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Will homeowners walk away?

Submitted by texas82 on Sat, 03/01/2008 - 12:30
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Stern Business School Economic Outlook....Really Bad News Coming
On February 29th, 2008 enerfood says:

These guys must be supporters of Dr Paul! Read this and weep!

http://www.house.gov/apps...
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After reading this excellent paper, I have a question. On page 20 of 21 the article states:

"Until recently there was a conventional wisdom and wishful thinking that home owners would not voluntarily walk away from their homes. This wishful thinking was based on a few flawed assumptions. First, most analysts did not even consider the possibility that home prices would fall so much that a large fraction of households would fall into negative equity; there was the delusion that home prices would go up forever or would never fall....

"How many households will end up in negative equity territory and will thus an incentive to walk away from their mortgages? The answer to this question of course depends on how much home prices will eventually fall from their peak...."
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What do you think? Would you be inclined to walk away from your mortgage, if the market value of your home dropped below your mortgage balance by 10%, 20%, 30%? Or would you stay in your home making the payments as long as you could?

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More Americans using credit cards to stay afloat

Submitted by texas82 on Sun, 03/02/2008 - 15:32.

Seven years in the credit-counseling business didn't prepare Ann Estes for the alarming trend she began noticing last fall: As her clients' mortgage bills became unaffordable, a growing number of them began paying their credit card bills before — and sometimes instead of — their mortgages.

"We've never seen anything like this," says Estes, who counsels clients by phone from her office in Richmond, Va. "Their homes are at risk, and they know it. But people say, 'I don't want to let my credit cards go because that's my cash flow.' "


http://www.usatoday.com...

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There is another twist

Submitted by vapatriot on Sat, 03/01/2008 - 19:24.

A friend of mine is on the board of a local bank, they will be writing down a lot of mortgages this year.
Here is the kicker, the IRS will treat this as income for the borrower and it will be taxable as such.
So if your loan is written down from $300,000 to $225,000 you will owe taxes on $75,000.
Where will homeowners get the money to pay the taxes?

Peter Schiff predicted that this would

Submitted by austrianschool on Sat, 03/01/2008 - 18:34.

happen months ago; that homeowners in negative equity territory would have no financial incentive to keep paying for a mortgage on a house that was only worth a fraction of the basis of their mortgage. It amounts to throwing money down a rathole. This situation will, according to Mr. Schiff, get far worse as the Fed continues to flood the economy with even more baseless currency and prices on essentials, such as food, continue to rise. At some point, such upside-down mortgage payers will have to make a decision as to whether they will continue to eat or continue to support their "credit rating" by paying monies into a home that is going down in value. That point will vary according to the circumstances of each individual mortgage payor.

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"An economy built on fiat money is a society on its way to ashes."

Peter Schiff's book

Submitted by texas82 on Sat, 03/01/2008 - 19:02.

Reading Crash Proof now.

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For Liberty!

I read about this recently

Submitted by my_first_vote on Sat, 03/01/2008 - 18:07.

The S.F. Chronicle had an article on the subject a few weeks ago.

________________________________________________________________

Who will pay the mortgage when the homeowner walks?

Sean Olender
Friday, February 8, 2008

California's housing market may be entering a scarier phase: the point at which homeowners walk because the house isn't appreciating, not because they can't afford it. Banks are worried.

A Federal Reserve survey in January 2008 found that loan officers "are concerned with borrowers' reduced motivation to retain possession of their properties."

And Calculated Risk, a blog, posted a quote from Wachovia Bank's January 2008 conference call: "One of the challenges is... a lot of these current losses have been coming out of California... from people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties, and ... we're just going to have to see how the patterns unfold here."

Bank of America CEO Kenneth Lewis said, "There's been a change in social attitudes toward default ... We're seeing people who are current on their credit cards but are defaulting on their mortgages ... I'm astonished that people would walk away from their homes."

If income indicates ability to pay, down payment is an incentive to pay - skin in the game.

In California, lenders are generally barred from getting money from a defaulting borrower. The lender gets the house and that's it, even if the borrower has $1 million in the bank. Only judicial foreclosure allows the lender to get the borrower's other assets, but it's slow, expensive and encourages a defense of loan origination fraud. Buying a house with little down is like having your cake and eating it, too. If the house appreciates, you keep the riches; if it doesn't, you walk and lose only what you put down, often nothing. It's wrong to insure such losses with taxpayer money.

Laws limiting investor liability are everywhere. If you own stock in a company that goes bankrupt, you don't feel a moral obligation to pay the company's creditors, because the law limits your liability. But the government doesn't guarantee those creditors' losses - and it shouldn't do so in the housing market, either.

