s/o If your house is worth less now then when you bought it

[gingersmom]

My house is far from my dream house but it is what I could afford and it is a roof over my head. I talk about moving all the time but would break even after 10 years and I am not ready to do that yet.

 

All this chatter on the board about homes in foreclosure and letting your home go into foreclosure always has me wondering.

 

I am not talking about any individual person on this board.

 

Just throwing this out there-

 

Do you feel people have a moral obligation to not walk away from their homes?

 

You made a deal and now years later you are not happy with it, is it okay to just mail the keys back to the bank?

 

Do you owe anything (not money obviously) to your neighbors? No one wants to live next to a foreclosure.

 

I know some people (again no one on this board I am talking about) got swept up in the home buying mania and borrowed way more than they ever should have. Now they can't afford their homes because they took an adjustable rate mortgage that just went up or one spouse lost a job/was out of work for several months.

 

I am lucky that I live in this bubble and their are no foreclosures in my immediate area. Thankfully none of my family has been affected either. I know of only two people whose husbands lost their jobs (almost 2 years ago) but the wives work and they were not drowning in debt before the job loss so they have cut back but appear to be in no danger of losing their homes (so they tell me).

 

Thoughts?

[TravelingChris]

I have two minds about this- in most cases, I think it is immoral to walk away but there are cases where the immoral behavior is on the part of the mortgage company- cases like JOanne's come to mind and others relayed in an article in Atlantic.

 

I knew a man who had a mortgage and was single. He married a woman with a mortgage too. Instead of selling her house, which was not upside down, they were abandoning his to foreclosure. It was a business decision and I think immoral.

 

What is much more important that what I think or what any of us think is what others like the government which grants clearances, insurance, other companies that check financial records prior to hiring think. I think walking away and letting a house go into foreclosure has more bad effects than just a ding on the credit report.

[LisaKinVA]

It's not a black & white issue. There are people who saved, purchased a home, lost a job, tried to sell...moved in with relatives and tried to rent the home, and despite everything could not keep the house. They were forced to choose between feeding their children, and keeping a house.

 

Then, there are people who purchased homes on speculative means, who just "walked away" when the bubble burst, and they weren't going to be able to sell the house.

 

In general, I do think that a contract should be upheld... but both parties should work to uphold it. I'm thinking of the "It's a Wonderful Life" where the Bailey Building and Loan worked to keep people in their homes, vs. the Potters field, that would toss you out without thinking about it.

 

Today, we live in a world (mostly big, international banks) that would rather toss you out on your kiester, keep your money, and sue you for the balance than work to keep you in your home. That is just as wrong as the speculator who walks away.

[Rosy]

In general I believe it's right to honor your commitments. However, when banks charge crazy mortgage premiums and then structure your loan payments so that almost nothing goes to principal, I have a hard time feeling sympathy for them when foreclosures happen. There are many reasons why I would hope to not ever have to walk away from my house, but I have about as much respect for my contract with my bank as I do with my cell phone service provider.

[cathmom]

http://www.rollingstone.com/politics/news/matt-taibbi-courts-helping-banks-screw-over-homeowners-20101110

 

This article sums up my thoughts. Most banks have acted unethically. I wonder if my bank could prove that they own my mortgage (we're not having trouble paying our mortgage, but it sure makes you wonder).

[StephanieZ]

I think it is complicated.

 

I wouldn't walk away from a mortgage if I could afford to honor it. . .

 

But I have actually advised a young couple to do exactly that. In fact, they had to go into bankruptcy. . . The *could* have honored their mortgage, if they'd continued to suffer drasticly financially. . . they were even considering the husband reinlisting in the army for a signing bonus to pay the debts. . . (he'd already served 5 years in two wars to get his GI bill to pay for school. . .). I begged them to let the finances fall apart, to protect their lives and their futures. . . Two years later, they are on solid financial ground, the husband graduates in the spring, the wife is expecting their first baby. . . Would it have been more moral for them to honor their contract, live like paupers, perhaps DIE to pay the debt? Mmmm, I don't think so.

