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Wednesday, Jan. 26, 2011 | 2:01 a.m.
Sun archives
Of the acre-feet of response I got to Friday’s column — about the moral calculation of whether to continue paying the mortgage on my overleveraged house, or walk away — none was more startling than this:
I might be making the problem worse.
Not just me, of course. People like me, dog-paddlers in our underwater homes. Here’s how a government housing expert, in an informal chat, explained it: We bump along every month, dutifully making payments on a place that’s lost so much value, we won’t invest a lot to fix it up. Replace a faucet, yes; redo the bathroom, not a chance.
But because real estate activity is so central to the economy, the jobs lost to those undone projects — from drywall installers to clerks at Home Depot to tile manufacturers — constitute a significant drag on recovery. “It’s perverse,” he said ruefully, but getting people like me out of our houses, so they can be sold at current (low) market value to people who’d spend good money to improve them, would actually make things considerably better.
Like the man said, perverse.
But the housing crisis is rife with perverse ironies, defiant anger and painful, life-altering consequences, as demonstrated by some of the reader response that blew up in my e-mail and voice-mail queues. These are the voices of the real-estate dump.
“Thanksgiving dinner this year turned very ugly,” one reader wrote. The explanation: Friends in various stages of home-owning agony — some mired in deep debt, one in Chapter 7, another who wants to short sell — gathered for the holiday meal and started talking about their housing situations. Tensions grew. Some were angry that others wanted to shuck their debts and obligations; others got riled at the thought that this could be anything but a cold, hard business decision.
“As I worked in the kitchen, I saw and heard friends who have been close for almost 30 years attack each other,” she wrote. “The morality of ‘stiffing a bank because you can’ or ‘you thought it was a good deal when you signed’ went on and on.” Some of them still aren’t talking to each other, the reader adds.
For more than a few readers, the abstract dilemma of whether to keep paying or walking away is something of a luxury. “Our situation is far more tragic in the sense that my husband was in construction for decades and lost his job in April 2008,” another reader wrote. He finally found a low-paying job, last October — and was laid off two weeks before Christmas.
“We are now in real danger of losing everything we have worked our entire lives for,” she said. “We have no cushion and no way to pay all our bills. To make matters even worse, he was diagnosed with a debilitating and possible deadly disease on December 29th.”
That was a recurring theme among people I heard from — the collapse of their housing investment compounding other life-altering situations. “What about those who have lost their job (or jobs), or, like us, have lost their job and their health?” one worried. “Do we, as hardworking Americans who have paid taxes for decades, deserve to be forced to die in the streets?”
And just try to find relief if, despite losing income, as this reader did, you still eke out your mortgage payments:
“The gentleman (from the bank) said that since I am still able to pay my bills, there was nothing they could do for me. So I responded, ‘Are you telling me that if I do not pay my mortgage and go into default, then you would help me?’ And he replied that I would have a better chance of getting help. I was so angry I had to laugh.”
And then there were the many who argued that stay-or-walk isn’t a moral decision at all; it’s not a statement of character or a decision worthy of ethical ambivalence. It’s just business.
“I am still able to pay my bills, including my mortgage,” one reader announced. “You see, my income is high and the amount of the mortgage is irrelevant to me.”
Well, perhaps not so irrelevant that he’s going to actually pay it:
“I am not going to make my mortgage payment ever again ... I am not going to dump money down the drain on an ‘investment’ that will never recover from the depression. This decision has nothing to do with morality; it has everything to do with common sense and doing the right thing for my family’s financial security. I am intentionally defaulting on my mortgage and there is nothing that anyone can do about it.”
Like the man said, perverse.
Perhaps stay in the house as along as you can. Usually 3-6 months. I would suggest to pay for a storage unit instead. They will either take it or make a deal with you. Recently lenders were required to make an attempt to resolve the back payment/upside-down issue. I am not sure if it still applies.
People are more angry at each other than their government and the huge bankers who took bailout money to pay bonuses. That's what 30 years of conservative brainwashing will do for you.
I am always amazed at the working class, more appropriately working poorer, who champion policies and fiscal ideas that do not help them in anyway.
