# Our Friend's Have Stopped Paying Their Mortgage!



## ricoba (Mar 6, 2011)

OK, so I have heard of people doing this, but now I know someone who has stopped paying their mortgage.   

I think they are hoping this will be a ploy to get a refinance on their 8% mortgage (first or second, I don't know how many they carry on the house).

What the heck is going to happen to them?  They are both retired, had good jobs etc, but probably like millions of people used their house equity to buy stuff (trips etc).

Now they are upside down with higher payments than they like and are using this to try and renegotiate a newer more workable/payable mortgage.

I don't need pointers on the morality etc.  I am just curious, is this really what people need to do now to re-finance, or are they just plain crazy and possibly putting them self in jeopardy to lose their house?


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## dioxide45 (Mar 6, 2011)

---Deleted---


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## tlwmkw (Mar 6, 2011)

Maybe I'm old fashioned but I don't think someone who's retired should have a large mortgage with a high interest rate.  I could understand keeping a HELOC just to draw on equity in an emergency but not a large mortgage.  They may find that this ploy back fires and they won't be able to refi and end up losing the house as well as ruining their credit.  If they lose the house then at least they won't lose any equity since you said they are upside downy but it's still a big hit and they may never be able to buy again now that the lending rules have tightened up.  If they can afford to continue paying can't they try to accelerate the payoff so that they will end up paying less interest and get out from being underwater?  This may be hard to swallow but they did agree to the terms of their loan when they orig signed it and if they can afford it then they should honor it. IMO.

tlwmkw


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## rapmarks (Mar 6, 2011)

our friends did this, retired, well off by most standards but can't live within their means.  They bought a condo in Naples Fl for $92 thousand, furnished.  two years later refinanced for $162 with a balloon payment, and spent it all.  When the balloon payment came due, they bought a fully decked out van on credit, sold all the furniture in the condo and walked away.  They still have their main home, which they built and remodeled three times in 4 years, and owe a lot on that too.  They have no savings, are deeply in debt.


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## dioxide45 (Mar 6, 2011)

tlwmkw said:


> This may be hard to swallow but they did agree to the terms of their loan when they orig signed it and if they can afford it then they should honor it. IMO.
> 
> tlwmkw



The OP did indicate they didn't need pointers on the morality of it.


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## vacationhopeful (Mar 6, 2011)

In my area it is 36+ months before the bank starts to get serious about kicking the "owners" to the curb. It is how people convince the bank to do a short sale. Refinancing is not possible if their current ratios and income is not high enough - thanks to banking reform; it is back to the 1980s where 20-30% must be the down payment.

I know a couple who stopped paying on their Pompano Beach condo (oceanview, higher floor). As it was disfunctional marriage, I know she stashed $45,000+ in a safe deposit box. Husband decided to arrange a short sale which finally happened. As their marriage issues had already tanked their credit, their goal was to force the bank into a short sale and to hoard as much cash. He rented another unit in the same building; she moved north one county.

If they have savings which can be attached in a collection process, those funds might be at risk. But, there are many helpful lawyers who will gladly provide legal advice to protect assets. Safety deposit boxes should have traces on them except private "banks" would just step into the void.

In NJ, *it is considered smart financial planning*. Afterall, it is (in the homeowners eyes) not their fault that they lost all that equity in their home. Particularily if that equity is some bank's money, the asset is upside down, and the utility & tax bills interfer with their idea of a decent life.


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## ricoba (Mar 6, 2011)

Thanks for the quick posts.

I was really surprised when my wife told me what they were doing.  I guess this is their first month of missing a payment.  I have no idea how long they plan on doing this.  I think they have been advised to do this to get the bank to the table.  So, will this get the banks attention like they are hoping?

I see the point of making sure they set aside that amount of the payment.  I hope they at least do this and don't just go ahead and spend it.

I am just concerned they will not win at this refinance scheme and end up in foreclosure and lose their home.  Kind of hard to start again at 60+ years of age.


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## Big Matt (Mar 6, 2011)

They should probably have looked here before missing a payment:

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

My sister just refinanced from a 6.5% to a 5.5% and she owes 25% more than the house is worth.


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## DonM (Mar 6, 2011)

Big Matt said:


> They should probably have looked here before missing a payment:
> 
> http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx
> 
> My sister just refinanced from a 6.5% to a 5.5% and she owes 25% more than the house is worth.



I didn't read the entire link- but from the requirements they could still apply if they are less than 30 days delinquint, and they make that current payment.


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## siesta (Mar 6, 2011)

deleted...


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## Cheryl20772 (Mar 6, 2011)

The decision to walk away from an upside down mortgage is done all the time by banks and big business.  For them it's considered a financial decision and there's no blemish on their reputation really after their bankruptcy reorganization or whatever.  Why is it only considered a "moral" decison when it's someone's home mortgage facing a financial decision?  I have heard stories of people being told by the bank that they will not get any help adjusting their mortgage until after they have missed some payments.  

What happens afterward?  My sister was widowed and could not pay the mortgage.  She informed the bank and they would not help her.  They would not accept partial payment; so she stayed in the house and didn't pay.  The house was put on the market for sale; so she had to keep it neat for people tour.  There weren't many people looking to buy.  Finally, after more than 2 years on the market the bank accepted a short sale offer and my sister has moved from the house.  She had more than 2 years living there rent free.  Now she has temporarily moved in with one of her children.  

