Walking away from your home

these boots are made for walking....

A closely watched index shows home prices dropped by the sharpest annual rate on record in October. The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday fell by a record 18 percent from October last year, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history.

hh

Wait. I though renting was "throwing money away". Now I guess for many owning is throwing money away. Ironic.

Your article misses one very important point. Old fashioned lending required 20% down and came with a thirty year fixed rate loan from your hometown bank. Todays loans are something like an eighty/twenty with a two or five year interest rate hike, most times a pretty substantial one. So when that rate adjusts it prices people out of there mortgage. You want someone to feel shame for walking away from a home that has lost up to 50% of its value that they have not one dime out of pocket invested in. The ones who should feel shame are the massive banks who made these loans for big profit and when it failed got the money anyhow.

"But whatever happened to the idea that, no matter what, you make your mortgage payment and you hang onto your home?"

When banks were relative to the town they did business out of, the chances of people having to look the banker in the eye at some point made people more likely to pay back what they borrowed. Now that banks are so large and impersonal walking away is just as impersonal. For most people accountability is about being able to attach a person to things and that was lost a long time a ago.

Then throw in the collective anger at the banks and you have people who feel like the people that are attached to the banking industry are not accountable so why should the home owner be.

Walking away is not a financial another move but more of a backward option to rectify a prior terrible financial move. It is an option even if it is a bad one.

When home prices were rising, common sense, number crunching and budgeting went out the window. Buy as much house as a bank was willing to lend was the mantra.

Now that home prices are falling and many people are underwater, suddenly people are taking a look at their situation and making decisions, that from a financial standpoint probably make sense. Funny that it takes an immoral situation (walking away) for people to exercise some financial judgment.

And yes, people should honor their obligation to pay their mortgage. Unfortunately in this age of bailouts, it is tough for many to watch the government's banker buddies get a free handout, while they struggle to make their mortgage payment. Our government has created a massive moral hazard. And as immoral as it is to walk away, I can't necessarily say that I would blame someone for doing just that.

Peter Schiff wrote a tongue in cheek piece on this a few months ago.

Just stop paying your mortgage

By Peter Schiff
October 10, 2008

If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother.

While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why.

Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.

When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.

The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.

Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.

If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.

To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.

If you do get the opportunity to live for a while with no mortgage payment, don't make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.

Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.

In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.

Boston prices according to Case Shiller is down 6.38% from October of last year, I think hung forgot to mention this in his post.

I'd like to see some discussion about how these decisions to just "walk away" are going to further impact the mortgage industry. Also, where are these losses going to be recuperated - are we going to earn less interest on bank accounts, pay more fees,etc. It's unfortunate that some people got in over their heads and now find themselves in a difficult situation. It's more unfortunate that the rest of us who didn't spend beyond our means are now going to have to pay for the irresponsibility of others. The people using the money are just as guilty as the banks who lent it.

Yesterday there was an article in the paper that stated that Lehman Brothers' bankruptcy filing cost investors as much as 50 BILLION dollars - much of which might have been saved for creditors had the company been wound down in a more orderly fashion. The article mentioned that while some secured creditors were paid off, not all were and the interests of unsecured creditors were basically wiped out.

Where was Lehman Brothers' moral obligation to their creditors and investors??? These banks are busy throwing around multi-million dollar salaries and "performance" bonuses at their employees while they are hemmoraging money for their investors. Yet John and Jane Doe who were somehow approved for a loan they can no longer afford should feel guilty about walking away for some ill-defined "moral" reason?

I'm sorry, but when the board is tilted this crookedly and the other parties in the deal - the banks - have no compunction about weaseling out of THEIR obligations, I wouldn't feel any moral dilemma about handing over a house that's not worth what you paid for it. The only question I'd have is how badly does it impact your credit and can the bank come after you for deficiency? (In Mass this could be a problem) If push came to shove and I had an adjustable rate spiraling out of control that put my family and our finances at risk, I'd tell the bank where they can stick their loan and they can keep the house. It's all about the math and the collateral damage, period. The morality argument doesn't sway me in the least.

James, what you are talking about is lawless. The person who took my old (new) house must be sleep with the president of her mortgage company then. Sure in hell she didn't have half the money I have when she said she can afford to buy me.

Foreclosure folks - please walk away - and keep walking - all the way to Alabama. You all belong in debtor's prison. Every last one of you. I've rented my entire life because I realized that I could not afford a home over the LONG TERM. I was humble enough to admit that IT WAS BEYOND MY MEANS. Now, because you've spent all of your equity (that never belonged to you in the first place), we have to bail you out so you can max-out all over again.

One thing that the "walk-away" calculators do not take into account is the amount of money that the credit hit will cost you if you intend to get another mortgage, finance a car purchase, get a credit card, etc. anytime in the next 5+ years.