 

Personally, I think business is business. You sign a contract. You should honor it, or be ready to pay the consequences -- bad credit, etc. . . It will reflect badly on you in some circumstances (security clearance, jobs that require good credit check, employers might not want you, etc.). . . and that is completely fair and expected. But, I don't think failing to honor a business contract makes you a bad person.

 

I would *never* fail to repay a *personal* debt (family, etc.), but if I had to in order to protect my family, my safety, roof/food/medical care for us, then I would break a *business* contract, and honorably accept the consequences of that choice.

[Dana]

However, when banks charge crazy mortgage premiums and then structure your loan payments so that almost nothing goes to principal, I have a hard time feeling sympathy for them when foreclosures happen.

 

There's also an onus on the borrower to know what they're doing. I don't think ARMs are a good idea for many borrowers and I'm generally unsympathetic to people who chose to overextend.

 

I don't deny that there are many unethical banks and loan practices. But also, borrowers should read the fine print.

[Catwoman]

Unless there are extreme personal circumstances involved, like catastrophic illness or real fraud on the part of the lender, I think if you buy a home, you pay the mortgage payments. Period.

 

If it turns out that the home was a bad investment, suck it up and deal with it. No one is guaranteed that they will make money on their home when they sell it. Most of our homes aren't worth what they were a few years ago, but that's just the way it is right now.

 

It's like buying a new car and then, three years later, realizing it's not worth as much as it was when you bought it, and deciding not to make any more payments on it and allowing it to be repossessed... only on a much larger scale.

 

Sure, some lenders were unethical, but many buyers were naive and didn't bother to educate themselves on the ins-and-outs of mortgages. People bought houses with no money down, and somehow believed they could make the ridiculously high payments. Should the lenders have given them the mortgages? Of course not. But the buyers should have had half a brain and figured out how much they could really afford to spend, and not gone above that amount, no matter how much they were approved for.

 

Personally, I am appalled at how many people believe it's ok to just walk away from a huge financial commitment like a home mortgage. Again, of course there are exceptions, and I can name a few people here on the WTM boards who have suffered horrifically at the hands of unethical banks and mortgage brokers, but I'm talking about the cases where people see that their home isn't worth as much as they thought it should be worth, so they just move out and stop making payments on it. Their irresponsible and selfish actions have a negative effect on all of us -- not just on the banks that loaned them the money.

 

Sorry to rant.

 

Cat

[gingersmom]

In general I believe it's right to honor your commitments. However, when banks charge crazy mortgage premiums and then structure your loan payments so that almost nothing goes to principal, I have a hard time feeling sympathy for them when foreclosures happen. .

 

If you are not happy with what the bank is charging then don't take out the mortgage. That's what I don't understand, you do not have to own a home. Its a choice you make. If you are not happy with the terms, you cannot afford the home, then do not buy a home. Maybe you are meant to be a renter instead.

[Renee in NC]

Most people who lose their homes to foreclosure would much rather keep their homes. Anyone who thinks it is as easy as "walking away" must either never have been through it or in a house they really, really hate.

 

I would do just about anything to undo the decisions and situations that led up to our foreclosure. Losing our dream, our forever home? It was one of the worst things that ever happened to us. If we could have saved it, we would have. We couldn't, though, as we had no money, no jobs, and no chance of jobs. Renting it would have gotten us about 1/2 what we paid out each month, so that wasn't an option either (we had no income other than unemployment.)

 

The only thing worse was leaving our oldest ds behind in NC when we moved to FL a couple of months later.

 

Immoral? I honestly don't care what anyone thinks about it. I wouldn't have done it if there had been a choice. I'm going to assume for others that I don't know what you are going through, so I won't judge.

 

I will tell *anyone* not to "walk away" unless you have no other option.

[Catwoman]

Losing our dream, our forever home? It was one of the worst things that ever happened to us. If we could have saved it, we would have. We couldn't, though, as we had no money, no jobs, and no chance of jobs. Renting it would have gotten us about 1/2 what we paid out each month, so that wasn't an option either (we had no income other than unemployment.)