Rents have gone down with the housing market.  Most places you can rent for less than you can get a monthly mortgage payment for.  The world won't end for these people.  They will be fine.


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## geekette (Mar 6, 2011)

If their mortgage was at 8 percent, why did they wait so many years to attempt a refi????


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## Mosca (Mar 6, 2011)

Pretty straightforward, it will destroy their credit, if it hasn't been destroyed already independently of the mortgage. Whatever it saves them on the mortgage, it will cost them over the next 10 years in outrageous interest on autos, credit cards, and whatever else they might want to finance. They won't be able to cosign for childrens' college loans, or for their kids' first car loan (which is a really sad thing to see, a good kid finding out that her dad isn't creditworthy). 

Whatever. If they don't care, or better yet, if they are so proud of it that they are telling people, well, bless their hearts, how nice for them.


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## tompalm (Mar 7, 2011)

If they could refi while being retired, they would have done it long ago.  They must have gotten the mortgage before they quit working.  Once you do not have income that will support a mortgage that is one third of your income, it is extremely difficult to get a loan.  It doesn't matter how much money you have in the savings.  I just went through this and had twice in the bank what my loan amount was, but the bank really gave me a difficult time trying to refi and the most I could get was 40% of my monthly income, or my mortgage could not be more than 40% of my pension income.  

Also, 60 minutes had a special about people that had good jobs and were able to make a mortgage payment, but just stopped doing it.  Most of them lived in Phoenix, but it is happening everywhere.  Those people get to live in their house for free until evicted.  Better yet, a lot of them will rent the house back from the new buyer and they never have to move.  

Yes, their credit will be ruined, but in five years, they will have credit again and can take out another loan.  Their credit score will be damaged, but in the long run they will have money in the bank.


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## LisaH (Mar 7, 2011)

tompalm said:


> Also, 60 minutes had a special about people that had good jobs and were able to make a mortgage payment, but just stopped doing it.  Most of them lived in Phoenix, but it is happening everywhere.  Those people get to live in their house for free until evicted.  *Better yet, a lot of them will rent the house back from the new buyer and they never have to move*.
> 
> Yes, their credit will be ruined, but in five years, they will have credit again and can take out another loan.  Their credit score will be damaged, but in the long run they will have money in the bank.



This is no longer true. I recently bought a property through a short sale. The previous owner would like to rent back and I didn't mind doing that as well. However, the seller's bank made both parties sign an agreement basically saying that rent-back would be absolutely prohibited.


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## vacationhopeful (Mar 7, 2011)

LisaH said:


> This is no longer true. I recently bought a property through a short sale. The previous owner would like to rent back and I didn't mind doing that as well. However, the seller's bank made both parties sign an agreement basically saying that rent-back would be absolutely prohibited.



If the bank had a *form NOT related *to the loan of their monies, that tells me "renting back" is much more common than us "working stifts" knew.


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## vacationhopeful (Mar 7, 2011)

Cheryl20772 said:


> ...Rents have gone down with the housing market.  Most places you can rent for less than you can get a monthly mortgage payment for...



I hear it all the time when I qoute what the rent is. My come back line is "You should buy  ". 

I know that an owner renting a place for less than the mortgage payment is a house up for sale, a foreclosure in the wind and/or no repairs will occur. 

My other retort for the house around the cornor is renting for less is, "you should rent that one". I then find out my house is nicer, comes with a lease, has newer windows, and is freshly painted, etc. "Repairs cost money". 

I also get, "Will you do a lease purchase?" No. I also am asked, "Is the house up for sale?" No. 

I have also been asked "What is your mortgage payment?". I pretend to NOT hear the question and start walking to the door. 

Another common question I get is "Why are you renting this house?" or "Did you just move from here?".  If I do the "I heard no question look", they re-ask the question. 

If they ask real questions, like how far is the elementary school or where is the closest grocery store, I would be happy to answer.


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## pgnewarkboy (Mar 7, 2011)

It seems like they put the cart before the horse.  They should have gotten legal advice from lawyers that specialize in this area before acting. 

My advice, get a lawyer real quick - before they are too delinquent on their mortgage.  What they are doing is not for amateurs.  They have much to lose, their home, if they are making misteps.


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## ronparise (Mar 7, 2011)

This is a reality I live with every day...I am a real estate agent in SW Florida.
Here nearly every everyone that borrowed money to buy, build  or refinance a loan between 2001 and 2007 is under water. Over 75% of the homes sales in Lee County Fl last year were bank owned (foreclosures) or pre foreclosures (short sales) It is possible to buy a house today for under $60000 that sold for in excess of $250000 just a few years ago. The guy that owes $200 on a house just like the one down the street thats selling for $60000 is likely to at least consider how he can get out from under this obligation

There are several reasons to stop paying a mortgage in a market like this, One may be to convince the bank to modify the terms of the mortgage...this doesnt happen very often as the banks almost never adjust principal. 

I know a couple that refinanced their current home at the peak, took the money and bought a vacation home for cash. they are losing the first home to foreclosure but keeping the second. 

There is the buy and bail tactic where a homeowner is able to make payments, but dosent want to keep throwing good money after bad...They buy a new home (call it a second home) and finance it while their credit is still good. Then walk on their first. 