I think that we should vote out every politician who wanted to bail out wall street and not the citizens of this country.. This is a f...ing obscenity! Rather than bailing out families they are making the rich even richer. Who the hell (other than the a-holes in washington) thought this was a good idea.PLEASE , REMEMBER NEXT TIME YOU VOTE, WHO IN THE HOUSE SUPPORTED THIS CATASTOPHIE. Rather than taking this trillion $'s (that is only a fraction now) and helping out families who are struggling to keep a roof over their families head, they give it to the banks and the money in turn goes promptly into the pockets of executives making big money as is. AIG....same, now the Automakers...and let's see who holds out their hand next

Let's look at the ethics here. Home prices went way up, in large part, because the banks made easy lending a policy, sold off the loans to the unsuspecting, and encouraged overbuilding. Now the whole thing has come down around their ears. Seems like just desserts to me.

Everyone assumes that people who "bought in the bubble" are irresponsible and bought beyond their means. I bought a condo in 2005, yes at the height of the housing bubble and my condo lingered on the market for 14 months before I pulled it off in October 2008. I cannot receive an offer that will cover what I owe, I am upside-down.

I did not buy beyond my means, I bought a condo I could afford long-term.
I put down a modest payment.
I have a 30 year fixed mortgage.
I don't use credit cards and consistently live within my means.
The problem? I had to move due to work....and am now living the financial nightmare of my life. Not only do I have to continue to pay for the condo, fee, and insurance for a place I don't live in, I also have to pay rent in my new location.

Have I thought about walking away from my mortgage? Hell yes. It sounds so tempting but I haven't done it yet, for the sole reason that amarki mentions - the future cost of a house, car loan, etc. I feel no moral obligation to any bank, that's for sure. I feel an obligation to myself and my family not to screw ourselves over...but to be honest I don't know how long I can keep this up before something's gotta give.
The worst part is the "help" for all the "victims" of this crisis will go towards people who DID live/buy beyond their means, bought what they could not afford, did not read the fine print. I did none of this and yet I will receive nothing for assistance or way out of this mess. So...it seems crazy to be making payments when I could just miss a couple and suddenly qualify for all these great sounding proposals that will help distressed homeowners.
We shall see how it ends up for me.....

Bighoax,

I hope you've learned your lesson...

Call me old fashioned but I took a loan out for my home back in 1991 and have refinanced several times since then to help keep my home. I feel it's part of my family, things are tough right now it would be a very sad day when I would have to walk away from that house. I pray that day never comes!

I tend to agree with certain aspects of both sides. The morality issue really does belong with profit driven banks, predatory creditors and greedy consumers. It's difficult, on a moral level, to feel sorry for any of them. What I would like to know is why there was never a consideration made to help out the taxpayers in this country instead of the financial and automotive industries. For the $770 billion dollars they could have refunded every taxpayer in the USA over $40,000. Do you think that maybe would have jump started the economy? Paid off late mortgage payments? Stopped foreclosures and saved many American families from financial ruin? Instead we get banks hoarding money meant for taxpayers. I just have one thing to say to the politicians, Wall Street crooks and banks...SHOW ME MY MONEY!!!

rubyshoes is 100% dead on.
I too:
-bought a condo for WELL LESS (aproximately half) than banks were willing to lend to me
-put down a decent down payment
-have zero credit card debt
-don't use credit cards and even have my cars paid off...

yet I was just unfortunate to buy during the biggest housing bubble of all time.

and yet I don't want a bail-out. All I would like is the opportunity to refinance with my existing lender at these new low interest rates to lower my payment.

yet because I am a responsible payer under water there is no help. I talked to a loan officer at suntrust, and after a series of questions I said, "so what you're saying is, the only way I would be able to renegotiate my mortgage would be to fall behind and not pay it for about 6 months"....to which he basically said "yes".

This is a lesson to us all - THERE IS NO POINT IN BEING RESPONSIBLE. The banks are hoarding the bail-out money and will only use it as a last resort if the owner is literally about to walk away and leave them with nothing - it is the consumer's only power play with these greedy SOBs at this point.

rubyshoes,

I’m afraid that I might find myself in your situation in a few months and I sympathize. We’re looking at a possible relocation in the next 2-3 months which would be great for us personally (closer to family and friends) but I’m not sure what to do with our condo.

We bought in early 2007 when the market was “soft” according to our real estate agent and “a great time to buy.”
We bought a condo in Boston for $40k less than what the mortgage guy was willing to give us and 2.08x our annual income.
The particular unit was “very underpriced” and we ended up having to outbid another potential buyer but we still got a “great deal”.
We have a soft second but we’ve been paying more on both it and the primary mortgage than the monthly payment trying to build up our equity.
Zillow still says the condo is worth more than what we paid for it (even with recent sharp drops). But I know people have said that it isn’t the most reliable source.
We’ve put some sweat equity and a little money into fixing it up (it needed some work).