 

Immoral? I honestly don't care what anyone thinks about it. I wouldn't have done it if there had been a choice. I'm going to assume for others that I don't know what you are going through, so I won't judge.

 

Renee, I think your situation is an exception to what is happening in many areas. You did everything you could do, to try to keep your home. That's completely different than just walking away. You tried your best to keep it; you explored all of your options.

 

I think most of us get angry at the people who find out that their house is worth less than they paid for it, so they become resentful and walk away from it, rather than honor their commitment to paying their mortgages, or the people who should have known they couldn't afford to make the payments (when they bought the house, not when they lost their jobs or whatever,) but still bought the house they couldn't afford, and then they walked away from the house when they found out that the payments were too high for them -- and blamed the bank for having loaned them too much money, instead of accepting responsibility for their own actions.

 

I'm so sorry you weren't able to keep your home. :grouphug:

 

Cat

[idnib]

I don't feel it's immoral.

 

Contracts have terms and the consequences of breaking the contract are defined in the contract and by law. If one chooses to execute those contractual terms it's fine by me. The bank does what's in the bank's interest and people should do what's in their financial interest as well.

 

Nobody forces the bank to loan money. They do so knowing that the buyer may default and they build what they consider to be adequate compensation, in the form of interest and eventually ownership, into the contract. IOW, they're not stupid. (See: bonuses, Wall Street)

 

As far as the neighbors, I think it's a bit much to place the "good of society" burden on underwater homeowners. Many people who have tried to change their loan terms have been told they need to stop paying in order to get a loan modification (this has changed for the slightly better more recently). Once people stop making payments they are more likely to foreclose. Knowing this, the banks could choose to modify more loans before people default. But they only modify loans when it's in their best interest to do so. Yet somehow homeowners have an obligation to prop up their neighbors, the ones who should have known in the first place that buying a house is not a risk-free investment. If the value of the neighbors' houses fall as well, they also have contracts with the bank they can choose to execute. Or not.

 

I think there's a lot of propaganda going around from the banks and the Feds about how important it is to do the right thing as a way of making people act against their own self-interests. They only want us to be capitalists when it's time to consume, I guess.

 

And I say this as a pretty far left progressive. So if they've lost me, they've really gone too far. :glare:

[Jayne J]

Let me chime in, as someone whose neighbor has done exactly that. They packed up and moved away, leaving furniture in the house, junk and garbage on the porch, food in the refrigerator. They left the electric and water on. They had been our neighbors for 5 years, and their children played with ours. This summer they just decided they wanted to move. They could afford the house, there were no extenuating circumstances to my knowledge. They went and bought a newer, nicer home in another state and just walked away. Now their house is empty, attracting all the cats, rats, mice and vermin in the neighborhood. Their roof, which needs replaced terribly is falling into our yard and driveway, and we have to clean it up. Yeah, I am mad. Yeah, I think what they did is immoral. They weaseled out of their obligations, leaving others to clean up after them, both figuratively and literally and it was WRONG.

 

I understand that this is not the norm, and that many people who are foreclosed on wanted to meet their obligations and simply couldn't. In those cases, when the owner has done all they could, it is a different situation. But walking away because the house no longer suits you, or you owe too much on it, or because it isn't paying out the way you wanted is wrong, wrong, wrong. No one is forced to agree to mortgage terms, or to buy a home at all. If you sign on the line, you have a moral obligation to do your utmost to live up to your end, regardless of the terms.

 

No, I'm not bitter, why do you ask?...:D

[idnib]

Let me chime in, as someone whose neighbor has done exactly that. They packed up and moved away, leaving furniture in the house, junk and garbage on the porch, food in the refrigerator. They left the electric and water on. They had been our neighbors for 5 years, and their children played with ours. This summer they just decided they wanted to move. They could afford the house, there were no extenuating circumstances to my knowledge. They went and bought a newer, nicer home in another state and just walked away. Now their house is empty, attracting all the cats, rats, mice and vermin in the neighborhood. Their roof, which needs replaced terribly is falling into our yard and driveway, and we have to clean it up. Yeah, I am mad. Yeah, I think what they did is immoral. They weaseled out of their obligations, leaving others to clean up after them, both figuratively and literally and it was WRONG.