Also consider the folks that just need to sell, for whatever reason. Their mortgage company , typically wont talk to them about a short sale, until they have missed several payments

I know of a house where the previous owner owed $1,200,000 he lost it to foreclosure...The bank finally sold it for $270000

Condo communities are hit triple hard. Not only are the values way down, condo fees are way up to cover for all the bank owned properties, where no one is paying the fees. And you cant borrow to purchase in many communities because the banks arent lending on condos....so its a cash market, and values go down some more. 


So lets not judge the guy that stops paying his mortgage...we dont know his situation


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## Big Matt (Mar 7, 2011)

You can find credit counselors and lawyers now who do this for non-profit firms like NeighborWorks America and others.  It will cost them nothing, but it has to be from a reputable entity.  



pgnewarkboy said:


> It seems like they put the cart before the horse.  They should have gotten legal advice from lawyers that specialize in this area before acting.
> 
> My advice, get a lawyer real quick - before they are too delinquent on their mortgage.  What they are doing is not for amateurs.  They have much to lose, their home, if they are making misteps.


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## vacationhopeful (Mar 7, 2011)

ronparise said:


> This is a reality I live with every day...I am a real estate agent in SW Florida....
> I know a couple that refinanced their current home at the peak, took the money and bought a vacation home for cash. they are losing the first home to foreclosure but keeping the second.



As the 2nd home was paid with cash, it could be in a Family Trust and untouchable.

Remember, the mortgage is secured by the physical property. The second document is a loan against the people.

Whatever happened to the banks sending the prior owners a 1099 for "income" from the debt forgiveness? Did Congress go and "bail out" all these distressed nontaxpayers? 

Does the IRS still pay rewards for reporting tax cheaters?


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## ronparise (Mar 7, 2011)

vacationhopeful

There are absolutely consequences for walking away, you have mentioned a few. I never recommend it, but I cant ignore it either.  Walking away from a mortgage  not a decision to be taken lightly. But folks are doing it every day. For them its the only way out of a desperate situation. 

Consider these facts of life....There is no tax on the debt forgiveness if its tied to what was a primary residence. In Florida your homestead is protected somewhat. The banks are, at least for the present not pursuing deficiency judgements. Most short sales are negotiated to where the banks accept what they get from the sale as the end of the process (no deficiency judgement).  And of course bankruptcy as a last resort is done a lot


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## bogey21 (Mar 7, 2011)

I have a friend in Las Vegas who bought a repo from the Bank.  House is 4 years old and right down the street from where he lives.  Original selling price $375,000; friend bought for $125,000.  Original buyer obviously defaulted but still lived in the house and kept it in immaculate condition.  My friend rents it to the original owner.  Let's look at economics for original owner.

He gets the massively underwater loan off his books; his credit gets hit; he is no longer responsible for taxes, HO Assn dues and HO insurance; he has replaced a $3,000 per month house payment (just guessing) with a $1,500 per month (again just guessing) rent payment; and still lives in the house.  Financially, the only negative in the whole senario is that his credit gets a black mark.

No wonder this stuff goes on!!

George


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## jlr10 (Mar 7, 2011)

tompalm said:


> They must have gotten the mortgage before they quit working.  Once you do not have income that will support a mortgage that is one third of your income, it is extremely difficult to get a loan.  It doesn't matter how much money you have in the savings.  .



Not true.  MIL got her home refinanced many times even though her income hasn't risen since the 1970s, and she hasn't had a paying job since 1945 The last time the initial loan payment was more than her fixed monthly income, and was adjustable with a balloon payment to boot.  At 82 she was given a forclosure notice.  The bank agreed to a short sale shortly before she was to be evicted.   She now lives with us rent free and sends her social security money to her other sons who: 1st son) won't get a paying job and 2nd son) who won't live within his means and has a  foreclosure notice tacked to his door.  (who are the reasons she kept refinancing in the first place, don't get me started :annoyed: ) Not to worry about 2nd son she advised him it would take a minimum of 7 months before the bank really kicked them out and 1st son is working on a get rich quick plan that will save everyone. He has been working on the quick plan for 13+ years, and have had to listen to the MIL say "Only 10 more days to the big payoff!" over and over for just short of 2 years now.  Seems DH and I are the only ones who realize you need to work to earn money, and you need to make at least as much money as you spend.


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## Ridewithme38 (Mar 7, 2011)

ronparise said:


> This is a reality I live with every day...I am a real estate agent in SW Florida.
> Here nearly every everyone that borrowed money to buy, build  or refinance a loan between 2001 and 2007 is under water. Over 75% of the homes sales in *Lee County Fl *last year were bank owned (foreclosures) or pre foreclosures (short sales) It is possible to buy a house today for under $60000 that sold for in excess of $250000 just a few years ago. The guy that owes $200 on a house just like the one down the street thats selling for $60000 is likely to at least consider how he can get out from under this obligation



Lee County got hit hard...you can literally get a house for a song in LeHigh Acres now...I hope you made it through alright Ron!

I've been looking at duplex's all over the country as investment vehicles since prices have dropped so low...and lehigh just keeps popping up over and over again through my searches...Its a shame too! alot of the houses are new just built in 2005ish....but you look around that area and its a ghost town...half build homes, fullly built up blocks with all empty homes....