I think the most important lesson I’ve learned watching this blog and the news is never to trust an agent or broker without doing a ton more homework (I thought I had done mine). They’re sales people and not necessarily looking out for a buyer’s long term interests, they’re just trying to make a living like the rest of us. I took their word on some things as “the experts” which was not my most shining moment, but there’s no going back now.

So my question to everyone is: what’s a responsible owner/seller to do? I’m not going to stop paying my mortgage, I have too much pride, but what are my options? If you were in our position what would you do next? I’m thinking of going the FSBO route, but I want to make sure I price it right. And if we do go that route how do I figure out what to offer a buyers agent? Can you offer them a cut based on what it sells for (i.e 2% if it sells for over x, 1.5% if it sells between x and y, 1% if it sells under y)? If we have to take a loss could I negotiate a lower interest rate with the bank for the remaining balance? Is that what a ‘short sale’ is?

Sorry this is so long, I obviously have a lot of work to do on this still but would love to hear some opinions (short of “if I were you I wouldn’t have bought in the first place”).

Thanks!

Steve K-

Your math is WAY OFF....refunds would have been in the ballpark of $5000 considering that in 2007 there was approx 138 million taxpayers....

Steve, I have also heard the same thing through different avenues I have pursued: I basically can't get help until/unless I am months behind on my payments. They don't want to work with you until you are a disaster.

You agree to borrow X amount of money with Y stipulations regarding how, at what rate, and when it gets repaid. The value of the house in question does not enter the actual contract. It is true that the house itself is surety for the contract, but the change in market value of the house is likely not mentioned in the legal contract you agreed to. OK, so things didn't go your way. Suck it up and make good on your word. In the end it is all you have.

Underwater.....Who thought of this idiotic term? Are you "Underwater" with your car loan? Of course you are, but you need a car don't you. Why not walk away and buy another one? The same goes with a home. You buy a home in the hopes that some day you'll own it and won't be living in the street when you are too old to work. Unless you pay cash you are instantly underwater. Do you know how much extra you pay in interest on a 30 year loan?
Go ahead and walk away or stop making payments. Wait until some bottom feeder buys that paper and comes and throws you out on the street.

I wanted to continue paying BUT my house payment went from $1,500. to $2,500. I cried, pleaded...asked the bank to please "let's work something out" how about $2,000. But NO...
Ahh you ask "How did you get yourself in that place" Well, I won't bore you with the long story but surfice it to say some mortgage brokers lie. When I finally realized my mortgage was a variable and wanted to STOP the closing I was told, "well it will only go up 1 or 2%..I thought a year...wouldn't you??? But no...it was a week!!! So, we tried to sell but the Auctioneer got it.

yet I was just unfortunate to buy during the biggest housing bubble of all time

People seem to feel an awful lot of sympathy for themselves. So, it was "responsible" to buy during an obvious bubble? It was "responsible" to believe a real estate investment could only go up? Buyers were really just helpless victims of misfortune? What, were guns held to their temples?

Seems to me, people want to be just as irresponsible as homeowners as they were as buyers. They didn't get the pony they expected, so they simply want to walk away. And just as they failed to research their initial purchase, they're also failing to research their new escape plan. Mass. is a recourse state. Meaning, walk away from your mortgage, and you could well watch your checking account, savings account, retirement nest egg, and even future paychecks vanishing before your eyes when your bank comes after you. I can't wait to hear borrowers get sued and exclaim, once again, Hoocoodanode?

True, banks' behavior has been reprehensible, and they deserve whatever they get. And from a short-term view, many borrowers could indeed do better by calling it quits. But the impact on the economy would be catastrophic if every underwater homeowner walked away. I guess when they renege en masse and then lose their jobs, it's just one more opportunity to cry, Hoocoodanode?

Bernard, sometimes people have life changes and the value of their home comes into play in a HUGE way. When I bought I didn't know I'd be moving....but yet here I am and theoretically can still afford my mortgage. I just happen to not live in that state anymore....sort of a problem there.
If I still lived there, there would be no problem at all. I'd sit tight and ride this out.
But that's not possible.
Until you are in any of our shoes, I don't think you should be attacking people who have done the right thing and are still struggling.

Come on! Here is a basic lending fact. When you sign a Note, that is nothing more than a promise to pay. It is an assumption that you honor your debts and are of a character to do so - in other words HONEST or HONORABLE.

The Mortgage you sign is just a lien against the property.. That is there for back up in case you turn out to be DISHONEST, DISHONORABLE or a DEAD BEAT!

Years ago, owning a home used to be a mark of success and a badge of honor. When we took the emphasis off that, we put people who weren't ready or who had character that bent with the wind in homes. Now we are all paying the price.

I have no problem bearing any burden as a result of someone with catostrophic circumstances. But as for the irresponsible dead beats, flying the banner of victim like the idiot woman on 60 Minutes a few weeks ago. I would like to scrape a few of them off my back.