 

That's too bad. There are certainly better conditions in which to leave a house.

 

The bank owns it so it seems to me they are the ones who are not doing a good job of managing the home. Before the collapse of the housing bubble houses didn't sit for that long when they were foreclosed upon, maybe a month or two at the most before the banks handled it. Now there are so many and the banks want to stretch out the foreclosures as long as possible. They are also unwilling to hire more people to handle all the paperwork. (Did you see the articles about the foreclosure processors who were handling thousands of applications/day?) This, in a time of rampant unemployment. The banks could certainly afford to hire more people to process foreclosures but it's not in their interest to do so. (My brother is a bank VP so I know of what I speak.)

 

Where is the bank's moral imperative to handle their obligations in a timely manner? It sounds like the bank is a bad owner and has left you to clean up their mess. (I agree with you that the owners should not have left food in the fridge, etc.)

[Catwoman]

But walking away because the house no longer suits you, or you owe too much on it, or because it isn't paying out the way you wanted is wrong, wrong, wrong. No one is forced to agree to mortgage terms, or to buy a home at all. If you sign on the line, you have a moral obligation to do your utmost to live up to your end, regardless of the terms.

 

 

:iagree::iagree::iagree:

 

Cat

[Crimson Wife]

I have a *TON* of sympathy for folks who bought their homes they could afford at the time with "plain vanilla" mortgages and who no longer can afford their payments because of unforeseen circumstances (extended unemployment, disability, etc.) There are far too many people in that situation currently, and I feel that the government should be doing more to help them.

 

That said, I have very little sympathy for all the people who were greedy and/or stupid and used exotic mortgages to buy homes they knew (or should have known) they could never afford. It's not the fault of "evil bankers"- nobody held a gun to these folks' heads and forced them to sign those mortgages.

 

If I go down to the auto dealer and he offers me a loan to buy a Porsche, it's my responsibility to crunch the numbers and say "thanks, but I really can really only afford a Toyota." If I go ahead and buy the Porsche, and 6 months later it gets repossessed because I cannot afford the payments, nobody's going to offer me any sympathy. Especially if I had inflated my supposed income and assets in order to get the car loan in the first place.

[Denisemomof4]

Most people who lose their homes to foreclosure would much rather keep their homes. Anyone who thinks it is as easy as "walking away" must either never have been through it or in a house they really, really hate.

 

I would do just about anything to undo the decisions and situations that led up to our foreclosure. Losing our dream, our forever home? It was one of the worst things that ever happened to us. If we could have saved it, we would have. We couldn't, though, as we had no money, no jobs, and no chance of jobs. Renting it would have gotten us about 1/2 what we paid out each month, so that wasn't an option either (we had no income other than unemployment.)

 

The only thing worse was leaving our oldest ds behind in NC when we moved to FL a couple of months later.

 

Immoral? I honestly don't care what anyone thinks about it. I wouldn't have done it if there had been a choice. I'm going to assume for others that I don't know what you are going through, so I won't judge.

 

I will tell *anyone* not to "walk away" unless you have no other option.

 

:grouphug::grouphug::grouphug:your situation is so sad. :sad:

[Renee in NC]

:grouphug::grouphug::grouphug:your situation is so sad. :sad:

 

Not any sadder than most other people's situations.;) We made mistakes, the economy tanked, and our options dried up. I can handle that (2 years out, now.) What I have a problem with is having someone attach some kind of moral judgement onto my misfortune. It always reminds me of Job's friends sitting around pointing out all the sins that led to Job's misfortunes.

 

Yes, people bought houses they couldn't afford. We did. We will not buy another house in the future without a 20% cash downpayment ("sweat equity" doesn't count), 6-month emergency fund, and a mortgage payment that is not more than 25% of our income. We didn't have any of that in place and we never should have built our house.

 

That doesn't make us immoral. Stupid, maybe, but not immoral. Immoral would be violating the mortgage contract by refusing to return the home in a somewhat normal condition at such time you can no longer meet the payments. Some of the immoral things I have heard of were homeowners pulling all the copper out of the walls to sell, taking the A/C unit, and trashing the inside of the house as "retribution" to the bank for the foreclosure. I would consider those things immoral.

