I would say it's ok to walk away if you lost your job and have no prospect of finding a new one soon or the one you found is at a lower pay and you tried to work with the lender and they won't play ball. In that case, as hard and as emotionally wrenching as it is, cut your loses. Who knows, maybe the lender might be willing to play ball if they think you are serious about leaving.

I am SOOO lucky I bought my place when I did: Oct of 2001. It doubled in value 6 months later and is still valued over 100K more than I paid for it.

Kanrei - you ought to be a chick magnet owning your own home!

LOL...my personality is the best birth control ever made =D

And I would have thought it to be your charm...yeah...charm...*;]

LOL...my personality is the best birth control ever made =D

#4 | Posted by kanrei at 2010-03-03 11:18 AM |

I thought you had money? That is all women really want. You should be able to find one pretty easily.

Kanrei - you ought to be a chick magnet owning your own home!

#3 | Posted by nanc

Kanrei, I have two words for you: PRENUPTUAL AGREEMENT. I think you understand, right?

Jackass, maybe he'll have to wait till he's older and get a really young chick. Just sayin'.

I thought you had money?

Whatever gave you that idea? I am a "paycheck to paycheck" person.

Money is not at the top of the list of things women want, jackass.

How the hell would you know?

It doesn't seem like it would be ok to walk away from a loan.

I think it would be your problem for not planning ahead for the possibility of not being able to afford your loan. You must pay your debts.

You took the risk when signing up, now it is time to pay them off when you end up losing.

#11 - because I'm content and happy despite having extra money and would give up money and possessions to have peace of mind. Although, at this point in time I don't have to!

Businesses walk away from loans all the time. Investment banks have willingly defaulted on tens of billions of dollars worth of mortgages, leases, bond payments--all because they deemed the investments to be irretrievably under water.

They shouldn't be upset when their customers do the same.

I'm with RiR on this one, but I would like to add that the person who walks away shouldn't bitch when their credit goes to pot and they can't get a loan or credit card. Of course anyone who is walking away from a loan should probably think twice about borrowing anyway, so maybe a denial of access to credit would be a good thing.

Nanc> No, you shouldn't feel bad about it, and you shouldn't feel guilty.

Except for the situation where the person has no job and no way to even continue making loan payments, I'll have to disagree. Just because the loan amount or interest rate is staggering does not give the borrower carte blanche to jump ship. Pay it off, or pay it down as much as possible and then sell it.

I agree with Taxman (#15) that those who walk away should not complain one bit when their horrible credit rating keeps them from getting a car, credit card, house loan or whatever. Making a bad deal does not give one the moral right to walk out of it later on.

I'm with RiR on this one,

#15 | Posted by taxman

I'm not. RiR thinks it's okay to walk away for simply being underwater. Just because others walk away from debt, no matter how big the entity, doesn't make it right for someone else to do so. I'm getting pretty tired of this -they did it, so can I- mentality. A deal is a deal. People should always do what's in their power to keep a promise.

A deal is a deal. A mortgage is a two-party contract, which says that in the event the mortgagee fails to make payments, the bank will take the house back. If you buy a car and fail to make the payments, they will repossess it. And so on.

Fact is, in many parts of the country, paying on an underwater mortgage is the irresponsible thing to do. Tell me something What'sleft--if you were in an underwater mortgage, and your ARM was about to reset and you needed to come up with $50,000 cash to refinance, would you take it out of your 401k? Take a huge penalty and pay taxes besides, just because you can do so?

Answer that question, and you'll see what a few million households are going through, right now.

Fact is, once you've agreed to a mortgage contract, even if the property is foreclosed upon, you are still liable for the amount of the loan and not the current value of the house. If the bank forecloses on a property and resells it for the depressed value, they may still come after you for the difference. The contract is not fulfilled upon repossession.

People are technically and legally obligated to pay back the amount that they borrowed, regardless of the market value of the asset used as collateral.

That's the reality. And believe me, it gives me no pleasure to argue on behalf of the banks that contributed strongly to creating this mess.

Answer the question: suppose in 2005 you took out a 5/1 ARM for a home you bought for $200,000. It has since fallen in value to $160,000, and the bank now requires 20% equity to refinance. Therefore, you need to go into your savings for $72,000--just so you can be $50,000 underwater for years to come.

Do you do it, or not? Because to get $72,000 out of a retirement account, you need to get nearly twice that, to cover taxes and penalties. Would you do it?

And in many states, your post isn't true: you can walk away only by forfeiting the keys. And failing that, you can declare bankruptcy.