Do the math, make the decisions and move on one way or another. You have to look out for you and your family first, not the bank. Might be harsh, but tough...life is harsh. Your company will have no sympathy if they decide to lay you off. The banking industry will happily fold and lose all your money and won't even say sorry. They have no sympathy for you nor should they. So, if you decide to walk away from your house, go ahead and make no apologies. Also don't expect any sympathy from anyone else, apparently including people on this board. But make sure, as others have listed here, that all of the ramifications are understood by you. I am guessing you could be moving from a bad situation to a worse one if you are not careful, but I certainly don't have an honest clue about what would happen next. Maybe a good bankruptcy attorney...

rubyshoes and by J-I own a condo in Boston and also bought in the last few years...some sweat equity was put into it, and I also bought lower than the average prices at the time...so you did the best you can do, regarding homework and so forth...I checked local rents in the area when I bought...i figured out what my mortgage and taxes would be compared to rent...I now rent that condo out...it rented in 24 hours, twice in the last 2 years...so rent in Boston is easy to get...I take a bit of a cash flow loss each month, about $300 dollars...but since it is now a rental property, there are a lot of right offs...depreciation for one...the net after taxes is actually positive...my recommendation, if you can afford the initial monthly negative cash flow, rent the condo...come tax time, you will get nice return...not a lot of fun being Land Lord sometime, but if your place is nice and doesn't need repair, you won't hear from your tennants...screen them well...perform credit check...the monthly loss is less painful then the big one time loss...who knows, your place might go back up in a couple of years...

Sweat equity and waiting until you really are financially qualified are really tried and true methods and a difficult pill for those with instant gratification attitudes. Home ownership is an earned privilege and one that should have never been taken lightly as we are now seeing the consequences of the no money down-no doc programs coiming to roost. Cut up rthose credit cards and ask yourself - do I want it or do I need it? Make do with what you have. Barter your services. And live within your financial capabilities. Save for a rainy day. Try to have 6 months to a year of savings put away for the possibility of being downsized - and share more potluck dinners with family and friends....You should be able to hold onto your home or market it in its best condition and be open to negotiating. Refrain from the 'I must have...' mentality and make sure your prospective buyers are truly qualified. Once you get out from under th debt load, consider relocating to a state that better serves your needs....especially with the Commonwealth in such dire straits.

If its between feeding your family or paying on an upside down mortgage, please people leave the stigma behind at the house and walk away. Also understand that this 5 years out to restore your credit in order to buy a car, get another credit card, or buy a home is WRONG. It takes 1 to 2 years to rehabilitate your credit, but that process doesn't begin until you get yourself out from under the debt. Seek your fresh start now... it feels good and adds years to your life and well being!

no one should be able to walk away from their mortgage obligation scott free...mortgages need to be treated like student loans...they stay with you and your decendants until they are paid off!!! Doesn't matter if you are bankrupt!! Now I don't believe that everything a person owns should be taken from them and then kicked to the curb. I think the answer is quite simple in my mind. After the short sale or foreclosure proceeds pay of a portion of the mortgage(s), the remaining balance should follow that person with them and their relatives forever!! Interest should accrue. The Gov't should gaurantee that portion of the loan, like they do with student loans. Folks will be able to get out of the bad shape they are currently in, but overtime they pay back thier debt!

Response to Just Me:

No Matter What - I've worked since I was 16yrs...bought my 1st house at 20..worked 4 jobs at a time when I had to including stocking shelves overnight at child world to pay my mortgage in the very early 90's..I am a women and took what ever job I had to so that I modeled the right behaviors to my young child and felt upstanding. Now I don't feel the same and this is why:
Walk A Way....we want to walk away not look back nor feel badly. We both worked full time and then some eventhough we have a young child that is sick and I am sick - ran into major trouble with an investment property - bad contractor/electricians and tenants who move in via the window...yes, you have to take them to court & evict them in this state..each eviction costs between $3500 to $5K. Well, 3 years of this, a husband who injured himself very seriously in work covered by the insurance carrier AIG - yah, that's a laugh - they don't even pay for his medication - but didn't they get federal money to stay alive and meet their committments - why after two years is my husband still fightening for surgery, medical benefits & retraining - and two new tenants - who haven't paid since November making them almost 3 mths late each respectively only proceeded by a tenant who moved in seveal months before that and moved out in the middle of the night owing around $3K only to have learned by another tenant they purchased a home which I can only guess with the state rental assistance they applied for that was suppose to go to me....to actually pay their rent........what's wrong with this picture...... I am loosing my job soon - rightsizing - and have absolutely nothing left combined with being late on both mortgages.......More people being hurt by this crisis than people who never qualified for their home - my homes have a ton of equity which we can't access to fix our problem...why because our credit is now bad trying to keep everything together by paying our bills including water, heat, electricity for the tenants that aren't forced to pay, but eventually fell behind while tenants don't pay, electricians scam (in court) contractors scan (in court - actually the attorney we hired for this, as is my understanding from my title insurance company - a matter related to why we can't sell this house even though we've had two excellent offers - closing attorney's are not honest either and it's very tricky to sue them - has since been disbarred for his own fraudlent dealings) Why the state thinks I'm the welfare department and has yet to offer me assistance with both swift evictions of NON Payers etc. - no bialout for me - my kids can't even get a free lunch because I work - One thing I am sure about, No need to wait 5 yrs to rebuy - who guess that? the loop holes to cease fraud are not closed - I've heard about every story including the one who gave up a home - they cashed it out for oodles more than their purchase price, about double, and later decided it was too expensive for them to afford - and while this house lags on the market with the bank dropping the price several times now, only to purchase the house literally just next door & remodel it extensively with a no income verification loan and who knows what other kind of falsified paperwork. I say restructure the whole system - give people "bounty" type monetary awards for reporting this and deport poste haste all those that participate in this kind of fraud that are not US born citizens....reducing the fraud and creating jobs for our now unemployed who deserve them. Why we welcome people into our country and allow them to be BAD citizens but whine about it on a soap box is not constructive - When I'm laid off I hope I only have the same success that I've seen many immigrants enjoy on my tax dollar but then again it's not only their fault - 'cept hard working middle class people are suffering as the result. The wealthy keep their money, I support supporting the truly poor - not the asians in my community who drive up to the post office in their lexus to collect their Globe Santa - as told to me by a postal worker - those that are sick, elderly, young, or need education to improve their situation. I began looking for an apartment to move my two children before my layoff is official, the only problem is that my credit is bad and no one wants to rent to me.....Should I tell them I have many many rental judgements by those that owe me?