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## cgeidl (Mar 7, 2011)

*Banks are the big part of the blame!!*

Lending practices by banks caused the great housing crisis. Stated income,no down or low down, huge bank bonuses,not checking on claims that homes are owner occupied and I am sure there is more. The person taking out the loan is also to blame if lying on loan documents.
Banks are seldom cooperating helping homeowners and the bank and owner would both be better off with a 5% versus 8% loan.
If the lending institutions are not cooperating the homeowner should have the right to walk away. Sure morally you should pay all your debts no matter how the lender treated you but is this realistic??


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## Kona Lovers (Mar 7, 2011)

I know a couple who had problems paying their mortgage, called the lender, in this case a bank, and were told they couldn't be helped in any way because they weren't "far enough behind".  Go figure.


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## SueDonJ (Mar 7, 2011)

There have always been fluctuations in the real estate market that have resulted in upside-down mortgages.  We had to bring a check to the table when we sold our first house 16 years ago, and back then I don't remember hearing so many stories about walking away/foreclosures/short sales.

What's the difference - the number of properties affected these days? The tightening of lending restrictions so fewer owners are eligible for the funds they need to re-finance? A less "shameful" attitude overall about poor credit? Regional job/industry losses that force people to move to another area for work despite not being able to sell their homes? A combination of all those plus other factors?  It just seems to be an insurmountable problem in certain parts of the country.

Regardless, my stomach hurts for all those who find themselves in such desperate situations with no way out.  I wouldn't be able to sleep at night or eat.


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## Kona Lovers (Mar 7, 2011)

The couple I mentioned above were foreclosed on within 6 months, their bank would not work with them.


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## tompalm (Mar 7, 2011)

jlr10 said:


> Not true.  MIL got her home refinanced many times even though her income hasn't risen since the 1970s, and she hasn't had a paying job since 1945 The last time the initial loan payment was more than her fixed monthly income, and was adjustable with a balloon payment to boot.



There was a financial crisis two years ago and the Dow fell about 50%.  This was caused by the banks and the mortgage lending practice of giving money to anyone that applies for it.  During the last two years, all the rules changed.  Nobody is getting a refi or loan now without a good monthly income and 10 times the documentation of what use to be required.


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## vacationhopeful (Mar 7, 2011)

SueDonJ said:


> There have always been fluctuations in the real estate market that have resulted in upside-down mortgages.
> 
> We had to bring a check to the table when we sold our first house 16 years ago, and back then I don't remember hearing so many stories about walking away/foreclosures/short sales.I had to bring 25% of the purchase price and all closing costs to the table when I brought a house or two or ten.
> 
> ...



Simple understanding of financial products has been lost on generations who did not ever have chores with fixed allowances. Before a death or divorice or fire brought families together living under the same roof. Now few young adults will give up creature comforts (2.5 bathrooms vs 1) or live modestly - afterall, *why change if you can find someone to ENABLE your foolish lifestyle.*Marketing of luxuries created a paper poll of demand; an analyst translated that into future purchases; banks and mortgage companies saw closings/sales of mortgage products; deriviates where the mortgages bundled together and sold on "solid" financial instruments based on historical numbers  on mortgage of people like me who HAD TO PUT 25% down 10-20 years early. *It was a shell game*, just done by bankers, financial analyst, insurance companies, builders, realtors, etc. It imploded the financial markets.

I brought my first house in 1975. It was a recession. I could NOT buy even a washer or dryer for my place on credit. I got an FHA loan. The realtor would NOT show me the house as I did not have a husband. I had to bring my dad back with me. She told me no girl made that much money each week - I was making $14,000 per year (my real income would be discovered, she told me).

Why did it all change? Having only 60-64% of households owning their own home was not acceptable. Home ownership was deemed a RIGHT instead of a priviledge with responsibilities.


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## pjrose (Mar 7, 2011)

*Financial Crisis Simplified*

http://www.youtube.com/watch?v=IT2Wg7lVYAs


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## Ridewithme38 (Mar 7, 2011)

vacationhopeful said:


> Why did it all change? Having only 60-64% of households owning their own home was not acceptable. Home ownership was deemed a RIGHT instead of a priviledge with responsibilities.



Look at housing prices vs income levels back and and compare it before the bubble burst...hell or even now...Its not that people intentionally bought out of their price ranges...it's pay too much for lesser house, or be homeless...25% of the median house price in my area is 95,741.50 and the median income is much much lower then that....What was the 25% downpayment YOU put on that house in 1975 when you were making $14,000 a year?

The problem isn't the people trying to find a place to live....its the places to live trying to hike up their prices faster then any salary or inflation can keep up


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## vacationhopeful (Mar 7, 2011)

Ridewithme38 said:


> Look at housing prices vs income levels back and and compare it before the bubble burst...hell or even now...Its not that people intentionally bought out of their price ranges...it's pay too much for lesser house, or be homeless...25% of the median house price in my area is 95,741.50 and the median income is much much lower then that....What was the 25% downpayment YOU put on that house in 1975 when you were making $14,000 a year? $7,000 plus $2,000 in closing costs
> 
> The problem isn't the people trying to find a place to live....its the places to live trying to hike up their prices faster then any salary or inflation can keep up



Called DEMAND of a FREE MARKET .... more demand, higher prices. Look at the words for housing in the past 5-10 years:
Open concept.
Great room.
Master bathroom suites.
Master bedroom wings.
5-6 bedrooms with jack & jill bathrooms
Granite countertops.
Home Theater rooms.
3 car garages.
Outdoor living rooms (and fireplaces) with kitchens, stoves, grills and refrigerators.
Outdoor pools with water features.
Laundry centers.
His and her HOME OFFICEs.