 

I would consider "walking away" from a house you can afford simply because you don't like it anymore and can't sell it foolish. If you can afford it, the bank will come after you for the balance anyway, so what are you gaining by walking away other than more money owed due to the foreclosure costs? A short sale and coming up with the difference would make more sense. Or staying and dealing with it. Or some other option - foreclosure should be the absolute last option.

 

As for the Porsche? I might roll my eyes at someone in that situation, but I don't think I would call them immoral. I'll save that for someone who sells most of the parts of the Porsch off before it is repo-ed.;)

[gingersmom]

We're trying to work with HAP to sell our home. We bought it for $224k in '06 and it's selling for 81k now. If for some reason this falls through we will consider walking away. Our bank's only option was short sale and we take a personal loan on the difference. I can't fathom over 100k debt on nothing. It would take longer to pay that off than have my DH's credit rebound from foreclosure. But because we have been working with HAP I haven't done a lot of thinking about the unthinkable so my backup plan may change after some research/consideration.

 

Why would you walk away?

[idnib]

I have a *TON* of sympathy for folks who bought their homes they could afford at the time with "plain vanilla" mortgages and who no longer can afford their payments because of unforeseen circumstances (extended unemployment, disability, etc.) There are far too many people in that situation currently, and I feel that the government should be doing more to help them.

 

That said, I have very little sympathy for all the people who were greedy and/or stupid and used exotic mortgages to buy homes they knew (or should have known) they could never afford. It's not the fault of "evil bankers"- nobody held a gun to these folks' heads and forced them to sign those mortgages.

 

If I go down to the auto dealer and he offers me a loan to buy a Porsche, it's my responsibility to crunch the numbers and say "thanks, but I really can really only afford a Toyota." If I go ahead and buy the Porsche, and 6 months later it gets repossessed because I cannot afford the payments, nobody's going to offer me any sympathy. Especially if I had inflated my supposed income and assets in order to get the car loan in the first place.

 

Both of your examples are about people who cannot afford their homes.

 

How do you feel about people who can afford their mortgages but it's no longer a good financial investment for them to sink money into the house?

 

To carry your analogy further, if you realize you made a mistake (or just change your mind or need the money for something else etc) and there's a clause in the contract that allows you to return the Porsche, would you? As built into the contract, the car dealership gets to keep the car and all of the money you paid on the principal thus far plus interest as compensation for your unreasonable purchase. You can then go and get a Toyota. Or do you just wait until the car is repossessed or try to find a second job to pay for the Porsche even though there's a legal way to return it?

 

And what happens if the dealership prefers you to keep the car so they drag their feet as much as with closing the return? You've done your part: signed the papers, stopped payments, returned the key, etc and executed the clause for breaking the contract to the best of your ability. But because they don't want the overhead of having the car back on the lot they draw everything out as long as possible and then take a year to pick up the car. In the meantime it becomes an eyesore on the street.

 

Does the bank have a moral obligation to pick up the car quickly even though it would be better for them to not have to spend money to store the car, storing it for free on the street instead?

 

In a foreclosure, does the bank have a moral obligation to complete the process and take possession of the home (and maintain it) in a timely manner?

 

On a micro scale, the analogy to the argument that you must keep paying no matter what is that any consumer good purchased should never be returned because if too many people return goods they purchased it affects the economy. In other words, if you get home and find you overpaid for your new sweater, keep it anyway because you made a dumb mistake and if everyone exercises their right to return their sweaters it would be bad for the economy. We have a moral obligation to adhere to the consequences of our mistakes for the good of our neighbors, even if it's bad for our own families.

 

It doesn't make sense to me.

[Crimson Wife]

How do you feel about people who can afford their mortgages but it's no longer a good financial investment for them to sink money into the house?

 

Frankly, I consider walking away when the owner could afford to pay to be the moral equivalent of stealing. If I walked into a restaurant, ordered a meal, and decided after I finished it that I had made a bad choice, I'd still be obligated to pay for it. If I refused, I could be thrown into jail.