I can only imagine how any president, even a very optimistic one, can improve this in 4 yrs...He's not the rain maker and I fear far too many may have unrealistic expectations of him. However, I wil take any tax break, any "economic stimilus" any thing that will help me pay our medical bills, rent and other necessisites when I need it......which will be soon.

Bill: with the student loan you get the education forever... you can't walk away from that. Your position on mortgage deficiencies burdening you until death runs counter to Article I, Section 8 of the Constitution, maybe even the Eight Amendment (cruel and unusual punishment).

Fred- What if I don't use the education I went to school for? Can I not pay my student loan then? That seems like the same arguement that you are making with walking away from a mortgage debt. Don't use the education or don't use the home anymore, OK...no worries...don't pay for it then...that is serious bad precedent...you should have to pay what you owe, or the Bankruptcy proceedings should actually mean something these days!!
Honestly, I would take this type of program if it was available...if a home owner is 20% underwater, that is $50K-$60K based on median...maybe the program is no interest or something..that would be a better program then all tax payers paying for ot.....

Bill: with the student loan you get the education forever... you can't walk away from that. Your position on mortgage deficiencies burdening you until death runs counter to Article I, Section 8 of the Constitution, maybe even the Eight Amendment (cruel and unusual punishment).

OK, Scott. You're an actual reporter. Sounds like Salwa's got a pretty amazing story--one that sheds more light on a forgotten angle to this crisis in MA, which is the way our slow, irrational landlord/tenant laws add to the foreclosure problem. What say you?

FACT: Most people in truth have 30 year fixed rate mortgages somewhere in the 5-7% range with no gimmicks or tricks thrown in. Very few have adjustables.

FACT: Most people got their loans financed through A+ lenders operating big banks--Wells Fargo, Chase, Citi, Citizens, etc. Less than 10% of America got loans through a subprime lender.

FACT: EVERYONE gets at least one good solid chance to review loan terms, repayment schedules, and closing costs to determine if they can really afford what they're signing for. Nobody needs to leave a closing room wondering how much their mortgage payment is.

Given all these FACTS, is there one morally acceptable reason, apart from death, disability, sickness, job loss or other catastrophe out of your control, to suddenly claim "I can't handle it" and walk away from an obligation you swore to a notary you understood and would uphold? Complaining about Wall Street or bailouts does not absolve you from personal responsibility. Twenty years ago, the last time the real estate market crumbled and values were down, nobody dreamed of just walking away unless they were in REAL financial trouble. I've been in the business fourteen years and I've had people making $100,000/year, with payments only 20% of their gross income, call me for advice on how to get the banks to forgive interest or modify the rate--because they wanted to catch the wave and get their payments dropped too. Needless to say the banks weren't very sympathetic.

As usual, I think its math.

I have no problem with people walking away if math makes sense. THIS IS A BUSINESS TRANSACTION! People pretending it isn't is what got us into this mess.

Treat it like the banks treat it. If it makes sense to walk, walk. If it doesn't, don't. Its not a moral thing, its business.

Though if you bought at the peak of the bubble, and you (shockingly) have problems, don't expect much sympathy from me. Failure to do your due diligence is not exactly a piece of bad luck - its bad practice come home to roost.