Maybe if people considered homes as HOMES rather than INVESTMENTS we wouldn't be having this coversation. You don't consider your other costly necessity, your daily driver, to be an INVESTMENT, do you? Maybe homes should come with a prospectus - "your home may lose some or all of its value, and you may lose your initial investment or more than your initial investment over time based on market conditions beyond Lender's control."
Like lambs to the slaughter..no one cares about your situation except you.
Do what you have to do to protect your family. The bank induced guilt trip is hilarious. Everyone has to live up to their contracts except the bank.
You did not cause the problem the banks did..if you have to walk..walk.. don't think twice it's alright.
thank fannie mae and freddic mac, reduced the standards to qualify for a loan so low incomes and minorities could "own a home". in response to the new demand, builders build too many houses, and offer adjustable ARMs to underqualified people to sell those houses, investors then buy 10-20 lots at a time, and try to rent or sell back the lots.
in the meantime, brokers, bankers, realtors are illegally modifying docs to get loans approved and money flowing in. "homeowners" take out equity loans and buy Hummers, cruises, and big screen TVs.
then new construction stops, paychecks no longer coming in, first wave of foreclosures hits. those who never should have had a house get upset and pour concrete down the drains and steal a/c units. homeprices plummet, second wave of foreclosures hit, those people smart enough to get out...do so. now there is a market for foreclosures, short sales, etc.
there are simply too many empty houses, and not enough buyers. supply/demand says prices will continue to remain low here for at least 5 years. i say tear down those ugly vacant 3 story homes.
Paying for your home if you can is not a business decisions, it is not an Investment decision, it is YOUR HOME. That is one of the major problems, to many people use their home as an ATM or business. It is where you and your family live.
You need to fix the sink, fix it. Keep your family stable and do what you agreed to do, pay for your home.
Times have changed and people have changed over the years. Today to many don't have a problem walking away from their responsibilities. Be it their home or their family. They have the attitude that someone else can take care of it, not their problem.
Some of the biggest problems in America are Americans.
In my opinion walking away from one's home or continuing to pay on an under-water mortgage is totally one's personal decision, and is absolutely nobody else's business. The overall well-being of one's family is the paramount consideration.
If your government had not been easily persuaded over the last four years that the best course of action is to bail out and prop up the rich, then ordinary Americans would have received substantial assistance from their government.
Ensuring that the stock market fully recovers its losses should not be the only goal of America.
The sad part is a lot of these people who are walking were pulling money out of their homes like an ATM to buy expensive clothes, vacations, cars, plastic surgery, eating out..you name it. Now they walk and claim "business decision". What a joke. Deadbeats. They got their money out of the house and then walk. Most of them have 2nd, 3rd mortgages or huge credit lines that have been exhausted buying luxuries.
Tell me about the morality of those people.
Walking away from an underwater home may just be the most patriotic thing one could do for their country right now. The sooner the market resets itself, the sooner the economy will improve.
When the average American is paying 1/2 of what they are now for housing, the economy will come roaring back. Housing prices leading up to the bubble, were purely unsustainable, economists and watchdogs were raising red flags for years prior, yet our government, mortgage lenders and builders failed to act. Greed won out.
For those complaining about homeowners who have taken out second mortgages to sustain their lifestyles, don't worry. Unless they file bankruptcy, which is a much bigger hit on ones credit rating vs a default, they'll still be required to pay back that money.
...Another issue with no amicable or perfectly reasonable solution.
What does that tell you, Scott?
Business default on loans in a calculated move to correct their balance sheets all the time. See Donald Trump and his real estate investments.
Why should ordinary investors be chastised for this tactic?
VegasLee - Home is where you make it. Its not a loan from a filthy rich company who has no chance of ever going out of business.
If you're that attached to a material item, you are the one with problems my friend. A house is no different than any other investment except you get to use it as shelter. Gold, another investment, can be worn as jewelry. Take your emotions out of the equation and do whats best for your family, nobody else will.