[FairProspects]

Frankly, I consider walking away when the owner could afford to pay to be the moral equivalent of stealing. If I walked into a restaurant, ordered a meal, and decided after I finished it that I had made a bad choice, I'd still be obligated to pay for it. If I refused, I could be thrown into jail.

 

Does the principle differ though when you are talking about a HUGE amount, that may never be repaid in a lifetime? I mean, we are sort of in unprecedented times with how much value houses have lost.

 

In theory I agree, but you could always wash dishes to pay off the meal. To me houses are different because of the magnitude. Houses have lost 50-90% of their value in some parts of the country and aren't expected to recover that for 50+ years. Even though it is called a 30 year mortgage, people move houses on average every 7-10 years. I don't think many people would have purchased knowing they couldn't sell their house for that 30 years and are literally committing their life away. I know we wouldn't have.

[Jayne J]

That's too bad. There are certainly better conditions in which to leave a house.

 

The bank owns it so it seems to me they are the ones who are not doing a good job of managing the home. Before the collapse of the housing bubble houses didn't sit for that long when they were foreclosed upon, maybe a month or two at the most before the banks handled it. Now there are so many and the banks want to stretch out the foreclosures as long as possible. They are also unwilling to hire more people to handle all the paperwork. (Did you see the articles about the foreclosure processors who were handling thousands of applications/day?) This, in a time of rampant unemployment. The banks could certainly afford to hire more people to process foreclosures but it's not in their interest to do so. (My brother is a bank VP so I know of what I speak.)

 

Where is the bank's moral imperative to handle their obligations in a timely manner? It sounds like the bank is a bad owner and has left you to clean up their mess. (I agree with you that the owners should not have left food in the fridge, etc.)

 

The only problem with this is that no one told the bank that it was theirs again. It will be months before the house goes into actual foreclosure, since the folks who walked off didn't even tell the bank they were going. She said to me the night before they left, "If you see the Sheriff coming to the door, you'll know why." They had not contacted the bank *at all* and were just going to stop paying for it. With all the foreclosure "grace" that lenders are being asked to give, it may be months more before the bank actually owns it and becomes responsible.

[cathmom]

Short answer: Because after January we can no longer come near to affording the mtg. I don't quite know what else you were looking for with the question. We don't live in the house anymore, if that's what you meant. DH got orders in '09 to 29 so we're on the other side of the continent now. So it's not like we just got the itch to move and are walking away.

 

I thought the military had a program where they would cover the difference if you had orders to move away and couldn't sell your house?

 

Frankly, I consider walking away when the owner could afford to pay to be the moral equivalent of stealing.

 

What are they stealing?

[gingersmom]

Does the principle differ though when you are talking about a HUGE amount, that may never be repaid in a lifetime? I mean, we are sort of in unprecedented times with how much value houses have lost.

 

In theory I agree, but you could always wash dishes to pay off the meal. To me houses are different because of the magnitude. Houses have lost 50-90% of their value in some parts of the country and aren't expected to recover that for 50+ years. Even though it is called a 30 year mortgage, people move houses on average every 7-10 years. I don't think many people would have purchased knowing they couldn't sell their house for that 30 years and are literally committing their life away. I know we wouldn't have.

 

I understand what you are saying but to me that still does not justify walking away from your house.

[idnib]

Frankly, I consider walking away when the owner could afford to pay to be the moral equivalent of stealing. If I walked into a restaurant, ordered a meal, and decided after I finished it that I had made a bad choice, I'd still be obligated to pay for it. If I refused, I could be thrown into jail.

 

A restaurant is not a good analogy because what you've purchased has been consumed and cannot be returned, nor have you been paying each time you take a bite, with interest.

[idnib]

The only problem with this is that no one told the bank that it was theirs again. It will be months before the house goes into actual foreclosure, since the folks who walked off didn't even tell the bank they were going. She said to me the night before they left, "If you see the Sheriff coming to the door, you'll know why." They had not contacted the bank *at all* and were just going to stop paying for it. With all the foreclosure "grace" that lenders are being asked to give, it may be months more before the bank actually owns it and becomes responsible.