You could have found people proclaiming the bubble all over the internet. You could have found schiller's book. Heck, in 2007 you could have found me and marcus on here proclaiming doom. Failure to even look for those things is not exactly impressive. Yes, poor approaches often lead to poor results. Not a matter for sympathy though

I don't get it. You have to live *somewhere* and, unless it's in a homeless shelter or under an overpass, it's going to cost you money. Why not put that money toward a place you *chose* ??? Because, believe me, if you walk away, years from now you'll gaze at that home you abandoned, which you now have no ability to buy or occupy, with bewildered regret.

A man walks into a bar and strikes up a coversation with an attractive woman. After a few drinks they engage in a debate over situational ethics. He asks, "Would you go to bed with me for $10 million dollars?" After pondering the questions she says, "Yes, I think I would?" He then asks "Would you go to bed with me for $50?" Insulted she responds, "No! What do you think I am?" His response was, "We have already established that. What we are now doing is haggling over price."

What this article I am afraid suggests is that everyone's morality is for sale at the right price, and that's a sad commentary on our society.

Fred...by far the best education I ever got was putting my hand on the burner...I have never done that since...Ok that was a bit sarcastic, but I'm making a hard point...we cannot let everyone just walk away from their debt obligations...They have to be paid in some sort of fashion, by the people that owe...not your neighbors...I am a very sympathetic person, trust me...if you owe debt on a mortgage, you should never be allowed to buy a home again (via mortgage) until it is paid off...if you save the cash, all the power to you...you should have to pay the debt off at some point...even if it takes 3 generations to do so...so not to burden the current debtor, there should be policies like student loans...where there are times you don't have to make payments (loss job, sickness etc...), % of income etc...Also, a program like this can add an insurance policy to the payment...therefore the debt, goes away in the event of your death...if the reason for foreclosure is illness, then there should be other circumstances for those individuals...I will gladly pony up more taxes for someone that has been struck by an illness and can't afford their home...I cannot support someone that has all the same physcical ability as myself, but yet doesn't want to pay what they owe...if it is simply that you lost your job (through the same standards as unemployment benefits), then there should be a forbearance on your mortgage payments until you obtain gainful employment...the government should sponsor this piece with signicant reduced interest...once you gain employment, then you start paying again...all the while staying in your home that you bought on your own free will...and eventually prices will rise again and you will be above water...all on your own with much less tax dollars spent on you and the banking industry stabilized, so the rest of us can get loans that we can afford...Our deficit is not 1000000 Trillion dollars and the Great Deprecion II doesn't fall upon the World!!!

People keep talking about adjustable rate mortgages and their rates adjusting upwards. I had to get one years back when we made our home purchase. For 2009 with interest rates dropping, the rate will be lower and we will save over $100 a month. Has anyone asked if this is happening with other ARM's...I would think the answer would be yes.

This makes me so angry. I bought a condo in 2003 with 20% down and fixed rate of 5.5%. I deliberately bought less house than I could afford, calculating that I could make the payments with loss of husband's income or while on unemployment myself - if I had to. We are on track to own the house by the time we are 65. The condo wasn't an investment we intended to flip - it is our home, and we intend to retire here.

However, because of this whole mess, it is MUCH more likely both my husband and I are going to eventually lose our jobs - for who knows how long. Eventually we would not be able to continue paying our mortgage. We need steady income to do that. If the economy gets bad enough, it's not inconceivable we will lose that income.

The economy is a house of cards and it's all tumbling down, affecting those who did the right thing. Yes we could swing payments temporarily if we lost our jobs - but not if it goes on and on for years. Which it may.

My heart goes out to people who are in over their heads and have no jobs or are disabled. I don't want to see them out on the streets. But, c'mon, if you are able to work then pay your damn mortgage. Renegotiate the terms, by all means. Rent it out. Just pay SOMETHING. Walking away hurts ALL OF US.

To the person who is moving out of state - RENT the condo. And remember that it was YOUR DECISION to move out of state. You had a choice. You made it. Now deal. If that new company wants you bad enough, ask for relocation help. Sheesh. This is very simple. You made a series of choices - and you continue to not want to deal with the consequences of those choices. Instead, you are burdening people like myself with the consequences. ENOUGH.

6 years ago I bought my house with like 30% down. The mortgage was and ARM. For a year I could not sleep at night because I kept thinking that someday the rate would go up. I shopped around and I found a fixed mortgage rate at 4.75%. I refinanced after one year, which was 2 years before any adjustments would kick in. My friends and co-workers thought I was a nut wasting money on a refinance. Well the distressed property that I fixed up has not really lost any value, in fact it is worth more today because of the work I have done on it fixing it up. I know that it's value isn't what it would be in a good economy and that If I wanted to move it would sit on the market longer than I would like but I still own at least 30% of it, if not maybe more like 40% of it. My payments are fixed. So I don't really have much sympathy for people that had to have the big new McMansions financed at 125% on interest only ARM's. I just wish the havoc they have created on the economy didn't have affect all us us they way it has.

