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Old 12-29-2009, 05:06 AM   #41
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Excellent points by all - and sorry for hijacking the thread, although I thought it was related.

My point was that she made a choice...and was led to that choice by the 'rules of the game' at the time...‘Go get whatever house you want. It doesn’t matter.’ "Baker and two daughters plan to live in this house payment-free for the next several months." I agree with the poster that says she needed to have more skin in the game initially...also, that if she is able to pay something, the other contractual partners should get some recompense.

There is a certain amount of trust needed in society for an economy to survive. There needs to be trust in the 'rules of the game' and the enforcement of those rules. Frankly, I'm amazed at how much trust is needed. Knowing a little about technology, trusting that the bits flowing to my computer from my bank and/or any financial organization with regard to what assets I have - yes, the virtualization of it - is amazing. I.e. I trust that the information displayed to me represents a 'tangible' or physical/material entity somewhere. Trust in the system becomes paramount, the underpinning of the enterprise.

Her decision to forgo this financial burden should have some serious repercussions on her and the person that entered into the contract with her - their reputations should be sullied and any financial contact with them should carry a high price, i.e. reflect the risk one takes in associating financially with them. If that does not happen, then the trust one has in the system should justifiably be lowered, because then I and many other non-original participants in this transaction will pay for their poor decisions. Additionally, I don't remember a document telling me I am responsible for their poor decisions......
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Old 12-29-2009, 07:19 AM   #42
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Ditto totally.
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Old 12-29-2009, 12:51 PM   #43
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There are consequenses for those who choose to walk away. I can remember in the early 1990's (carrying 3 upside down properties) when it was time to buy - again - and all the "investors" who walked were foced to pay cash. No lender would touch them with a 10 foot pole. Meanwhile I was able to pay 20% down and finance the rest of the REO purchase (even while carying the upside down properties). Point being, the walkers paid a heavy future price for thier actions.

Of course eventually the market turns right side up (took 12 years for me) then you sell and the burden is lifted. But this is not for the faint heart.
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Old 12-29-2009, 01:00 PM   #44
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Point being, the walkers paid a heavy future price for thier actions.
Well, in this case. But I think in non-recourse states a borrower who already has credit cards, isn't in the property ownership business and doesn't plan to borrow for another property can walk and have it have minimal impact, especially if their credit score is high to begin with.

I can certainly see where someone in the business of owning properties through financing could be hurt by having a "walk away" on their record however.
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Old 12-29-2009, 01:15 PM   #45
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I wonder if finance companies or credit reporting agencies/credit scoring companies will add in a new metric for "walked from mortgage".

Walking from the mortgage may cause a medium sized dent using today's standards, but the metrics could be rejiggered to look at type/magnitude of default as well what with the plethora of data available these days.
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Old 12-29-2009, 01:31 PM   #46
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I wonder if finance companies or credit reporting agencies/credit scoring companies will add in a new metric for "walked from mortgage"
You'd think they would. I suppose it depends on whether they think that one time "walkers" present an ongoing credit risk or not. I dunno. If someone with an otherwise fine credit rating who pays all their bills on time walks on an upside down mortgage to save $200k (even though they could easily absorb the $200k hit), does that make them more likely to be a credit risk on incidental, small debts?
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Old 12-29-2009, 01:35 PM   #47
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You'd think they would. I suppose it depends on whether they think that one time "walkers" present an ongoing credit risk or not. I dunno. If someone with an otherwise fine credit rating who pays all their bills on time walks on an upside down mortgage to save $200k (even though they could easily absorb the $200k hit), does that make them more likely to be a credit risk on incidental, small debts?
Good point - it may not necessarily mean they are worse credit risks just because they strategically default. Heck, maybe they are better credit risks. I'm sure the banks/lenders will data mine and figure this out, and if useful look at the strategic default instances as a factor in assessing risk.
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Old 12-29-2009, 02:11 PM   #48
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Funny that their walking away doesn't impact their credit score, but my paying off my mortgage drops mine (supposedly, though I haven't seen it). What a world we live in!
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Old 12-30-2009, 03:46 PM   #49
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You'd think they would. I suppose it depends on whether they think that one time "walkers" present an ongoing credit risk or not. I dunno. If someone with an otherwise fine credit rating who pays all their bills on time walks on an upside down mortgage to save $200k (even though they could easily absorb the $200k hit), does that make them more likely to be a credit risk on incidental, small debts?

