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re: What's your opinion of people who are underwater on their mortgages?
Posted on 6/16/15 at 1:53 pm to gorillacoco
Posted on 6/16/15 at 1:53 pm to gorillacoco
quote:
So suppose someone bought a house for 200K in Arizona in 2008, and the home prices in the area tank without warning. Before you know it, they're 60K underwater on the mortgage after making what conventional wisdom would say is a good financial decision. For a lot of people, 60K is a crippling amount of money to lose.
Assuming they are not trying to sell it then they haven't lost any money. If they could afford a 200K loan in 2008 then it should be the same note if it was a fixed loan. If they had a balloon loan or an ARM the rate should not have changed that much. If it has changed that much then it's on them for gambling on such a financing situation. Why should the bank bear the burden of a fluctuating housing market. This is just a terrible premise.
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Posted on 6/16/15 at 1:54 pm to AUjim
Makes perfect sense to somebody with horrible money management skills maybe.
Posted on 6/16/15 at 2:02 pm to AUjim
I don't have much of a problem with it...that market crash sucked and it wasn't EVERY homeowner's fault. 'Stated income' mortgages and zero down mortgages should have never existed, in addition to the debt to income ratios being WAAAAAAAY overblown. The amount we qualified for when we built our house last year was, no way around it, in-freaking-sane. We spent half of that amount and have everything we need. That kind of stuff is what lead to the bubble and a lot of homeowners got screwed badly because of it. We have what I consider a lot of cash tied up in our downpayment now, no way I'd walk away, but as of now, we wouldn't have a reason to.
The previous house we bought sold brand new in 2006 for 178K. We bought it at 155K in 2008. Value went down to about 135K. We rented it out to build our current house and everything is fine for now, and the value has recovered some, but still not near the 155K we originally paid.
If I had gotten laid off or gotten a better job offer somewhere too far away to manage the rental myself, we absolutely would have considered buying newer cars that we felt confident lasting for 7-8 years and waved goodbye, partly because all we have in the house is a $100 down payment. (I know, I disagree with the principle, but used it to my advantage) I know folks who took out 15K loans just to sell their houses. I know other folks who took 30,000 from an inheritance just to make up the upside down difference...
The whole thing was screwed up.
The previous house we bought sold brand new in 2006 for 178K. We bought it at 155K in 2008. Value went down to about 135K. We rented it out to build our current house and everything is fine for now, and the value has recovered some, but still not near the 155K we originally paid.
If I had gotten laid off or gotten a better job offer somewhere too far away to manage the rental myself, we absolutely would have considered buying newer cars that we felt confident lasting for 7-8 years and waved goodbye, partly because all we have in the house is a $100 down payment. (I know, I disagree with the principle, but used it to my advantage) I know folks who took out 15K loans just to sell their houses. I know other folks who took 30,000 from an inheritance just to make up the upside down difference...
The whole thing was screwed up.
Posted on 6/16/15 at 2:04 pm to RealityTiger
quote:
Makes perfect sense to somebody with horrible money management skills maybe.
Please tell me what the better option would be.
ETA: Assuming they needed to move and not just walk away solely because they were upside down.
This post was edited on 6/16/15 at 2:05 pm
Posted on 6/16/15 at 2:07 pm to gorillacoco
quote:
Is it their fault that the home lost value?
No
quote:
Do you think they owe the bank the full price of the home?
Yes
quote:
Would you sit on a home like that for years to pay back the 60K loss you sustained?
Yes
Posted on 6/16/15 at 2:08 pm to AUjim
How about not buy 2 new cars for starters? Couldn't afford the note and didn't want to take a loss, so they lock themselves into 2 car notes? Really?
Posted on 6/16/15 at 2:12 pm to RealityTiger
quote:
How about not buy 2 new cars for starters? Couldn't afford the note and didn't want to take a loss, so they lock themselves into 2 car notes? Really?
I'm assuming the logic there is that their credit is about to take a nosedive, so they bought two long term reliable cars before they walked away from the house because they knew no one would let them borrow money anytime soon.
Posted on 6/16/15 at 2:13 pm to RealityTiger
quote:
Really?
Not capable of much critical thinking huh?
Posted on 6/16/15 at 2:16 pm to LNCHBOX
Plenty capable, bud. That makes no sense to me. Whatever, better them than me.
Posted on 6/16/15 at 2:20 pm to RealityTiger
quote:
Plenty capable, bud.
And yet you can't figure out why they would secure reliable transportation for themselves before their credit plummets? If the guy had said they went and bought two new Mercedes G Wagons, then yea that doesn't make much sense.
Posted on 6/16/15 at 2:20 pm to Lsupimp
quote:
Were they ethical to walk away from ther mortgages? No.
Were they rational to walk away from their mortgage? Yes.
This makes quite a bit of sense to me, which is why I considered this a conundrum in the first place. You hear both sides of the story: some people who walked away from the mortgage at the expense of their credit rating, but at the gain of potentially tens of thousands of dollars. Pretty tough to cough up 30-60K (or more) to a mortgage company who will not be on the hook for their own risks, and when the guys down the street are just walking away.
I don't know what the answer is, and I'd have a hard time blaming someone for walking away from that amount of lost money.
Posted on 6/16/15 at 2:20 pm to kilo1234
quote:
You pay so much in mortgage interest (and mortgage insurance, depending) over the years that "building equity" is incredibly misleading. Not to mention property taxes, homeowners insurance, maintenance, etc.