Something I rarely see mentioned is the tax liability one incurs when they default on a loan. Well, here it is folks. If you walk away from that loan that still has $200K of princpal owed, you just realized $200K of income for which you have to pay income tax. It's not just a simple matter of walking away, there are some serious repercussions.

well said Jen0009

Murph...The lovely government has changed that law through 2012 I beleive....

***"Walking away is not a financial another move but more of a backward optiono one should be able to walk away from their mortgage obligation scott free...mortgages .need to be treated like student loans...they stay with you and your decendants until they are paid off!!!"***

Nonsense. Most mortgage loans in the US are "non-recourse" -- which means the lender cannot come after you for the loss they suffer after selling the collateral. Walking away isn't for everybody, but if you bought with zero down at the height of the market, you've in essence been renting these past few years anyways and "walking away" is the financial equivalent of leaving one rented apartment for another. If you don't mind the hit to credit, AND the possibility of a capital gains tax bill doesn't wreck the math, walking away is sometimes the smart thing to do. It all depends -- you have to run the numbers. I suspect it doesn't make financial sense for most people unless they're WAY DEEP under water. But some people will undoubtedly be better off financially in five years' time by mailing in the keys today. One thing to keep in mind, of course, is that it can be difficult to rent -- especially in an expensive metro area like Boston -- with a low credit score. So, make sure you secure alternative housing BEFORE you take the plunge, and carefully think about how secure this arrangement is, and what would happen if you were forced to find a different rental two years down the road when your FICO score is still in the garbage.

Louisio- you should be able to walk away as long as Bankruptcy is what is is suppose to be...a financial credit disaster for that person, that should cost you by far more overtime because you will higher rates on loans for ever!!!! Also it is not the equivalent of walking out on rent...in that scenario, your landlord is left holding the bag, and he/she accepted that responsibilty themselves...I am a landlord (not by choice) so I know...walking away burdens the rest of us...I didn't sign up for your problems...i have my own..it is exactly that kind of mentality that got us into this mess...what I suggest is programs to help people deal with the difficult present, but recoupe in the future...the Govt cant keep printing money...

To the person who is moving out of state - RENT the condo. And remember that it was YOUR DECISION to move out of state. You had a choice. You made it. Now deal. If that new company wants you bad enough, ask for relocation help. Sheesh. This is very simple. You made a series of choices - and you continue to not want to deal with the consequences of those choices. Instead, you are burdening people like myself with the consequences. ENOUGH.
Posted by jen0009 December 31, 08 11:59 AM

I don't understand how my situation could possibly burden you, I clearly stated that I had no intention of walking away from the condo I bought. If it sold for less than I paid for it it still wouldn't burden you because you said you're planning on living in your condo forever so why would it matter to you if property values fall? If you lost your job my taxes would pay your unemployment and I don't say that you're a burden on me. How about a little civility and a little less capital letter yelling?

I didn't ask for your sympathy, I asked for advice on how to make the least bitter lemonade out of one heck of a lemon economy. We've considered renting it out if we couldn't get a good price for it, but the general consensus here is that prices are going to continue to fall, so I don't know if it would be the right call to hold onto it or to take our loss now and not be tied to it forever as a long distance landlord.

Maybe the only silver lining will be moving somewhere where the cost of living is lower and I can deal with that, but of course it would suck to continue to pay for a home I don't live in anymore, just like it would suck if you got laid off, and it sucks for everyone who saw their 401ks plummet, and it sucks to work in the real estate or mortgage industry because they're the new plague on society and probably most of them are just regular people trying to do their job.

If I knew in 2007 we’d be moving out of state in the next 2 years then of course I wouldn’t have bought. If I thought that the market was going to go into free fall like it has of course I wouldn’t have bought. I don’t remember seeing this blog in 2007 so that’s my bad, but everything I saw said that things would stay slow for a while and then recover and I was planning on staying in my condo for at least 5 years so I wasn’t worried about the short term value. Maybe I only was getting NAR press releases filtered into news outlets and it’s my fault for not digging further, but I’m doing my best now to know more than I did then. I wouldn’t call that not wanting to deal with the consequences of my choices, I would call that trying to make the most informed strategic decisions about the future. Or are all those to bought in the last 5 years just doomed to be ‘fools’ forever? I sure hope not since longevity runs in my family so I’ve got a long time left!

Murph you said
"Something I rarely see mentioned is the tax liability one incurs when they default on a loan. Well, here it is folks. If you walk away from that loan that still has $200K of principle owed, you just realized $200K of income for which you have to pay income tax. It's not just a simple matter of walking away, there are some serious repercussions."