Answer the question:

#20 | Posted by rightisright

If I were in the situation you describe, as a last resort, I would still pay the bill. I hope I'm wrong, but even though it's the right thing to do, I don't believe you'd pay it. And frankly, reading your posts over the time I've been here, I doubt if you have the character to pay it, even if you have it in cash.

Tell me, do you also walk away from cars when they're worth less than you owe? If a friend loaned you money, with no collateral, would you stiff them because there was nothing securing the loan?

It's all the same.

Polonius:
Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
Hamlet Act 1, scene 3, 7577

They never learn.

I've had no mortgage since I was in my mid 20's.
And that one was to my father.

The 5% voter turnout in Texas is the most telling fact of the moment.

I paid off the only mortgage I had left, last month. It felt good!

Tell me, do you also walk away from cars when they're worth less than you owe? If a friend loaned you money, with no collateral, would you stiff them because there was nothing securing the loan?

It's all the same.

#22 | Posted by Whatsleft
* * * * *

Nope. It isn't the same. Millions of people bought homes under the assumption that they could refinance in a few years. Now, a few years have passed, and they can't refinance, because the same banks that gave them the loan in the first place won't let them. That means they either have to run up credit cards to make up the difference, or tap huge amounts of savings, which most Americans famously do not have.

As a banker, you should insist on fairly tight rules regarding loan-to-equity. It's not the homes that have positive equity, or were written with tougher standards, that are being defaulted on. But rather the ones that weren't. Liar loans, no-documentation loans, 125% loan-to-value loans--the lenders acted recklessly, and now they hope there are enough people like you out there who say "a deal is a deal"--even though part of the deal was that the home would continually rise in value. The banks' own models said so, and that whatever defaults there were would STILL be profit centers through foreclosure.

I used to work at Citigroup, pal. Don't feel sorry for any of them.

If I were in the situation you describe, as a last resort, I would still pay the bill. I hope I'm wrong, but even though it's the right thing to do, I don't believe you'd pay it.
* * * *

And suppose you didn't have $72,000 laying around--what then? Would you borrow it from your parents? Or take it out of your kids' college funds? What if it's not $72,000, but $250,000? Because those are some of the numbers coming out of CA and Miami. Would you take $250k out of your retirement plan, just so you could refinance your underwater house? How about if you knew your home wasn't worth that much, but your tax appraiser insisted that it was, and you were paying higher taxes based on that? And higher insurance premiums and homeowner association fees, even though everyone knows the market is off 45%?

Easy to throw stones. In my case, I got lucky. The bank that had the mortgage on my house went bankrupt, and my note was bought by a hedge fund for 9 cents on the dollar. They paid me $1600 to leave, and they have the house up for sale. I wasn't underwater, but I'm glad I didn't have to try to sell it in this market. They're having a crack dream with the price they're asking, though.

Millions of people bought homes under the assumption that they could refinance in a few years

Many also bought homes under some assumption that they could sell them at a very large profit in a few years. It was speculation. They lost. If they possibly can, they must still pay their side of the bet.

I do also agree that banks hold significant responsibility for this, but certainly not all of it. The banks should make a reasonable effort when possible to prevent foreclosure and minimize the loss. IMO they really haven't done so.

And suppose you didn't have $72,000 laying around--what then?

If someone is broke for some severe unforeseen reason then some debt may be forgiven. That is supposed to be what bankruptcy if for. If someone still holds assets then they have a way to pay debt. Assets are assets, no matter what they are set aside for. The retirement may be delayed or the kids may have to take out college loans. If someone incurs the debt they should be required to pay it back. IMO that goes for everyone from AIG and/or the U.S. government, down. Unless someone can prove that the debt is significantly unrecoverable, the debt is still owed.

I'm not going to spend all night working through every hypothetical scenario you can imagine. I think I've explained this clearly enough.

"Answer the question: suppose in 2005 you took out a 5/1 ARM for a home you bought for $200,000. It has since fallen in value to $160,000, and the bank now requires 20% equity to refinance.

Not sure the math works out RiR and no lender is going to refinance in that situation. Regarding the 5/1 ARM and regardless of the program, all borrowers can pay the full ammortized payment and reduce the principle just like a fixed loan. Whatsleft pretty much summed it up accurately.

That's not what's happening. The ARMS are resetting with sharply higher monthly payments that the borrowers can't afford, OR there is a balloon payment due which pays off the loan. Those are your choices.

I've no mercy for the banks. None. They overlevered their balance sheets so they could speculate in the markets. Then when those investments went bad they went scrambling to the Congress for a bailout, got it, then went about putting the screws to the millions of borrowers who can't afford the new notes, with rising unemployment besides.