Visit www.uwalkaway.com, a company that sells kits explaining a homeowner's right to walk if the house isn't a good deal anymore. And "60 Minutes" recently featured a couple who explained they could afford their mortgage payments, but the house was "worth less," so why pay?

Who loses if the trend grows? The biggest loser will be mortgage bond investors, and next is originating banks and investment banks (because investors will try to sue for fraud and misrepresentation). Homeowners who put zero or 5 percent down lose little more than outsized hopes of future riches. And as uwalkaway.com notes, eight months of "free rent" will help them feel better.

Now that Congress has passed higher loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration, Americans will lose because investors facing losses can get paid by Fannie, Freddie and FHA.

In the future, Congress should require California to allow lenders to garnish wages of affluent borrowers who walk away from their homes. It's dishonest to have it both ways: (1) federal tax money backstops investor and bank losses when homeowners walk away from homes, and (2) California law allows homeowners to walk away without liability - even if they have money to pay. It's not that the California statute is bad alone; it's that it's wrong for federal taxes to guarantee huge loans without homeowners guaranteeing those loans too.

Gov. Arnold Schwarzenegger wrote last Monday, "Unfortunately, the California families most hurt (by inability to get affordable mortgage credit) are in lower- and moderate-income brackets." Then, he magically ties this to raising the loan caps to $729,750. But 2006 California median family income was $64,563. This isn't an anti-poverty plan.

Even Marin, California's top 2006 county for median family income, was $99,713 - too low to benefit from the higher caps. I see how politicians could confuse median family income, because they don't hang out at places where they'd meet a median income earner.

The new increase in the loan caps is nothing more than a handout. It's welfare for the wealthy - a group that tirelessly touts free market principles. Raising the caps is morally wrong, and it's also bad policy.

Sean Olender is a San Mateo attorney.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/08/EDL2...

This article appeared on page B - 11 of the San Francisco Chronicle

Great article. Thanks!

Submitted by texas82 on Sat, 03/01/2008 - 18:23.

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Yeah

Submitted by masseffect on Sat, 03/01/2008 - 17:41.

They were talking about it on MSNBC, the whole debate about whether the government should bail out homeowners for getting trapped into contracts with fluxuating rates. On one hand, I feel it is their fault for signing the contract, but on the other hand, a sudden surge in people losing their homes could hurt the economy even more, and you can't so easily judge every individual and their individual situation either. It's kind of a double edged sword.

It's hard for me to relate because I have no debt. I've somehow avoided ever going into debt, and it wasn't that hard. There's been times I've seriously looked into taking a loan, but never went through with it, realizing it would be better to wait a year and save the money up myself. I guess in certain situatuions and under different circumstances, taking a loan would have been unavoidable though...

They were talking about an alternative on a cable news show

Submitted by RonPauler on Sat, 03/01/2008 - 17:19.

They were talking about "selling short" where a mortgage company acknowledges that the homeowner owes more than they can get from selling their home. Instead of going through a foreclosure and then the mortgage company inheriting the same problem, a homeowner can work out a deal with the mortgage company where they pay back what they can.

The commenters said there was still a credit report down side for the homeowner so I'm not sure what's in it for the homeowner at that point. I would assume the free market would drive the mortgage company to not be tough on the homeowner's credit in order to strike a deal. Then, the commenters started talking about the whole process of "selling short" being regulated and they really lost me.

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Defend Liberty!

Cor blimey.

Submitted by Ivor schwartzporsche on Sat, 03/01/2008 - 17:08.

i've just read this and it makes for positive news. It makes it clear and easier to comprehend when presented like this. After the recession we can look forward to lessons learnt, less government and better self control.
Ron Paul will win through and we will benefit.

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

—

'I always thank of all you canvassors and precinct leaders and delegates who were at the front line and caucuses.
Good luck out there &Thank you. You're a gift.

global meltdown---WOW

Submitted by rawlady on Sat, 03/01/2008 - 14:43.

that is quite a paper! I can't understand half of it, but it sent chills down my spine. This is what they mean by the coming depression. Will America become a 3rd world country soon?
I recall in 2002 reading an article on www.rense.com that was written anonymously by a member of the Illuminati who became a Christian and defected. She warned that the Illuminati were plotting a GLOBAL financial meltdown. Having read the Creature from Jekyll Island, I figured, yeah, we have a fiat currency, so it is bound to happen sometime. Now I realize that the whole subprime thing was an inside job. Bring America to her knees, then she will gladly give up her guns and sovereignty and freedom for security. That was the plan. Can you spell AMERO? New World Order?