Hence, the irony, to me, of a credit score. I thought a high score meant you weren't likely to walk/default/not pay, etc. Turns out, as I suspected, that credit scores are BS, and all kinds of crap is hooked to your credit score. I'll let the insurance company continue to think that I "drive nice" because I pay my bills on time.

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Old 12-30-2009, 03:54 PM   #50
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Funny that their walking away doesn't impact their credit score, but my paying off my mortgage drops mine (supposedly, though I haven't seen it). What a world we live in!
It does impact their credit score, just not as much as you'd think. We discussed this in another thread. A magazine article the OP of that thread posted said that the max hit to your credit score for "walking away" is 160 pts. So if you have an excellent score to begin with, you still have a mediocre score afterwards.

Hypothetically speaking since I haven't had a mortgage in many years, if the only thing of consequence that happened from walking away from a mortgage that was upside down by $200k was that my 800+ credit score dropped to the upper 600's, that wouldn't stop me. I'd probably never notice any negative impacts from the drop in credit score.

It's strange really.......
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Old 12-30-2009, 08:25 PM   #51
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Didn't we just have this discussion? These folks never really owned a house. They owned an option on a house. The option is now hugely underwater so they are making the economically rational decision to walk away. If I owned shares in a company faced with this situation and they did not walk away I would sue management and the board.
This is how I see it. Especially in a state where you are not going to get slapped by a deficiency judgment, get the hell out and put the money into your IRA.

I think many of us don't really understand the rules of the game that we are playing. Run out of money, live on the street and get raped from time to time. Have money, live well and securely and drive a nice car and attract a mate. Doesn't seem like a difficult choice.

Very few other than the people on the board wouldn't privately agree, though perhaps they would say differently. In fact, I wonder how many of our upright homeboys around here might not behave differently from the consensus of comments if confronted with the choice in their own lives.

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Old 12-31-2009, 12:44 AM   #52
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Hence, the irony, to me, of a credit score. I thought a high score meant you weren't likely to walk/default/not pay, etc. Turns out, as I suspected, that credit scores are BS, and all kinds of crap is hooked to your credit score. I'll let the insurance company continue to think that I "drive nice" because I pay my bills on time.

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If you are in a position to walk (as brewer says) why not?

I can't claim personal experience, because in Canada we are in recourse land. For tax reasons, it might is better to pay off the mortgage here (another thread if anyone wants to pursue it). Most of us nearing FIRE have NO debt.

If I had a no recourse mortgage and was seriously underwater, I'd at least consider walking. What does a lowered credit score mean to someone who has no debt nor any reason to assume one? The banks have a lot of "fine print" in any agreement (look at your CC docs), they don't expect you to read it, otherwise it would be large print.

Totally irrelevant, but why would I care about my credit if I pay all bills with cash and owe nothing?
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Old 12-31-2009, 01:37 AM   #53
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Is this how you rationalize irresponsible and reckless financial behavior resulting in a taxpayer-funded handout bailout?
The borrowers who are walking away are fully complying with the contract they signed. They don't owe the mortgage holder any more than that. If you are as upset as I am about having to bail the banks out, then I hope you'll agree that the proper target of our ire is with the legislators who agreed to do that. This borrower didn't force you and I to bail out her lender. Her lender made a risky loan and isn't suffering when that turned out badly.
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Old 12-31-2009, 06:59 AM   #54
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.... In fact, I wonder how many of our upright homeboys around here might not behave differently from the consensus of comments if confronted with the choice in their own lives.

Ha
I have had the choice more than once.

I paid my bills and met the commitments I made.
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Old 12-31-2009, 09:40 AM   #55
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Never had to face such a choice in my life - unless you count that I chose not to take a loan for anywhere close to the value of the property - so I never put myself in a position where price declines could put me underwater.
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Old 12-31-2009, 10:39 AM   #56
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The borrowers who are walking away are fully complying with the contract they signed. They don't owe the mortgage holder any more than that. If you are as upset as I am about having to bail the banks out, then I hope you'll agree that the proper target of our ire is with the legislators who agreed to do that. This borrower didn't force you and I to bail out her lender. Her lender made a risky loan and isn't suffering when that turned out badly.
In that previous thread, brewer's comments did also bring me around to seeing it as just a contract. It is the banks fault for entering a contract w/o enough protection.