Buying a home is not an "investment", it's simply you buying a home vs. renting it.
wrong. all wrong.
Posted on 6/16/15 at 2:38 pm to gorillacoco
I used to be a real boy scout about this. I used to think you had a "moral obligation" *silly me to ride a bad contract out if you could. Then I watched the banks get checks for hundreds of billions and watched their execs get millions in bonuses with no repercussions for being bad actors. They were too big to fail. And the taxpayer wrote the check. And I was rapidly cured of my idealism.
Everybody should do what is in their best interest. And that's pretty much it.
Everybody should do what is in their best interest. And that's pretty much it.
Posted on 6/16/15 at 2:43 pm to Lsupimp
I'm kinda like you-
Why should we have a sense of morality on this when the execs and politicians don't?
Before I realized just how little of a shite the government and banks cared about me, I thought anyone who walked away was a first rate loser. Now, I've got 2 kids, a wife, retirement, and paying for a couple college educations to worry about. I'll be damned if I pony up 20K on an underwater house for the good of the bank or a credit score.
Why should we have a sense of morality on this when the execs and politicians don't?
Before I realized just how little of a shite the government and banks cared about me, I thought anyone who walked away was a first rate loser. Now, I've got 2 kids, a wife, retirement, and paying for a couple college educations to worry about. I'll be damned if I pony up 20K on an underwater house for the good of the bank or a credit score.
Posted on 6/16/15 at 3:06 pm to BiggerBear
quote:
A bigger problem, in my mind, and one that helped lead to the bubble, is people purchasing properties that they really could not afford. This is pervasive. If people would settle for a smaller home and pay it off more quickly, the wisdom of the investment would be much more apparent.
This 100%. We have no mortgage because we bought a small house for cash. We found a small house in great shape that had to be moved because the owners built a bigger home and the smaller home was in their way. It would cost them money to demolish it so they sold it very cheaply to whoever would move it. (It is NOT a trailer, it is a small woodframe cottage)
The cost of the move would be more than we paid for the house IF we hired a company to move it. However, my ever enterprising husband, (and brothers and friends) moved it on their own without breaking a single window or causing a single crack. What a sight to see.
Our secret to a mortgage free life - go for something small (that you can afford even if you are in financial bind). Don't go for the "big investment" or the McMansion to keep up with your friends.
Don't be enslaved by a high mortgage that will also possibly enslave you in a job you may hate to pay for it, or a situation where you have to work overtime to pay for it. This is especially important if you have a family of your own with small kids. A smaller, less fancy house where you can be with your kids and enjoy life is more important.
Posted on 6/16/15 at 3:08 pm to gingerkittie
quote:
Our secret to a mortgage free life - go for something small (that you can afford even if you are in financial bind). Don't go for the "big investment" or the McMansion to keep up with your friends.
Impossible in a decent size city.
Posted on 6/16/15 at 3:35 pm to gorillacoco
The cycle is just going to continue.
I've seen people in their mid-20s spending >$200k on houses over the past couple of years. It is incredibly risky of them to do it.
I've seen people in their mid-20s spending >$200k on houses over the past couple of years. It is incredibly risky of them to do it.
Posted on 6/16/15 at 3:35 pm to LNCHBOX
quote:
Our secret to a mortgage free life - go for something small (that you can afford even if you are in financial bind).
We did all that stuff. Bought a house well affordable within our incomes. Then:
• Thanks to the bad economy, our HHI goes from 125K to 65K.
• Our house drops in value from $293K to $135K.
• We can't make needed repairs for obvious reasons (makes no economic sense either).
• We sweat out 72 MONTHS of declining home value, paying our monthly mortgage, hoping the market will come back.
• Finally, as we start to dig into our life savings to honor our obligations …. we said frick it--we're not gonna end up on the streets because we poured our life savings into a near worthless house.
To do anything else would've been imbecilic.
Posted on 6/16/15 at 3:37 pm to gorillacoco
I didn't read the entire thread so this may have been covered, if so I apologize.
The bubble was largely caused by people that bought houses with 5% or less down payment. The Clinton administration eased the policies for lending practices so "everyone can own a home". We home prices started to fall a little the people with little to no skin in the game walked away. Next thing you know in neighborhoods, you started seeing 5, 6, to 20 homes pop up empty. That killed the new home buyers market because builders could no longer build a spec house and make money. It took years for those houses to clean up and be taken off the market. Once the did, builders started coming back. Housing is just now getting close to pre-crash levels.
I will say I stole my house back in 2009. Builder went under and I bought it for pennies on the dollar from the bank. Since 2011-2012 the neighborhood went from about 40 houses to over 100.
The bubble was largely caused by people that bought houses with 5% or less down payment. The Clinton administration eased the policies for lending practices so "everyone can own a home". We home prices started to fall a little the people with little to no skin in the game walked away. Next thing you know in neighborhoods, you started seeing 5, 6, to 20 homes pop up empty. That killed the new home buyers market because builders could no longer build a spec house and make money. It took years for those houses to clean up and be taken off the market. Once the did, builders started coming back. Housing is just now getting close to pre-crash levels.
I will say I stole my house back in 2009. Builder went under and I bought it for pennies on the dollar from the bank. Since 2011-2012 the neighborhood went from about 40 houses to over 100.
Posted on 6/16/15 at 3:37 pm to LNCHBOX
There was a poster on this board a couple of years ago who let his home go to short sale because there wasn't enough equity to get out without a loss. He purchased a new home for over $900k during the short sale and was bragging about it here.
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