BTW she said it was no fun at all being a rich Illuminati. For what it's worth, she said they were all stressed out and miserable.

A matter of will.

Submitted by iehuvihs on Sat, 03/01/2008 - 14:43.

If the dollar is dropping than it figures that eventually the price of houses will go up. This may even be more true since U.S. dollars don't buy imported raw materials as cheaply as they did in the past, for building new homes. Also with a credit crunch, I imagine that less contractors will be able to raise money to build. So it is probably best for American to hold on to their homes. What we need to do is make the influx of dollars coming from abroad be spent on something other than buying up our companies, houses and lands, the U.S. just has to come up with something of interest for foreign nations to purchase. I would prefer we don't sell them our houses, so I suggest buying up food items to make the price go up for foreign exports. I am pretty sure that it isn't just Americans buying up American gold, since most of us don't have a lot of money to invest. But something that we can and should buy is food, since it is still something of value exported abroad. 90% of our Salmon caught in Alaska goes to Japan, lets raise the price. Grains and other farm products are shipped abroad, let raise the prices. Bush; although I am sure not knowingly, is already helping to raise the prices by requiring that the U.S. replace 10-20% of gasoline with alcohol. Perhaps we can help the process along. Perhaps we can legalize the production of hemp, since it is also a good product to produce fiber and alcohol. The technology exists for us to get out of our dependency on foreign oil, but perhaps the desire by those who have direct interest in foreign oil really don't want us to move in that direction. Imagine employing Americans to produce alcohol or biodiesel instead of spending our tax dollars protecting Middle East oil, for the benefit of Saudi Arabians.
grant

If you "walk away", you will still PAY!!

Submitted by tnwatchman on Sat, 03/01/2008 - 13:12.

If you walk away, you will still pay a percentage of the total debt most likely. Bush out did himself on this one!! Under the Bankruptcy Abuse and Consumer Protection Act of 2005, it has become almost impossible to file for and claim bankruptcy.

Any BR filer is now subject to go through "credit counciling" and it is likely 9 times out of ten that they will be forced into a chapter 13 (repayment plan) instead of a chapter 7. Regulations were changed that now forces filers into chapter 13 where they previously would have qualified for a chapter 7.

So much for "Consumer Protection" huh? Ever notice how the titles of most legislation sound good, but the objectives are the opposite? Homeland Security, Patriot Act, Mental Health FREEDOM Initative Act?
The goals of these are all in opposition of what they profess to accomplish.

In other words, they

Submitted by jmhenderson on Sat, 03/01/2008 - 16:06.

In other words, they probably knew what was coming, and planned accordingly.

Precisely, my good man

Submitted by tnwatchman on Sat, 03/01/2008 - 16:30.

To add insult to injury... Before this legislation, before they determined your total "expendable income" (that would set the rate for your "re" payments), you could claim charritable donations (ie tithes, ect) but you can no longer claim this "deduction". Places government before god, so to speak wouldn't you say?

Unless

Submitted by betterhalf on Sat, 03/01/2008 - 13:09.

unless you are 100% mortgaged why would you walk away ? 90% of the people in my area have lived here most their life and even if their value fell 50% they still would make a tidy profit on their investment..there is also the ability to keep your home and rent it out until you feel you can afford to go back into it...I do not see any mass abandoning of homes..certainly not in my area..Seems like more paranoia to me

you'll see paranoia in about

Submitted by NeoConned on Sat, 03/01/2008 - 13:18.

Here goes betterhalf looking at only half the picture. Look again son.

http://www.portfolio.com/views/blogs/market-movers/2008/01/0...

good lessons there

Submitted by betterhalf on Sat, 03/01/2008 - 13:28.

For one you never buy the highest priced home in a neighborhood..Most of the mistakes people make occur at the time the home is purchased..too little down, wrong kind of mortgage, not an area where property values have consistantly risen...People in california bought homes way over their head in a hot market in hopes of reselling and making a quick buck..sometimes you win and sometimes you lose..it all depends on if you gamble..buying a home in my opinion is not something you gamble with..Homes in my area are down, at least on paper, less than 10%..Most still sell in 30 days or less.. When I sold my first home I put it up for $55,000..No takes so I took it off the market for a month..I relisted it, this time for $75,000 ..Had 5 full priced offers in one day and sold it

Good for you. The same homes

Submitted by NeoConned on Sat, 03/01/2008 - 17:01.