You do realize legislation was passed late in 07 that says if you are forgiven debt on a primary residence that you do not have to pay income tax (at least at the federal level)? I do believe it varies from state to state, but many states have followed suit. I'm actually in this exact boat. I have mortgage that I owe $370,000 on that is worth about $170,000 now. The funny thing is with the property taxes, past HOA dues and the cost associated with reselling the property I am guessing the bank will only be able to recoup $140,000. Guess if they were smart they would be meeting me halfway. Don't worry though I fully intend to honor my obligation to move out when they give me 30 days notice. Maybe I was an idiot for buying a house in the bubble, but I think I'll make out decently with $40,000 in the bank even if I do have bad credit.

Also I'm pretty sure student loans don't follow anyone outside you and possibly your spouse. I seriously doubt if some kids parents died in a car accident that had no life insurance, but still had student loans that on the kids 18th birthday the government is coming after them. Or even for that matter if a parent was 50 and hadn't paid off student loans then died their kids wouldn't be responsible if there was no money in the estate.

Fred wrote:
"Also understand that this 5 years out to restore your credit in order to buy a car, get another credit card, or buy a home is WRONG. It takes 1 to 2 years to rehabilitate your credit"

You think those rules still apply now? They may have applied when credit was easy. But now? I don't think so. I think people with stellar credit are having troubles securing loans. So why think that someone who opts for bankruptcy will be able to rehabilitate in only 1 to 2 years? My guess is that banking on such a scenario is one huge gamble. Really, nobody knows what sort of reforms will happen when Obama takes office.

To J - I gave my advice, you just didn't like it. I will repeat it:

1) Do not move. You do have a choice to stay put.

2) If you must move, then negotiate with your new employer for a better relocation package or increased salary, so you can rent the place out. You may still loose money on the deal - but perhaps not as much. You're going to have to take some lumps one way or another; that's just the facts. There is no free lunch.

3) If you must move and the negotiations fail, still try to rent out the place. As someone else said, you will probably find a renter - though you may not quite break even. But, as I said, you have to take some lumps one way or another. We ALL do. Why think you are any more special than anyone else?

4) If you ignore my advice and decide to walk away, don't bank on rehabilitating your credit in only 1 to 2 years. I find that highly unlikely. Maybe a year ago, before this credit crisis. But now??? No. Even people with stellar credit ratings are having a hard time securing loans - so it is very likely that someone who has walked away and gone into bankruptcy is going to struggle for a long, long time.

Honestly? It's only fair that they should. You seem like someone who wanted to do the right thing but was perhaps too young or naive and made a mistake. When I bought in 2003, even I knew that it was possible that we were reaching a bubble situation..... so I really find it hard to believe you aren't either young, incredibly naive, or plain ignorant not to have known any better in 2007!!! Please don't blame your realtor. That just makes you look even worse. Only weak people cast about trying to find someone else to blame.

You made a mistake, okay. Now, face the consequences of that mistake. It's really that simple. There is no easy way out - for any of us. Too many people thinking so is exactly what got us all in this mess to begin with.

Being a part of the solution instead of a part of a problem.... that is your choice. Make the right one.

DG- Read the recent artlcle in the Boston Globe about the Marine that was killed on his motorcyle 3 days before shipping off to Iraq. He had student loans. And they went after the parents. They forgave only because of the bad publicity that the man was a marine...no sympathy for the common student loan holder...it is not until death do us part...

bill, and others. debt does not inherit. If you cosigned it that's another thing.

Some of the things people post here makes the lawyer in me bang my head on the desk. Combined with the posts that make the economist in me bang my head on the desk, I'm getting killed. Could we at least google before we proffer nonsense as fact?

Charles- Are you a lawyer or did you stay at a Holiday Inn Express? Technically you are correct. Hiers are not legally responsible for parents debt.

However, the estate first pays all debts from all assets available. Any assets are then divided to the heirs. If there are not enough assets to extinguish all the debts, they're unpaid and eliminated.

Thus debt don't simply go away with death. The only way debt goes away free, is if you die with absosutely nothing...Since these blogs are not law.com or the economist, forgive the rest of us for generalizing for the sake of making a non legal arguement...

Please read my post 56 again, as you did not understand it the first time.

I said debt does not inherit. You are talking about something different. Yes, you are right. Its also obvious. And irrelevant.

Charles- I don't think it is irrelevant. People are being allowed to walk away from their mortgage debt without much consequence at all. They are walking away with assets (cash, cars etc...). Should they not have to sell their assets to pay off as much as the debt is possible. Why should they be able to just not pay?

I read your post many times. "debt does not inheret' doesn't seem like a complete sentence...I took that as you pointing out to me specifically that debt dies with you. Please explain what "debt does not inheret" mean? I am not a lawyer and have not stayed at a Holidat Inn Express ; )

We don't have an economy in the US anymore. All we have is selling each other overpriced homes. We lost our manufacturing base years ago. Thank your elected officials for that, you know those same old members of congress you keep sending back for life till they die in the chairs. The ship comes in loaded with stuff, the ship goes out with a small box that contains mortgage backed securities.

God help us