Ride, I could buy that house or its clone built around the same time today, for $145,000.  It was on a 60' wide lot by 140', no garage, 1 bath, electric baseboard heat, no air conditioning (no ductwork for it either), no dishwasher, 1 bathroom, rancher over a crawlspace. MBR was 12X13;2nd bdr was 10X12 and 3rd was 10X10.

My first house HAD NONE of the market demand which buyers use today as KEYWORDS on searches. And many consider those KEYWORDS as _MUST HAVE_.


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## vacationhopeful (Mar 7, 2011)

pjrose said:


> http://www.youtube.com/watch?v=IT2Wg7lVYAs



Cute, simple ... and unfortunately, correct.:annoyed:


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## Ridewithme38 (Mar 7, 2011)

vacationhopeful said:


> Called DEMAND of a FREE MARKET .... more demand, higher prices.



While i agree with what your saying...Alot of it is that they are building bigger more luxurious houses now a days....But i think the main issue is NOT that they are building these larger houses...its that they are no longer building the smaller more economic houses...and i don't believe it to be a Supply and Demand issues....

If you walk around any neighborhood and ask people if they'd rather spend 75% of their income every month on a 3500sqft 5br center hall colonial or 35% on a 1,750sqft 3br ranch in a nice neighborhood...they'll make the right decision everytime...They'd love the smaller more comfortable home

the problem is those 1,750sqft ranch style houses just weren't available before the bubble bust...there's been no one building affordable housing since the 1980's and yet every political figure thats voted in gets a boost because they talk about affordable housing

There are millions of american's who don't make six figures like you or i *Might* VHF, they would love affordable homes, but they just weren't available so they jumped at the chance to get any house they could...Now do we blame the People for wanting a place to live and over reaching to get anything so they could get closer to the american dreal, the banks for taking advantage of those people, or the builders for building based on profit instead of demand....

I know who i blame


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## pjrose (Mar 7, 2011)

vacationhopeful said:


> Cute, simple ... and unfortunately, correct.:annoyed:



Yeah.  I use it, along with other videos, in a PowerPoint I designed to try to explain the crisis to Social Problems classes.


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## vacationhopeful (Mar 7, 2011)

Ridewithme38 said:


> While i agree with what your saying.... a 1,750sqft 3br ranch ...



My rancher was 28 x 43 = 1204 square feet of house. The builder shrank it down a couple of years later to 28 x 38 = 1064 sq ft.

My house to live in with no job while in graduate school without loans was a 1931 depression era twin. Solid house with original furance, original kitchen, original windows, and 7 layers of wallpaper (which I peeled with a handheld 4" wide blade as I had no cable TV). Two small bedrooms and only 1 (one) closet in the whole house (3 foot wide closet). That house was $33,500 in 1983. The estate held the mortgage for a bunch of years. I put $4,000 down on that. It did have a garage for a Model T size car. And a basement.

And by the way, I got my HVAC contractor's daughter a 2bdr/1ba place for under $2,500 here in NJ 5 years ago. A slightly _used_ mobile home - needed a bathroom floor. Lot rent with water, sewer, taxes is $425 a month now. Got another friend his place in same park 9.5 years ago for $500 and a free month of lot rent (how many people will live in a mobile home 9ft wide?).

And I don't live in the Jersey Devil swampy area - I am less than 20 minutes from downtown Philly.


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## SmithOp (Mar 7, 2011)

Here is an anecdotal quip on the current state of mortgage financing. I'm doing a debt consolidation refi, lender requires all my debt info and will pay off all the loans, no cash back to me to blow on a new car or vacation. The last time I did this I got a whopper check and had to do it all myself.


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## beanie (Mar 7, 2011)

it seems to have been common practice in my area to buy a bigger house for less money then the house you are in ,then walk away from the first house .


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## kanerf (Mar 7, 2011)

The first house I bought (and still own and rent out) cost me $94K and I managed to scrap togather about %12 down, so had to to pay PMI for several years.  My mortgage rate was about 9.5% and was considered good in those days.  During the hoopla period I refi'ed to 4.75% where it still is today.  Both mortgages were 15 year.  The last time I checked, this house was worth about $175K in today's market, so I did pretty good.  BTW this is the 1250 sqft 3 bdrm 2 bath rancher.  It was built in the 90's, but I agree with others as the next development over done in the 2Ks had bigger houses, smaller lots, and cost 3 times what my house did.

BTW I have the 30's stone house now, but it is huge (finished basement and attic).  I only paid $85K for this place.  It is in a somewhat run down neighborhood, but I like the house and you can't find another one like it in the area for less than $200K.

The morale is, only buy what you can afford and make do.  That is what our parents and grand parents did.


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## vacationhopeful (Mar 7, 2011)

kanerf said:


> ... Both mortgages were 15 year. ...
> The morale is, only buy what you can afford and make do.  That is what our parents and grand parents did.