Good for you. The same homes that have been for sale in my subdivision have been on the market going on 5 months now and there have been 1 more added to the bunch each month. My next door neighbors are both unemployed now and are in an interest only loan that flipped last month. This is where you are failing to see the gravity of the problem betterhalf. Just because your doing great doesn't mean the larger percentage is as well.....as evidenced by the numbers and ever growing number of high level economists/politicians/traders etc that are saying things are a LOT worse than they'd initially expected and will only continue to do so. If you think otherwise, perhaps you should get a job working for Fox News. What I'd like to know is, where do you actually agree with Ron Paul.

Thanks for your perspective.

Submitted by texas82 on Sat, 03/01/2008 - 17:44.

For Liberty!

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Foreign Policy

Submitted by betterhalf on Sat, 03/01/2008 - 17:07.

Foreign policy is what brought me to Dr Paul..get the hell out of Iraq, leave Iran alone, and bring our troops home from Korea et al..Do you realize that alone would drastically help our economy also ??

Yes, I do realize that. I'm

Submitted by NeoConned on Sat, 03/01/2008 - 17:55.

Yes, I do realize that. I'm just not finding you agreeing with pretty much ANY of Ron Paul's stances, or other professionals outside of the realm of what you see on TV. Hence the reason I asked. How about you stick to the threads where you do agree, because mostly all you are doing is causing is derision in almost every single thread you post in........and with little facts to actually back up what you are saying.

big government

Submitted by betterhalf on Sat, 03/01/2008 - 18:00.

I also support getting rid of the depts of Education and especially Energy..the facts I use to back up my statements are real life experience, not news stories or blogs from god knows what website

Depreciated house across the street

Submitted by texas82 on Sat, 03/01/2008 - 12:53.

Ok, so a homeowner might try to qualify for a depreciated house across the street to lower their monthly payment?

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For Liberty!

An example...

Submitted by Devon_Saunders on Sat, 03/01/2008 - 12:57.

http://www.portfolio.com/views/blogs/market-movers/2008/01/0...

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~Live life to its fullest, with an open heart, open arms and most important... an open mind~

Qualifying question

Submitted by texas82 on Sat, 03/01/2008 - 13:07.

Yes, that article is the one that prompted the question. How does someone qualify for the $500,000 house across the street, while sitting on their current $800,000 mortgage?

For Liberty!

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For Liberty!

I'm not in that position

Submitted by brainon4u2 on Sat, 03/01/2008 - 12:50.

however, I would be inclined to do so if my mortgage payment were more than rent. Also, with rent, no upkeep, no taxes, no lawn, reduced insurance (from homeowners to renters)

People must do the math.

Walk away from mortgage

Submitted by Ivor schwartzporsche on Sat, 03/01/2008 - 12:49.

The problem I read the other day is that when you rent the landlord carries out a credit check. So presumably 'deserters' are caught there? I dunno.

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

—

'I always thank of all you canvassors and precinct leaders and delegates who were at the front line and caucuses.
Good luck out there &Thank you. You're a gift.

most renters do

Submitted by alienlve on Sat, 03/01/2008 - 16:59.

do credit checks now,,,,i know the last four apartments ive rented in two different states require it,,,,i now live in upstate new york in very rural area with landlord who doesnt bother . theoretically we could have a huge section of homeless folks who wont qualify for rentals,,,,,bless them all

If you're not late on your payment

Submitted by Devon_Saunders on Sat, 03/01/2008 - 12:55.

then your credit is just fine.. ;)

Up until that point.

After that, even though you show a forclosure on your credit history, you now have a rental history.

Besides, a lot of people are just buying another house and walking out of the first one. So yes, you will have a forclosure on your record... however, you are also showing current payments on your new house, if done correctly. So not a huge amount of damage to your FICO.

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~Live life to its fullest, with an open heart, open arms and most important... an open mind~

There are growing numbers that are...

Submitted by Devon_Saunders on Sat, 03/01/2008 - 12:39.

They've even brought back the term ~jingle-mail~ in the MSM.. the sound of your keys being mailed back to your mortgage-holder...lol.

The Forthcoming “Jingle Mail” Tsunami: 10 to 15 Million Households Likely to Walk Away from their Homes/Mortgages Leading to a Systemic Banking Crisis

http://www.rgemonitor.com/blog/roubini/244768/

http://www.portfolio.com/views/blogs/market-movers/2008/01/0...

http://www.cbsnews.com/blogs/2008/02/12/couricandco/entry382...

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~Live life to its fullest, with an open heart, open arms and most important... an open mind~