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Started By
Message
re: Is "walking away" from a mortgage wrong?
Posted on 10/12/12 at 10:01 am to Crbello4Hiceman
Posted on 10/12/12 at 10:01 am to Crbello4Hiceman
quote:
Pretty much the most inaccurate analogy ever.
How so? Your neighbors house will be worth less, the bank will suffer a loss, the bank will raise mortgage rates to borrows to offset the loss, neighbor pays more for future loan.
2
Posted on 10/12/12 at 10:18 am to C
If the bank is writing loans to people that can't afford them, it is the bank's fault for screwing everything up, not the borrower. The bank shouldn't take the loan if they don't have enough of a downpayment, equity paid in by the borrower, and comfort that the borrower has a good track record of financial decision making. Banks should be writing loans to the point that defaults are rare and they don't run the risk of collapsing if they occur on occasion.
As for hurting neighbor home values, if the neighborhood is desirable, when the property hits the market there will be multiple offers. This will lift the price up to the "best" offer the bank gets. This recently happened for me. I bought a foreclosure. I had to offer more than they were asking since there were multiple offers and I wanted to make sure I got it.
As for rates going up, if banks are writing bad loans, they will collapse and get bought (in theory) by good banks. The spike in interest rates would be temporary.
As for hurting neighbor home values, if the neighborhood is desirable, when the property hits the market there will be multiple offers. This will lift the price up to the "best" offer the bank gets. This recently happened for me. I bought a foreclosure. I had to offer more than they were asking since there were multiple offers and I wanted to make sure I got it.
As for rates going up, if banks are writing bad loans, they will collapse and get bought (in theory) by good banks. The spike in interest rates would be temporary.
Posted on 10/12/12 at 10:18 am to WikiTiger
I think its unethical personally. I have very little respect for people that do that.
Posted on 10/12/12 at 10:34 am to C
quote:
Your neighbors house will be worth less,
Then maybe they should default as well?
In all seriousness, it's interesting how people demonize people for driving prices down, but no one says anything about the people who drove them up were they didn't belong in the first place.
Also, at the end of the day, who's really responsible for the low price of a distressed sale? Doesn't the bank have other options than just dumping their REO inventory onto the market, much if which is in disrepair?
quote:
the bank will suffer a loss,
Yes, but banks have Private Mortgage Insurance, which borrowers pay for. Plus they have loan loss reserves and capital requirements.
quote:
the bank will raise mortgage rates to borrows to offset the loss
This is not true. When a borrower
defaults, his risk of default was already calculated and priced in when the loan was originated. Banks are a lot more proactive than that.
If mortgage rates were dependent on default rates, then why do we currently have the lowest rates in generations after all the defaults we had in the last 5 years?
The bottom line is that the banks know what they're doing. They write all of the verbiage in the mortgage. They write the note. They assume a risk when they lend money and should price that risk accordingly. If they fail to its not the fault of the borrower.
This post was edited on 10/12/12 at 10:53 am
Posted on 10/12/12 at 11:18 am to ZereauxSum
This thread happened 2 years ago and I thought it was immoral. After working in banking for a year and a half, I realize that it simply is not.
Not walking away from a 30k hole is the same as letting 30k in put options expire without exercising them.
Not walking away from a 30k hole is the same as letting 30k in put options expire without exercising them.
Posted on 10/12/12 at 11:52 am to TheHiddenFlask
quote:
Not walking away from a 30k hole is the same as letting 30k in put options expire without exercising them.
This is a very good point. That option is embedded in every mortgage. And it's not like exercising it is free. There is a huge cost to the borrower.
Posted on 10/12/12 at 11:59 am to ZereauxSum
quote:
There is a huge cost to the borrower.
I don't know if I've even gotten a straight answer on this, but do you know exactly how long walking away from a mortgage will haunt you?
Posted on 10/12/12 at 12:02 pm to WikiTiger
I think it's 7 years but Im far from a credit expert
Posted on 10/12/12 at 12:08 pm to WikiTiger
quote:
I don't know if I've even gotten a straight answer on this, but do you know exactly how long walking away from a mortgage will haunt you?