After my first house, all my mortgages have been 15 year. It was literally, $30-50 a month more for a 15 year mtg vs a 30 year. 

My bucket list on house options is basic. Roof, walls, heat. Everything else can be covered with paint.


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## wilma (Mar 7, 2011)

kanerf said:


> The first house I bought (and still own and rent out) cost me $94K and I managed to scrap togather about %12 down, so had to to pay PMI for several years.  My mortgage rate was about 9.5% and was considered good in those days.  During the hoopla period I refi'ed to 4.75% where it still is today.  Both mortgages were 15 year.  The last time I checked, this house was worth about $175K in today's market, so I did pretty good.  BTW this is the 1250 sqft 3 bdrm 2 bath rancher.  It was built in the 90's, but I agree with others as the next development over done in the 2Ks had bigger houses, smaller lots, and cost 3 times what my house did.
> 
> BTW I have the 30's stone house now, but it is huge (finished basement and attic).  I only paid $85K for this place.  It is in a somewhat run down neighborhood, but I like the house and you can't find another one like it in the area for less than $200K.
> 
> The morale is, only buy what you can afford and make do.  That is what our parents and grand parents did.



The OP didn't want morality lectures...why do people love lecturing about how smart they were...


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## vacationhopeful (Mar 7, 2011)

wilma said:


> The OP didn't want morality lectures...why do people love lecturing about how smart they were...



IMHO, I have tried to not be a preacher of moral behavior in these posts. Explaining marketing done by highly paid professionals who gain large financial rewards and financial institutions which corrupted (okay, tweaked) checks & balances to enrich their corporate balance sheets in the short run, is not lecturing.

Human behavior is naturally pleasure seeking. Why sit on a hard chair when there is one with a nice soft cushion? Why take only a small plate of food at an ALL-YOU-CAN-EAT buffet? etc, etc.  

Cultural differences between most people in the USA and other countries is profound and very noticable. The USA population consumes differently and it is not due to our genes. And it is not because we have higher standards. 

The OP asked a behavior and financial question which I took as a concern for friends and odd to their own lifestyle.


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## SueDonJ (Mar 7, 2011)

I watch HGTV a lot - House Hunters, Property Virgin, etc...  How much do those shows reflect what's really happening out there?  Because it seems like the buyers all want SO MUCH especially from their first homes.  All the things on vacationhopeful's list like master suites, 3 bathrooms, home offices, extra bedrooms, no reno expected, etc...

I'm not saying this to be preachy but it does seem like we (the general we, our generation?) were much more realistic when we all went out looking for our first homes.  Was it that we were reluctant to commit such a large percentage of our earnings to mortgages?  Or that the lenders wouldn't let us commit so much?  A combination?

Here in the Boston and suburbs area there are still many homes that we would have considered "starter" homes so I don't think the argument that there isn't inventory available works here.  It just seems like buyers today want to skip that starter home and move right into the dream home.  Bing bang boom, marriage house baby - it's so much to deal with in a relatively shorter time frame.


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## Pat H (Mar 8, 2011)

I know the OP didn't want any morality lectures but people like his neighbors just really p*** me off. It's one thing if someone losses a job and CAN'T pay their mortgage but totally another when they CAN afford the payment. There is no guarantee when you buy a house that it's going to be worth more than you paid for it. Bet none of these people will stop making their car payments even though their cars aren't worth what they owe. Repos happen rather quickly and then you can't get another loan.


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## vacationhopeful (Mar 8, 2011)

SueDonJ said:


> I watch HGTV a lot - House Hunters, Property Virgin, etc...  How much do those shows reflect what's really happening out there?  Because it seems like the buyers all want SO MUCH especially from their first homes.  ..... Bing bang boom, marriage house baby - it's so much to deal with in a relatively shorter time frame.



I too watch the HGTV shows. In my personal experience, it is the new norm. They live life like a video game. And the reset button works in life for awhile.


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## Elan (Mar 8, 2011)

Not that I condone walking away from any debt, but one needs to keep in mind that it was the lending agencies (and their cohorts -- agents, appraisers, builders) that effectively over-valued property during the run up in 2004-2006, not the home buyers.   Had the banks had a little more discretion in lending, the escalation in home prices would have been moderated significantly.  If the banks allow every potential buyer, regardless of income, to qualify for a $500K loan, then guess where the median home price is going to settle?  As I said, although I'm a huge proponent of living within one's means, when it comes to this current housing crisis I blame irresponsible lending far more than I blame the individual borrowers.


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## TSchmidt (Mar 8, 2011)

Pat H said:


> I know the OP didn't want any morality lectures but people like his neighbors just really p*** me off. It's one thing if someone losses a job and CAN'T pay their mortgage but totally another when they CAN afford the payment. There is no guarantee when you buy a house that it's going to be worth more than you paid for it. Bet none of these people will stop making their car payments even though their cars aren't worth what they owe. Repos happen rather quickly and then you can't get another loan.



I'm with you, Pat.   This is just WRONG.   Our morals have got to pot!!


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## tlwmkw (Mar 8, 2011)

There is a difference between people who can't afford the loan that was sold to them because they didn't understand that the rate wasn't fixed and would go up significantly in 2, 5, or 10 years (the true sub prime mortgagee who was preyed upon by lenders) versus those who can afford the loan but choose to walk away, despite the fact that they can afford to continue to make the payment, because of "financial decisions" when the house is worth less than they owe.  I know the OP didn't want any morality lectures but it is hard not to do so when you see this happening.