 

I think they had a moral obligation to tell the lender. I think lenders should prioritize foreclosing on houses that no longer have inhabitants.

 

That said, I think it's myth that it hurts the lenders to "give" grace, that they are somehow making sacrifices. It's in their best financial interests to not take on these houses. They don't want to own them (huge pain), nor do they want to modify loans (lose money). So they are doing what's best for them, which is to drag out the process as long as possible while still (kind of) meeting their legal obligations. This is confirmed by my brother, a bank VP who used to work for a large national bank whose initials are WF. Keep those houses off the books as long as possible, but don't modify the loans, either. That's the mantra.

[Crimson Wife]

A restaurant is not a good analogy because what you've purchased has been consumed and cannot be returned, nor have you been paying each time you take a bite, with interest.

 

Okay, then. How about this analogy:

 

You bought a piece of furniture on credit and then decide after you've owned it a little while that you just don't like it. You can afford to make the remaining payments, but you don't feel the item is worth what you owe on it. The store could take the furniture away but they won't get remotely as much for selling it used as the original new selling price. You have effectively stolen the cost differential between the new price and the resale price, less whatever minuscule amount you've paid in the interim.

[idnib]

Okay, then. How about this analogy:

 

You bought a piece of furniture on credit and then decide after you've owned it a little while that you just don't like it. You can afford to make the remaining payments, but you don't feel the item is worth what you owe on it. The store could take the furniture away but they won't get remotely as much for selling it used as the original new selling price. You have effectively stolen the cost differential between the new price and the resale price, less whatever minuscule amount you've paid in the interim.

 

But the cost differential is built into the original pricing and financing terms. If you have a contract with the store that allows you to return used furniture they understand that some furniture will come back and they build that into their pricing and business model. If they didn't want to build in the cost of returns they could offer a "no returns" policy or no financing. Financing someone's purchase is not risk-free; there's always the possibility the people won't be able to pay or will change their minds about paying and the risk is reflected in the pricing/interest rate.

 

The ability to return furniture is a marketing item for them, a hook to get people to buy there instead of another place where it might be cheaper but they can't return it. In return for the privilege of the option to return used furniture, the buyer has paid a higher price or perhaps a higher interest rate on credit. It would have been cheaper to buy at a "no returns" place or on Craigslist, but they paid for the privilege and their contract allows them to return it.

 

As an example, Nordstrom's "we take anything back at any time for any reason, even without a receipt" policy worked for them for years as a marketing hook and the prices reflected that.

[FloridaLisa]

But the cost differential is built into the original pricing and financing terms.

 

Yes, but only at historical rates of default. We are not at historical rates of default.

 

 

Lisa

[idnib]

Yes, but only at historical rates of default. We are not at historical rates of default.

 

 

Lisa

 

Yes, the default rate is much higher now. The banks took on risk and this time they were wrong. (Same with the hypothetical Porsche dealer and furniture store.) They built the cost differentials into the loans and assumed a certain percentage of people would default. (Primary mortgage lending is pretty safe, in general.) The default rate was higher than they anticipated. That doesn't make it immoral for any particular homeowner to walk away.

 

Going back to the Porsche analogy, are people saying owners shouldn't turn in the Porsche they cannot afford because normally the dealership experiences 2 returns/month and due to the economy they've had 6 returns this month? Are we really telling Porsche owners 3, 4, 5, and 6 if they don't wait for next month and the one following to turn in their cars they're doing something immoral? That turning in the car in this month is stealing but if you wait until the dealership has a slot for an anticipated return it's not? That it's now their responsibility to shield the Porsche dealership from any financial risk they've taken?