I am all for personal responsibility but Joe and Jane Homeowner, who walk away from their defaulted mortgage are not the only ones to blame here. The economic murderers (i.e. bankers, investment bankers, etc.) profited immensely from this mess that they helped create, got away with their loot and have yet to be held accountable, no doubt moved on to their next asset bubble, swindle, etc. The Financial Crisis Inqiry Commission in their just released report places blame on many parties, both governmental in both the Clinton and Bush administrations, the Federal Reserve and significantly---- a wide range of financial institutions. The report says among other things, " The captains of finance ignored warnings and failed to question, understand and manage evolving risks within A SYSTEM ESSENTIAL TO THE WELL BEING OF THE AMERICAN PUBLIC." The firms engaged in "shoddy mortgage lending", i.e., failed to perform the necessary due diligence in making said loans, engaged in excessive packaging and sale of loans to investors and made risky bets on securities. At the end of the housing bubble that they helped to create, the top five investment banks had $1 in capital for every $40 in assets, meaning a 3% move would wipe out their firms. How's that for personal responsibility?
Okay enough already! Making the decision to stay or go isn't hard, the hard part is making the decision livable. This decision has been made tens of thousands of time by Nevadans. Damn anyone passing moral judgment or anyone who thinks they know more about your finances than you do.
Some advice to live by: People will hate you for whatever you do.
Failing to fulfill a self-imposed obligation when one is capable of doing so is an example of moral failure, regardless of whether that obligation is financial or otherwise.
Too many people in this world choose to put money ahead of proper moral & ethical behaviors. It is a very sad indicator of this state of the human race.
@Winkler
The anger is understandable but what you are saying is that if person A did something wrong, then I can do something wrong. I just can't justify 2 wrongs make a right.
If your kid comes home and says 6 people were cheating on an exam, do you tell him that since they were doing it, it is ok for him to do it?
My feeling is that those defaulting are trying to absolve themselves of any moral issues by blaming others. They need a clear conscience and the only way to achieve that is by pawning blame somewhere other than yourself. It's an old game.
Yeah that makes a lot of sense. Let's just walk away from every obligation we have. Let's not worry about the large scale ramifications. Let's keep buying more "things" with money we don't have. In fact, we can just walk away from our homes and go out and buy another one. Maybe we'll even walk away from that one too. Heck, why even pay any of our medical bills. We can shirk paying our taxes and anything else because it's right for "our" situation.
Well let me ask you this? How did you expect you were going to pay for that 350k mortgage on a family income that qualified you for 200k? When you concealed your real debt and applied for the mortgage, did you think that someone else was going to pay your bills? Let's be honest. Most people never gave it all a second thought and wanted more than they could afford. They rolled the dice. They lost. Sure, the banks helped out. But did you ever expect the banks to be your friend? Let's get real.
For those that never got caught up into the buying frenzy or the desire to keep up with the Jones'... or wanting a champagne lifestyle on a beer budget... you become the victims. You're irresponsible neighbor who wants to walk away from his or her house is lowering your property value. They aren't paying, so the bank is going to try and dump that house in a short sale. Now, you're underwater because you can't get what you've put into your property. And what? Many of these people could have actually have afforded their mortgages too? If that's is not the epitome of irresponsible, self-centered greed, then I don't know what is. Yeah, that kind of behavior is really going to get our economy back on track. What a joke!
cont'd...
...cont'd
Anyone that thinks walking away is a good idea, albeit a practicality, forgets that what you do affects everyone. But hey... In a country where it seems the only thing that anyone gives a damn about is "let me get mine" ... I guess it shouldn't be much of a surprise. Let's all just keep on reinforcing irresponsible behavior. And if we're lucky, maybe our kids will follow suit right on into the next generation and guarantee any pending demise of our economy as a whole.
The real great irony is that most people who obtained a mortgage in the past 6 or 7 years don't even know who owns it. They don't really know who owns their house. They may be paying the bank, but not the entity that truly owns their home. In fact, you don't even know if the house you walked away from is really "walked away from." Why? You may have walked away from the wrong entity, and that entity who really owned that home shows up at a later time and says to you... "you never paid us our money and now we want it. So what do you have that is worth the money you owe us. Oh, wait, we'll take this house you now have as collateral. you say, No! this is our house, we bought this one free and clear! they say, well it ain't anymore because we have a lien on it until you take care of the house you walked away on before." Good Luck with all of that! Hey... why get caught up in all of the unnecessary details right?