I do think this could backfire on these people.  The bank may not work with them and then they will be homeless.  If they do want to keep the house they will have to make up the missed payments as well as stiff penalties which can increase the cost of their loan significantly- there was an interview on NPR about exactly this scenario and the homeowner ended up owing far more than the initial loan as a result.  Your friends need to be very careful.

tlwmkw


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## ricoba (Mar 8, 2011)

Thank you all for your input. 

I don't know all the particulars of the scenario.  I do hope they contacted an attorney as suggested by some.  I really don't know how they came to this decision and what advice they sought.

My question was, what could happen?  And, as some pointed out, they could really be hit and end up losing everything.  I of course hope this is not the case.  It just seems like too big a risk to take, but it's their choice, even if I agree or disagree.


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## timeos2 (Mar 8, 2011)

ricoba said:


> Thank you all for your input.
> 
> I don't know all the particulars of the scenario.  I do hope they contacted an attorney as suggested by some.  I really don't know how they came to this decision and what advice they sought.
> 
> My question was, what could happen?  And, as some pointed out, they could really be hit and end up losing everything.  I of course hope this is not the case.  It just seems like too big a risk to take, but it's their choice, even if I agree or disagree.



What COULD happen if they continue not to pay is they will lose the house and possibly more. In fact if they don't take any action except stopping payment that will occur - likely sooner than later. I hope they have a plan for the future if/when it does as even getting a rental can be tough if they have totally trashed their credit standing. 

Be a friend and advise them to seek good representation going forward. Thats about all you can do.


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## Passepartout (Mar 8, 2011)

Rick, there are really not enough details here to know the right answer. They are treading pretty thin ice. I outlined the question with my DW, who as a BK attorney tends to know about such things. Her only comment of value was that SOME mortgage holders require borrowers to get some number of payments behind before they will consider allowing resetting a mortgage. It strikes me as a risky tactic- sort of like playing chicken. 

If the friends choose to do this, I hope they are putting whatever the mortgage payment is into a savings account so if it comes down that they 'blink', they have the money to pay up current. OTOH, there are 'strategic walk-aways' that they may be attempting. We just don't know.

We wish them well, and hope they are getting competent guidance.

Jim Ricks


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## Pens_Fan (Mar 8, 2011)

Elan said:


> Not that I condone walking away from any debt, but one needs to keep in mind that it was the lending agencies (and their cohorts -- agents, appraisers, builders) that effectively over-valued property during the run up in 2004-2006, not the home buyers.   Had the banks had a little more discretion in lending, the escalation in home prices would have been moderated significantly.  If the banks allow every potential buyer, regardless of income, to qualify for a $500K loan, then guess where the median home price is going to settle?  As I said, although I'm a huge proponent of living within one's means, when it comes to this current housing crisis I blame irresponsible lending far more than I blame the individual borrowers.



I just don't agree.

Nobody forced them to buy a house that they couldn't afford.

Just because a bank will agree to give you the loan, does not mean that you should take it.

You are responsible for your own choices.


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## Patri (Mar 8, 2011)

Under the traditional American practices at the time, people could afford their homes and mortgages. For our society to work, there has to be a level of trust and integrity between all parties involved. The people have to keep their jobs and pay their bills, the lenders have to explain the technical language, and so on. When either fails, these problems arise.


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## e.bram (Mar 8, 2011)

Someone I know stopped paying their mortgage about 18 mos. ago. However he pays the RE tax and insurance. He was told that the banks(1st and 2nd mort)put his case on the back burner since they have no out of pocket costs and has a tenant they will be responsible for between the rent he collects, and no rent for him he will pretty  soon have all his initial mort payments(no down payment) back.


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## laurac260 (Mar 8, 2011)

wilma said:


> The OP didn't want morality lectures...why do people love lecturing about how smart they were...



As several people once told me, right here on TUG, when you post something in an open forum, you don't get to CHOOSE the type of responses you get.  Besides, I think the responses have been pretty tame. It's not like anyone has said, "Anyone who would deliberately walk away from a mortgage that they CAN afford, without any sense of decency or moral obligation, should be completely ashamed of themselves."  or anything like that.


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## geekette (Mar 8, 2011)

Kona Lovers said:


> I know a couple who had problems paying their mortgage, called the lender, in this case a bank, and were told they couldn't be helped in any way because they weren't "far enough behind".  Go figure.



I wonder if this is a situation of "we have so many foreclosures going on that it's all we can do to keep up with the way-behind folks!  We just can't spare anyone to deal with someone current!"

seems ridiculous to not serve those wanting to make good on their loans but, whatever .... go ahead and keep collecting nothing or way less than orig note ...

maybe they will make it up in volume!   :hysterical:


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## geekette (Mar 8, 2011)

Pens_Fan said:


> I just don't agree.
> 
> Nobody forced them to buy a house that they couldn't afford.
> 
> ...



I'm with you.

Were I in this situation, I would feel there is nobody but myself to blame.  

There is blame enuf to go around, but, buck stops at whoever signed the papers and that is the homeowner.


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## Passepartout (Mar 8, 2011)

geekette said:


> buck stops at whoever signed the papers and that is the homeowner.