 

I want to be in a business where, if I guess incorrectly about future defaults or returns, people are considered to be stealing from me if they don't go along with my estimate. A lending business with no risk sounds fantastic. :tongue_smilie:

Edited December 31, 2010 by idnib

[Joker]

I honestly don't know what to think. We bought our home just a few months before everything went crazy. We bought a small, 1000 sq. ft . home that we could afford and before we knew it our home was worth about 60K less that what we owe. :001_huh: Dh was offered a great job back in our homestate and we had to turn it down because we knew we couldn't get out from under our home. We're doing what we feel is right but there are many, many times I wish we had just taken the job, walked away and moved back near family. It feels like we will never be able to get away now. This was not meant to be our forever home but it has become just that.

[jld]

Nobody forces the bank to loan money. They do so knowing that the buyer may default and they build what they consider to be adequate compensation, in the form of interest and eventually ownership, into the contract. IOW, they're not stupid. (See: bonuses, Wall Street)

 

As far as the neighbors, I think it's a bit much to place the "good of society" burden on underwater homeowners.

 

I think there's a lot of propaganda going around from the banks and the Feds about how important it is to do the right thing as a way of making people act against their own self-interests. They only want us to be capitalists when it's time to consume, I guess.

 

 

:iagree:

 

The little guy should show "personal responsibility". The big guys, not so much.

[MarinesWife]

I agree with most of the others - especially Renee.

 

Sometimes circumstances warrant walking away - breaking contracts happen all the time - and not always because we want them to.

 

Like Liz, we are currently under contract through the HAP program. However, we will have about 15K in debt still that we hope our bank will work out with us.

 

We tried to sell our house when my husband first got orders but it was when the market was tanking. The bank offered to short sale and let us take a 50K personal loan. We just could not see having such a huge debt on nothing. After months of being on the market we rented it out for 2 years, for a lot less than our mortgage payment.

 

They moved out and we applied for HAP and listed again. Our $250K house is under contract for $115K.

 

IF this falls through I'll have to go into foreclosure also. Our savings is completely depleted and I can't afford the mortgage payment - we have thought about renting again - but don't see ever getting out from under the house that way. Plus, we could not afford repairs on it or be able to build our savings back up while paying the different on the mortgage. We just feel stuck.

[Rosy]

There's also an onus on the borrower to know what they're doing. I don't think ARMs are a good idea for many borrowers and I'm generally unsympathetic to people who chose to overextend.

 

I don't deny that there are many unethical banks and loan practices. But also, borrowers should read the fine print.

 

I'm not talking about ARMs. With a "plain vanilla fixed-rate mortgage", your lender should explain to you that, even though every payment is $1000 (theoretically), for the first few years only $50 of that $1000 will go toward principal. This amount gradually goes up until you're about 15 years into the mortgage, at which point you've paid all the interest and are only paying principal. The payment is still $1000, but a different % goes toward principal depending on how far into the loan you are. This is designed to give banks the lion's share of the money you pay every month for as long as possible.

 

If you are not happy with what the bank is charging then don't take out the mortgage. That's what I don't understand, you do not have to own a home. Its a choice you make. If you are not happy with the terms, you cannot afford the home, then do not buy a home. Maybe you are meant to be a renter instead.

 

Um, I don't know if you meant me specifically, but I understand the responsibilities of homeownership and am fully capable of paying my mortgage. :confused:

 

Okay, then. How about this analogy:

 

You bought a piece of furniture on credit and then decide after you've owned it a little while that you just don't like it. You can afford to make the remaining payments, but you don't feel the item is worth what you owe on it. The store could take the furniture away but they won't get remotely as much for selling it used as the original new selling price. You have effectively stolen the cost differential between the new price and the resale price, less whatever minuscule amount you've paid in the interim.

 

Ok...but what if the furniture store charged a hefty finance charge up front and then the first half of your payments were mostly paying interest to the store, and not actually paying off the couch? Theoretically, by the time you return the couch, the store has already made enough off you to more than cover their expenses, and they're still able to sell the couch, which may have even appreciated during this time.

 

Like I said earlier, I would not hesitate to walk away from my cell phone contract if it was financially advantageous to do so. I'm not sure why a house is different? I don't think walking away from a house is something someone should do lightly--one should know all the potential ramifications, and in most cases one is probably better off trying to sell, even at a loss.

 

A personal loan or contract or any other obligation is different, in my opinion.