Let the banks fail, and the borrowers go bankrupt, and the country can move forward with clean balance sheets. That's how it's supposed to work.

#25 | Posted by Whatsleft - CONGRATS!

"That's not what's happening. The ARMS are resetting with sharply higher monthly payments that the borrowers can't afford, OR there is a balloon payment due which pays off the loan. Those are your choices."

The ARMS that are resetting are going to a fixed rate, other than the balloons which are due and like you said must be paid off or refinanced, the fact is 30 year rates are around 5% and not much higher than the start rate back in 2005. I agree the interest only and neg ams will go up, but keep in mind they saved money for almost 60 months and probably would never have been able to qualify for a 30 year fixed mortgage to buy or refinace a house.

Let the banks fail, and the borrowers go bankrupt, and the country can move forward with clean balance sheets. That's how it's supposed to work.

#30 | Posted by rightisright

And with that sentence it seems that we're not all that far apart. We just seem to have a difference of opinion about what defines a bankruptcy for the borrower. In my opinion anyone who has a positive net worth (regardless of what their assets were set aside for), or has a demonstrable ability to pay, is not bankrupt and does not qualify to walk away from self-incurred debt.

#31 | Posted by nanc

Thank you.

First of all jackass is 110% correct. If you believe this article cause it's from the WSJ...then you should believe JA comments...the WSJ said such years ago on the front page. I thing they called it...;the ability to earn income;

What's left, that day is called the mortgage burning party! I told my ex when the house sold, she could have a marriage certificate burning party!

Walking away from a mortgage? I believe their is more negatives to it then this guy alluded to. A bad credit score can cause you high insurance rates, lower employability, higher interest costs, etc. Doesn't it also fuck you over on your taxes RIR?

Just in terms of ethics, morality and soundness of logic, it is not alright to walk away from a loan that you took out with the knowledge that you would have to pay it back in accordance to the terms listed, and the possibility of the terms changing was present.

The people signed up for this. They will learn through this, an they might face adversity. Next time hopefully they will think twice.

I don't mind private individuals helping them, but when they walk out on their loans, and their houses, and their responsibilities, they increase the loans, house payments, and responsibilities of others simply because they were not responsible with that they have.

It remind me of a quote from the "He who is guarantor for a stranger will surely suffer for it, But he who hates being a guarantor is secure."

Proverbs 6 has some good information as well. Basically, you are at the mercy of those whom you guaranteed If they choose not to let you off, You have no one to blame but yourself.

#36 Expsredemption> It remind me of a quote from the "He who is guarantor for a stranger will surely suffer for it, But he who hates being a guarantor is secure."

Many of my friends have adhered to budget stretching financial advice that is, um, WAS popular for the past few decades. Some of them are currently living in homes with an underwater mortgage (a term I was completely unfamiliar with two years ago) and suffering the self-induced effects of high credit card balances. A few have lost their homes and are either renting or living with relatives. I do feel very sorry for them, but other than advice I cannot help.

I was raised by people who lived through the Great Depression, and heard numerous times about the details of growing up 'poor', but not knowing that they were because all the people around them were in a similar state. Those lessons stuck with me and I steered a course to avoid credit unless absolutely necessary, and when borrowing did all I could to stack the deck in my favor (lowest interest rate, largest down payment, payoff as quickly as possible, savings as a hedge). It hasn't been easy and I have done without many luxuries but always had the necessities I needed.

Now more than ever, I want to thank my parents and grandparents for those valuable lessons. I really didn't think they would be so valuable as they have become.

Addendum: for those who are even remotely interested in financial advice from a biblical perspective

People who think morality has anything to do with contracts deserve to be fleeced of every dime they have.

If you make a contract, you should stick to it, otherwise, don't make it, and don't be pissed off when the bank decides to break contract with you next time you buy a home and almost have it paid off.

You are basically saying, if you are losing in the contract, you get to walk out.

So... when the bank is about to lose their property that they are lending to you until you pay them for it, they can just take it back, break the contract and kick your sorry behind out on the street.

That is what you advocate, yet you will whine and cry and scream and kick and fight, and piss your pants when it happens to you by another party.

HYPOCRITICAL EMOTIONALISM

When the home is way underwater, you've already bought a second house or have private money available to lend you, and you're ready to take a credit and perhaps tax hit. It also helps if your state has antideficiency rules.

Fact is, once you've agreed to a mortgage contract, even if the property is foreclosed upon, you are still liable for the amount of the loan and not the current value of the house.

#19 | POSTED BY WHATSLEFT AT 2010-03-03 05:42 PM | REPLY | FLAG:

It depends on your state. Many states have antideficiency statutes where all the bank would get is the property back.