That's true as far as it goes, BUT (note BIG but) the way mortgages were sold to people whose only qualification was that they had a pulse, then sliced and diced and bundled many mortgages together into 'securities' to be sold to investors.

We have found through DW's bankruptcy practice that when a foreclosure sale comes up, and the supposed holder can't show clear title that they truly are the creditor. In more than a few cases around the country, people have simply stopped paying a mortgage, waited for foreclosure and challenged the alleged holder of the loan to produce a clear paper trail showing that they even have the title. They can't and the judge has awarded the house to the debtor. Free house!

I have no idea if the people the OP referred to are doing this, or if it can work in their case, but it wouldn't be the first if it did.

Jim


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## ricoba (Mar 8, 2011)

As some of you have surmised, I just don't have enough knowledge of all the facts and particulars of why they are doing this.

I do know they have owned this home a long time and I am assuming that like lots of people in the previous decade or so they used their home equity to finance things.  I do know they didn't live on a budget (liked to travel and buy things) and had a financial counselor once tell them that when they retired they would need to manage their money better.  Sadly, it may appear they did not follow this advice...."sigh" .... 

It just seems way too risky to me simply because as many of you have pointed out they may end up losing, big time.


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## Big Matt (Mar 8, 2011)

That's a real easy statement to make, but you miss some very interesting things that happened in this mess.

Brokers preyed on consumers who weren't educated, but had the great fortune of having a lot of equity due to the run up.  Many brokers would refinance the same people every year from 2004-2007 each time telling them to take cash out and get a new low rate ARM loan.  Many people just assumed that it would keep happening.  

IMO, this is predatory lending.  Not by the true definition, but the brokers took full advantage.

Secondly, there were a lot of minority (mostly Hispanic) borrowers that were taken advantage of across many western states.  There were thousands of cases where borrowers walked away from the closing table with a first lien and a home equity line without even knowing about it.  

These are examples of how con artists (portrayed as lenders) were able to fleece people.  

The courts are full of these cases now.



Pens_Fan said:


> I just don't agree.
> 
> Nobody forced them to buy a house that they couldn't afford.
> 
> ...


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## carl2591 (Mar 8, 2011)

bogey21 said:


> I have a friend in Las Vegas who bought a repo from the Bank.  House is 4 years old and right down the street from where he lives.  Original selling price $375,000; friend bought for $125,000.  Original buyer obviously defaulted but still lived in the house and kept it in immaculate condition.  My friend rents it to the original owner.  Let's look at economics for original owner.



What missing here is the crooked appraisers and loan brokers that kept pushing home prices up artificially along the way. I know in my area house were seeing appreciation at 10+% for 3-4 yrs. A lot of places like S. Florida, and Phoenix for example did the same thing, and yes people did a lot of stupid things along the way. 

But there are a lot of people like the poster friend that could not maybe see a way out of this mess. 

Heck Bush and obama gave the bank billions to cover and while a lot have paid back the money a lot have not and never will. Just look at GM they still owe some 60 million to US treasure.

Like Ron was saying if you don't know the whole story don't tell the story. You might be in same boat one day as well.

When the stock market bombed in 99-2000 (the dot bomb) a lot of people lost a lot of money from lies by financial experts some are still walking around today after pocketing 100 of millions of dollars along the way. 

People walked away from mortgages then as well just not as many..


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## MuranoJo (Mar 8, 2011)

Elan said:


> As I said, although I'm a huge proponent of living within one's means, when it comes to this current housing crisis I blame irresponsible lending far more than I blame the individual borrowers.



I see blame on both sides, and actually, this reminds me of people who go to timeshare presentations and come here to rant about being lied to, ripped off, scammed, etc.  

Yeah, there's a nice, big enticement out there luring victims in--but at what point should people take responsibility for doing their homework when a significant investment is required?  Unfortunately, it seems people can walk away easier from a huge mortgage in the USA than they can for a much smaller commitment to a timeshare in MX.  Thankfully TUG doesn't have a sticky for how to get out from under home mortgages.


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## Ridewithme38 (Mar 8, 2011)

I think some of you should look at how the big property owners deal with mortgages and loans...I think Donald Trump would help...Oh wait, he's defaulted on a few himself

Default is just a part of the process...Do you think Trump would hold onto a 500 million dollar loan on a property that was now worth 300million...of course not...no developer would....why should we?

He's defaulted on less


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## isisdave (Mar 9, 2011)

laurac260 said:


> It's not like anyone has said, "Anyone who would deliberately walk away from a mortgage that they CAN afford, without any sense of decency or moral obligation, should be completely ashamed of themselves."  or anything like that.



Oooh! Praeterition is my very favorite rhetorical device!

There is plenty of blame to spread around, but I don't see why the borrower should have to get stuck for it all.  If you needed to buy a house in 2006-2007, the only thing on the market was $200,000 houses priced at $550,000.  The buyer certainly didn't choose that price; it was engineered by the industry, by which I mean the real estate, lending, and support industries.


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## Elan (Mar 9, 2011)

IMO, the lending institutions have 2 responsibilities:

1) Determine, to the best of their ability, whether the borrower can repay the loan
2) Do not overpay for the property in case the borrower defaults

  Given that the ultimate recourse is foreclosure, I see #2 being far more important than #1.


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