..thanks for sharing, again!
But a couple of points should maybe be stressed to insure this stays insightful as opposed to conversational, your style of writing being the gist:
1) Someone better float the idea of general Loan Forgiveness. You touch on how retirements are ruined with these investments / homes not recovering. But do you really think that's something trivial? Or deserving of something as a priority for the core of day-to-day life as it ages beyond abilities to compete, in a society based on income from skills in the marketplace?
2) Relatedly is detailing the horrors of walking away. There is, that is, still the fact once this is done that it's pretty much your definitive reality. Banks, your credit report, your job, any outside functionary is going to know you as a defaultor. Not as someone who simply let the air out of a balloon?
Keep this story alive!
Thanks!
We have states like Arizona lowering business tax rates, paying for it by denying life saving transplants to those without wealth with no consideration for our moral obligations. A Supreme Court that decided corporations have the same rights as citizen voters, again, with no consideration for our moral obligations. Then we have half our countries leaders and a willing constituent wanting to give the rich and their corporations a free ride, at the expense of the middle class and downtrodden, once more, with no consideration for our moral obligations. The list goes on...and on...and on.
Yet, it's somehow immoral to walk away from a bad financial situation caused by the nations worst recession....lol!
Something we found out about short sales. We had a property in Fla. that went to short sale. We originally paid 429K for it, and it went to short sale at $149K. the $280K difference goes to your taxes as income. You are responsible for it. A lousy rule if you ask me, but that's the way it is.
Scott: The way you started the article is the most important bit of information. The bursting of the real estate bubble left a broken market. Until the overvalued inventory is liquidated, the market cannot function properly, and the drag that this will have on the overall economy will continue to be devastating.
Banks need to lead the way toward the resetting of the market, either through foreclosures or, preferably, short selling.
Beyond that topic, this playing out, or unwinding, of this distressed period is simply business. Morality is relevent only for those predatory capitalists who believe they can use it to influence the ignorant into acting against their own best interests.
The article mentions friends of 30 years who are still not talking to each other over this issue. Who needs such judgemental friends? No loss.
Oh yeah Scott I called my lender when all the Obama mod programs were coming out. My mortgage is a Freddie Mac. I explained my situation to the nice fellow on the other end and I'll try to quote the response, "Sir, because you're current on your payments you don't qualify for the Home Modification program." Can you imagine how livid I was knowing that my neighbors, who bought about two months before me, were living in their home without making payments for about a year and a half. So I again asked the fellow, "So you're telling me that because I'm an honest, bill paying, taxpaying American the government won't help me at all, but if I was a deadbeat cheater you'd give me some help." Well you can guess Scott that he wouldn't say those words because it would probably mean his job.
And come to find out that another house on my street, just across from mine was bought by Clark County in the "Home Stabilization Program" for $60,000 bucks. It's been sitting empty for months with no sale, no tenants or nothing. My tax dollars shoved down the government rathole for a house to lay fallow when I could have bought that sucker, rented it out and been contributing to the economic recovery and evening out my losses.
The upshot of this story is that if you're a God fearing, taxpaying American who has good moral character be ready to take it in the shorts so the government can provide free money to the likes of illegal aliens and malcontent squatters.
Its funny, how many people walked away from their 401 when it lost 60% of its value?? People got caught doing what I call criminal and dishonest, trying to turn or flip a home for a quick profit, but they caught got when the home did not sell, and now that the value is less than what they paid, and they cannot afford it, they blame the banks, but they should be blaming crook mortgage lenders. Let say you own your home but its worth less than what you paid, do you walk away? NO. If people want to pay rent and for someone else's mortgage and go ahead, but its better to pay for your own place and own it outright. Too many people are looking for a freebe, but that won't happen, but at the same time banks and lenders need to do something now, what they have been doing is not working and right now its better to keep someone in the home, if not just to protect their investment. Something is better than nothing and this is the attitude that banks and lenders need to consider.