I can see how it happens though. If a 'responsible' bank holds lenders up to certain standards, you start losing a lot of business. So, you loosen a little, they loosen a little, and it's probably a downward spiral from there. It's all good until the conditions change and the defaults start.

But I bet these banks spread the risks around. I'd like to be able to get into a low risk pool. Hey banker, I'm going to mortgage just 40% of my non-bubble home value, I have an excellent payment history, cash in the bank, etc, etc. I'll even put my retirement account up as collateral. If it drops below X, you have the option of calling the mortgage right there and then with a WD from that account. Let's talk a really low rate, shall we?

I guess I could get a 'good' rate today, but really, how much better than someone on the edge? I bet the difference in risk isn't really reflected in the rates, but sort of averaged out. But, if they did that, we'd be back to the complaints that a bunch of people are being 'discriminated' against because the mean old bank won't loan them money at the same rate as the 'rich' (ant) guy.

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Old 12-31-2009, 12:54 PM   #57
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Speaking to a realtor who was triing to negotiate a short sale ... bank finally agrees to the selling price but adds that fraud charges will be pursued against the seller. They reasoned that the $$ pulled from the property via a HELOC just prior to not paying the mortgage was fraudulent. Short sale fell apart from there ... then the foreclosure ... then the vacancy ... then the vandals .... nobody wins.
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Old 12-31-2009, 01:16 PM   #58
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This is how I see it. Especially in a state where you are not going to get slapped by a deficiency judgment, get the hell out and put the money into your IRA.

I think many of us don't really understand the rules of the game that we are playing. Run out of money, live on the street and get raped from time to time. Have money, live well and securely and drive a nice car and attract a mate. Doesn't seem like a difficult choice.

Very few other than the people on the board wouldn't privately agree, though perhaps they would say differently. In fact, I wonder how many of our upright homeboys around here might not behave differently from the consensus of comments if confronted with the choice in their own lives.

Ha
+1.

Its a cold, uncaring world out there, kids. I do not believe any of us would prefer to walk away from an overlevered house or face foreclosure, butyou do what you have to in order to make it. For families with kids, that goes double or triple. There is not a lot I would not do to put food on the table and take care of my kids.

This sort of thing is what finally pushed me into the camp of getting the mortgage paid off sooner rather than later (or never).it is a clear way to take the risk of being buck naked with b@lls blowing in the breeze and kids along for the ride.
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Old 12-31-2009, 02:43 PM   #59
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Speaking to a realtor who was triing to negotiate a short sale ... bank finally agrees to the selling price but adds that fraud charges will be pursued against the seller. They reasoned that the $$ pulled from the property via a HELOC just prior to not paying the mortgage was fraudulent. Short sale fell apart from there ... then the foreclosure ... then the vacancy ... then the vandals .... nobody wins.
I think generally speaking there aren't any winners (except for the folks who pay the cheap houses.) But I am glad to see the bank perusing fraud charges. If you walk into a bank, lie and say you have a gun, and demand $10,000, you will go to jail for a very long time when caught. If you do essentially the same thing with a HELOC, demand $100,000 say you will pay back eventhough you have no intention of doing, generally speaking all that will happen is your credit score goes down 160 points.

If we want people to behave morally we need to make it hazardous when they fail to do so.
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Old 12-31-2009, 02:58 PM   #60
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I think generally speaking there aren't any winners (except for the folks who pay the cheap houses.) But I am glad to see the bank perusing fraud charges. If you walk into a bank, lie and say you have a gun, and demand $10,000, you will go to jail for a very long time when caught. If you do essentially the same thing with a HELOC, demand $100,000 say you will pay back eventhough you have no intention of doing, generally speaking all that will happen is your credit score goes down 160 points.

If we want people to behave morally we need to make it hazardous when they fail to do so.
You seem to have missed the point. The bank had a short sale lined up that would have given them back a chunk of their outstanding loan. They screwed up the deal by saying they would pursue fraud charges and instead of getting a pile of cash they got the costs of pursuing foreclosure ($$$), lost interest, and a piece of REO that has been trashed (and lost tons of value) and which has hurt the value of the surrounding property. Net loss for everyone.
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