, "So it is OK to go back on your word as long as you make out from it. Hmmm.

I know the housing market sucks, but a mans word used to mean something. Alas I guess honesty and fairness means nothing anymore."

The first problem with the PCgeeks's contention is that out totally irresponsible banking and lending institutions had an not an iota of integrity as the Government bailed all their sad and sorry asses out, and then cannot find any heart to have some responsibility for the people they left up side down.

The true story that sticks with me is some banking aholes who refused to renegotiate a $ 200,000 mortgagee they held with some smuck who fell on hard times when the property was worth about $100,000 at the time. And when the smuck who had his job downsized pointed out he might be able to make the mortgage payments if the loan was renegotiated to a $150,000 base line. The bank refused, reposed the house, and later resold it for $40,000 to some other entity. Meanwhile until the greedy bank dumped it at a huge loss, they were on the hook for all the electric bills, insurance bills, bills, property tax bills, that the mortgage holder normally has to assume. If you do not heat the house, pipes freeze, so tell us all again why the bank acted wisely in standing on principle? Short answer their stupidity costs them $110,000 plus when they could have only lost $50,000.

If anyone thinks this is an isolated incident, guess again.

 

[Jhhnn]

The part you're not getting, LL, is that the bank doesn't take the loss in most cases, but rather investors who've bought the income stream from that and other mortgages as part of a security.

As the mortgage servicer, banks have no incentive to do anything other than slash and burn, and the terms and conditions of the securities they've sold don't necessarily allow for much else.

Homeowners in trouble whose notes are actually held by the servicer may well be in a better position to renegotiate, because the loss is the servicer's in the event of default. Even then, the servicer needs to find the whole thing to be the better of bad alternatives. They need mortgages that can be bundled into honestly rated AAA securities rather than ones they have to hold, as well. Nursing homeowners with screwed up credit won't provide that, but a new note to a new homeowner made under stricter standards will...

None of this is simple or easy. Each case is unique, and outcomes are highly variable, still up in the air until such time as newer homeowners have positive equity. That likely won't be anytime RSN.

Trustees of foreclosed properties usually hire local firms to blow out the water pipes, antifreeze the drain traps, clean and secure the place. They generally don't do yard care at all unless forced by the municipality, a tough proposition with remote ownership. When homeowners default and move out on their own, don't notify the servicer, then damages from broken pipes and etc are more likely, as is vandalism, given that they may not even lock the doors on their way out...

 

[Modelworks]

No, I think few of you understand. The problem really is, many stuck with these mortgages are in what is commonly put as underwater or up side down in the banking world. They bought at the housing market high, took out mortgages at that high market level, and suddenly, as the housing market drops like a stone, are paying for a house that can only command a resale value of between half and 2/3 of what they bought in at.

They have to be almost crazy to hold onto such a home and keep making payments on it, when they can simply walk away from the mortgage, rent for awhile, rebuild their credit, and then later buy the same equivalent house at 50% of what they bought their old house for.

Oh okay now I get it.
If someone makes a bad decision then a debt is no longer owed and they are free to cancel the agreement even though the first party did everything they said they would in the papers that were signed. You finance a car, the cars engine blows up and now isn't worth what the car is financed for so it is okay to stop making payments ? Interesting world you got there.

The problem isn't with the banks. It is with people that don't take the time to realize that signing a loan for something that will take 20-30 years to pay off is something they should research. Nothing will change no matter how many laws and regulations are added because people haven't learned anything. They get payday loans then complain that the places are doing them wrong when the terms were there in plain sight, they could have walked away. Instead they do the same thing the people with mortgage problems did. Get the cash now and worry about the consequences later. People want the government to do something then complain they are taking over when they do. If people keep this up, the it wasn't my fault mindset, the government will have no choice because someone will need to act as a parent to these children who can't think for themselves.


The only people I feel bad for are ones who could afford the homes they bought and intended on paying for it the full term but had something like a death/injury/ or layoff.

 

[pcgeek11]

Gotta love the PCgeek 11 contention of, "So it is OK to go back on your word as long as you make out from it. Hmmm.

I know the housing market sucks, but a mans word used to mean something. Alas I guess honesty and fairness means nothing anymore."

The first problem with the PCgeeks's contention is that out totally irresponsible banking and lending institutions had an not an iota of integrity as the Government bailed all their sad and sorry asses out, and then cannot find any heart to have some responsibility for the people they left up side down.

The true story that sticks with me is some banking aholes who refused to renegotiate a $ 200,000 mortgagee they held with some smuck who fell on hard times when the property was worth about $100,000 at the time. And when the smuck who had his job downsized pointed out he might be able to make the mortgage payments if the loan was renegotiated to a $150,000 base line. The bank refused, reposed the house, and later resold it for $40,000 to some other entity. Meanwhile until the greedy bank dumped it at a huge loss, they were on the hook for all the electric bills, insurance bills, bills, property tax bills, that the mortgage holder normally has to assume. If you do not heat the house, pipes freeze, so tell us all again why the bank acted wisely in standing on principle? Short answer their stupidity costs them $110,000 plus when they could have only lost $50,000.

If anyone thinks this is an isolated incident, guess again.

I'm not saying the Lending Institutions are not partially responsible, they are. However who in their right mind would trust them in the first place. Anyone that has more than two functioning brain cells knows that the housing market ( just like other markets ) go up and down. The problem has many layers but the primary two problems lie in the unresponsible way that the lenders were passing out loans regardless of the ability of the individuals to pay it back. The willingness of stupid people to get into a loan knowing ( or they should know ) that they would not be able to maintain the payments over the long haul. This also includes the dumb@ss' that bought into variable rate loans with a balloon payment that they knew was going to bite them in the @ss when it became due and they didn't try and save for it. When the market took a crap they couldn't refinance as they planned. All of this was getting people into more home debt than they needed or could afford and that is how we got here. Greed on both sides of the deal.

Now back to my statement: If you give your word and agreed to something ( anything ) and you back out because you feel it is no longer beneficial to you. Then you are a dishonest liar and should never be trusted. It is a simple matter of honesty. Anyone can be honest when it has no impact on them personally. The honest person does the right thing ( the right thing in this case would be to pay your debt IAW your agreement ) regardless. You signed the papers.

 

[highland145]

Sig.

 

[ChunkiMunki]

you did sign the papers, and the papers state if you do not make payments, your house will be foreclosed and the bank will reclaim it. So what if you choose to foreclose due to financial hardship or strategic default, the result is the same. Who would continue paying for a house whose value will never recover? Your family's best financial interest comes first.

 

[JockoJohnson]

I expect people to walk away from these houses that are "underwater". They were stupid people to begin with. They overpaid for a piece of property that anybody in their right mind would know was overvalued. Because they were stupid then, I don't expect them to all of a sudden become smart now. Their dumbasses will walk away and then they can live with the damage done to their credit rating.