During the "bubble", My neighborhood (a modest area with small "starter" houses built in the 1980's) which in 2001 was an $80-100k neighborhood suddenly had houses selling for $250k for an 1100 sf house. Any fool who paid $250k for a house on my street is just as much to blame as anyone. When priced get too high, one should REFUSE to pay it. But these fools lined up and paid double and triple the "real" value.
Now my neighborhood is again an $80-100k neighborhood like it should be. Of course, those who paid $250k are long gone, having skipped out on their obligations. They are deadbeats. No credit of any kind should ne extended to anyone who walks, until their past obligations are met. When prices went way up, I didn't cave in to the constant pressure by "friends" to "move-up". Now those who have are crying the blues because they can't make their payments on the place they "moved-up" to. Well boo-hoo! The smart ones stayed out when prices were rediculous.
If you borrowed the money, you owe it back! Like others mentioned, much of that money was taken out in re-fi's to buy vehicles, vacations, pools, boats, etc. My place will be paid off in a few years because we live WITHIN OUR MEANS, a term many of the "walk-away" crowd is unfamiliar with.
The government should offer tax credits to reward those of us who do without "luxuries" in order to keep our mortgage (and other bills) paid, not bailing out those who bought above their means.
Big government doesn't care, why should we? You do what you've got to do, regardless. Yes, it's a horrible decision, but after a while, it'll get easier and you won't feel as guilty. I mean come on, our name isn't General Motors!
Don't you know, Mr. D, that the role of average Americans is to be good and moral and to feed the monsters without complaint and without striking back in any way, shape, or form? You need to continue to support the bank that f^@%#$ you over and got bailed out. Yes, the banks screwed us and were bailed out for it (and are still screwing people), and our lives are destroyed while we have not been bailed out, but the holier-than-thou crowd knows what a good American should do: keep being screwed and doing nothing about it.
99.99% of the world's problems can be tied to borrowing money. It's a game of musical chairs, really. Unless you have an equal exchange of resources at every transaction, someone, somewhere is gonna get screwed. And you know that old saying about how "stuff" rolls down hill.
So honestly, if you really want to "stick it to the bank" ... there's really only one way to do that: don't ask them for money you don't have. But anyone who thinks going back to them and borrowing once more is a legitimate financial move, after you just found out you couldn't pay the first time? What's the other old saying, "fool me once, shame on you; fool me twice...." you know the rest.
Someone should do a story on the number of people who are now defaulting a second time around. That would be news. And then maybe we'd see at the end of the day it's an individual's behavior which gets him or her into trouble. I think the Sun pointed that out very well in their story about the number of people who could pay, but walked anyway. Those are not victims. Those were the same kinds of individuals who would likely do whatever, when no one's watching. So as long as these people are are going to continue to bring my property value down and allow any crackpot to move in next to me because the bank had to dump the house at poverty income qualifying levels.... brother, I am going to say what I think and I don't give a rat's @$s whose feathers get ruffled.
And for the hard working families that lost their homes due to layoffs and such, which they could afford, who didn't try to go all Hollywood, and were making every effort to stay in them, my sympathies are with you and I hope better times await you in the near future.
Corporations do strategic BK all the time.
Hey, some guy writes at a weekly rag that you are going to be the new editor over there?? Guess you will have to die your beard orange.
Who is Scott Dickensheets and why should we care?
It sure seems Nevada media is a pretty closed debating society? Why don't they hire someone from Tunisia?
"A bank is a place that will lend you money, if you can prove that you don't need it."
The important question is will homeowners be able to obtain a new mortgage with interest rate close to todays. History has habit of repeating itself and during my lifetime I recall rates as high as would you believe 18%? No one is mentioning that todays low interest rates more than atone for property devaluation, should we be asking why? Is anyone paying attention to fact that profiteers benefitted from creating great financial risk and again benefit from reactions to problems from such risk?
Purchased an older home in 1998 for $103,000 in a nice established neighborhood. During the boom some houses on my street sold for up to $280,000. If I had bought one of these places I would walk away and tell the lender to eat it! Why pay on something that you can never break even on. Wrong yes, necessary yes. I blame the lenders as much as the buyers. It will take 5 years for my neighborhood to return normal, lots of foreclosures on the market...