Well...it depends
We did a lot of research before our short sale (just in case). The delinquencies and the final settlement (when the bank sells your house and/or writes down your loan) will stay on your credit report for 7 years.
If you don't live in a non-recourse state, the bank can sue you for the deficiency balance (what's left after they apply net proceeds to your loan). In many states, judgments are renewable, so banks can either renew them (perhaps indefinitely) or sell them to a debt buyer who will do so.
That will show in the public records section of your credit report and won't go away until it is satisfied or it expires.
Posted on 10/12/12 at 12:10 pm to ZereauxSum
quote:
judgments are renewable
quote:
until it is satisfied or it expires.
so theoretically, it could follow you forever???
Posted on 10/12/12 at 12:11 pm to WikiTiger
yes
Posted on 10/12/12 at 12:13 pm to WikiTiger
quote:
so theoretically, it could follow you forever???
Yup.
In several states, you can just renew every X years until the end of time. And then you can transfer ownership to someone else to do the same.
I used to work for a bad debt buyer who loved to sue people in these states. I can't remember which off the top of my head though.
ETA: I should also add that many banks opt not to do this. In some states, it's a hassle, and you don't get anything unless the homeowner has liquid assets or wages that can be garnished. But it's certainly enough of a deterrent to give pause to people who are in good financially shape when they are considering trying to bail.
This post was edited on 10/12/12 at 12:27 pm
Posted on 10/12/12 at 12:49 pm to Crbello4Hiceman
quote:
If the bank is writing loans to people that can't afford them, it
I was talking about the case of walking away when you can afford the mortgage.
Posted on 10/12/12 at 1:22 pm to C
quote:
and comfort that the borrower has a good track record of financial decision making.
I would argue if someone walks away from a mortgage they can afford, they quite possibly might not have this.
Posted on 10/12/12 at 4:16 pm to Crbello4Hiceman
quote:
I would argue if someone walks away from a mortgage they can afford, they quite possibly might not have this.
I would argue the opposite.
Posted on 10/13/12 at 12:28 am to Crbello4Hiceman
What if instead of a big bad mortgage company, it's owner financing and an individual loaned you the money? Does that change things? It sounds like the mortgage company is being villainized...
Posted on 10/13/12 at 1:06 am to Bubb
Eta: dumb conversation. Gotta stay out.
This post was edited on 10/13/12 at 1:11 am
Posted on 10/14/12 at 8:20 pm to WikiTiger
Yes, it's wrong. It's no different than when interest rates go up to 7 or 8% the bank says well, this 3.5% loan doesn't make economic sense for us anymore, so we're calling it, please pay in full within 30 days or get out. A deal is a deal and when you're on the wrong side of one, clean it up as quickly as you can without breaking your word and try to learn from it. But if you walk away from a deal you made just because it doesn't benefit you any more, you show yourself to be someone who can't, and shouldn't, be trusted again going forward.
That said, if major variables change, such as job loss, illness or some other catastrophic situation, there are legal routes such as bankruptcy, short sales agreed to by both sides, etc. that both sides understand exist and accept from the beginning.
That said, if major variables change, such as job loss, illness or some other catastrophic situation, there are legal routes such as bankruptcy, short sales agreed to by both sides, etc. that both sides understand exist and accept from the beginning.
Posted on 10/14/12 at 9:29 pm to GrantTheFan
quote:
But if you walk away from a deal you made just because it doesn't benefit you any more, you show yourself to be someone who can't, and shouldn't, be trusted again going forward.
that's KIND OF the whole point of your credit rating being fricked for 5-10 years after walking away
that cost should be calculated into the costs of walking away (it is the main one)
and that's not moral...that's a calculation of numbers and nothing more
Posted on 10/14/12 at 9:54 pm to Bubb
quote:
Does that change things?
Not to me. The seller/financer has the same remedies that a bank or institutional lender would.
quote:
It sounds like the mortgage company is being villainized...
In what way?
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