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Old 11-10-2011, 07:20 AM   #21
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We have a friend who is under water on his mortgage even though he has lived within his means and done everything right. He’s sticking with his mortgage for as long as he can.
It's quotes like that that really bother me when it comes to people rationalizing walking away from their obligations. Read the quote again. On the face of it, of course he should keep paying his mortgage. Simply being "under water" doesn't mean anything unless he's trying to sell. Every 100%-financed new car ever sold is "under water" the second they're driven off the lot, but that doesn't mean as soon as the owner gets home, he should be fretting about whether he should keep paying the payment, or hand over the keys. It's absurd on the face of it.

At the time he bought the home, he felt it was worth $x. He borrowed $x. He can easily afford the payments on the loan. Nothing in his financials has changed. The only thing that's different is some appraiser somewhere said, "I think today, it's probably only worth $x-y."

So what? That quote above says nothing about his friend's ability to pay. It only says that he's "under water," but is going to soldier on and keep paying his payment anyway.

Of course he should!
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Old 11-10-2011, 07:43 AM   #22
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Carl Richards appears to be more talented as an author than financial planner. Unfortunate for his clients.
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But in hindsight it is clear that we were spending more than we should have on things like recreational gear and family trips for ourselves and our four children.
./.
As for our spending, we told each other that wed catch up later, as my income and the value of our home continued to rise.
./.
The solution was always making more money, not cutting back. The fact is, its much easier to set a goal of making more money in the future than it is to buckle down and cut back today.
./.
We never really worried that things would go to pieces the way they ultimately did. But then came the collapse in the stock market.
Spending, saving, investing, managing risk and having realistic financial goals are the mainstay of financial planning. He failed across the board yet he continues to practice?
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Old 11-10-2011, 08:00 AM   #23
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I am about 8 months away from paying off my condo that is worth $80K less than what I paid for it for 4 years ago. I have even been piling all available cash flow toward the mortgage for the last 4 years to pay it off early. It feels like the right thing to do. When I read stories like this it makes me 2nd guess my strategy but I then focus on the fact that I will never have another debt the rest of my life and let that "feel good" sink in.
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Old 11-10-2011, 08:48 AM   #24
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Carl Richards appears to be more talented as an author than financial planner. Unfortunate for his clients.
Spending, saving, investing, managing risk and having realistic financial goals are the mainstay of financial planning. He failed across the board yet he continues to practice?

It simply amazes me how dumb, smart people can be, and to think this guy was advising clients on financial matters, almost defies logic.

Of course he could always be a poster child on why you should be cautious when using a financial advisor.
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Old 11-10-2011, 09:00 AM   #25
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I don't dislike Fidelity, but this doesn't speak very highly of them.
You would be amazed at who is answering the phone at places like Fido and VG........it does not take a lot to get a job like that.......
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Old 11-10-2011, 09:01 AM   #26
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W2R, I'm with you on those quotes you pulled. Those were the ones that stopped me cold. And Ha, my 30+ year realtor friend didn't see the bubble, either (or more accurately, its end).

Here's the thing--I didn't get my CFP until 2007 (at 38). I knew enough about financial planning at 23 not to think this (and it was for lots less money at stake): “Wow. I guess if they’re willing to lend it to us it must be O.K.”

And the first time I saw that Pick-A-Payment crap, I thought--whoa, now there's something stupid. But in the interest of supporting my own designation, I'll say that people who are good at math may not always be good at their own finances. I'm remembering my dad's doctor who smoked like a chimney, and thinking of the cobbler's kids with no shoes.

Not that I'd take financial advice from the guy, but he's just one CFP in a pretty large pool. Loved the article. Thanks for sharing.
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Old 11-10-2011, 09:15 AM   #27
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He failed across the board yet he continues to practice?
That's why it's called practice.

Ha
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Old 11-10-2011, 09:41 AM   #28
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From reading about all the past bubbles that have popped, I think that this,
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My realtor has been selling houses as a broker for >25 years. She didn't see the crash coming, and very few others did either.
is more accurately expressed as this part that I highlighted,
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And Ha, my 30+ year realtor friend didn't see the bubble, either (or more accurately, its end).
All the way back to the fricking Tulip Mania, the market participants in these bubbles eventually all knew it was going to end badly, just not when. They are all convinced that they're smarter than everyone else, they all believe that they will be able to get out before the bubble pops. It's greed, and ignorance, and nobody is willing to accept that they may be the greater fool.

If I were in a charitable mood I would say that perhaps the realtors are not true market participants, but just cogs and wheels of the machine itself. In which case they can be counted on to keep functioning properly, until they don't anymore. Or, since they're sales people, to party like it's 1999 on their commissions until the bust comes.

Whether they were greedy greater fools playing a Keynesian beauty contest, or clueless functionaries, I don't think we will find too many that will line up to admit to it.
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Old 11-10-2011, 11:52 AM   #29
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If I were in a charitable mood I would say that perhaps the realtors are not true market participants, but just cogs and wheels of the machine itself. In which case they can be counted on to keep functioning properly, until they don't anymore. Or, since they're sales people, to party like it's 1999 on their commissions until the bust comes.
Whether they were greedy greater fools playing a Keynesian beauty contest, or clueless functionaries, I don't think we will find too many that will line up to admit to it.
Agree, realtors are like stock brokers or FPs, their job is to facilitate transactions, and their continued presence in that field requires that they do this. When does it go most easily? In a boom. Same with developers. A very few exercise market discipline, the rest build when they can where they can whenever they can get their hands on money to build with. A realtor would be quickly transitioned to another field if she were not out there selling when a chicken coop is going for $350,000.
But many long time realtors also are investors in and managers of rental housing. The woman I am speaking of didn't put her rentals on the market either.

I began to look around at real estate for myself maybe 3 years ago. At that time the Seattle market had not yet suffered much, and I did not meet one realtor at an open house or on a trip out to see listings who expressed any concern. Seattle is different, blah blah. A few months ago I got an email from a guy who took me around to look at several downtown projects, when they were coming to auction after being unable to sell out on completion. He wanted me to sign an agreement with him, which had I been the agent I would have wanted also, but being a shopper with no deadline and considerable cash, I felt that I had a very strong position. I was willing to live out my life in my apartment, if the buy/sell equation did not improve markedly. So I declined his importuning.
Anyway, he emails and says, well I guess you were right to wait, want to look now?

A person has to be wary of salesmen. It is impossible to get them to discuss anything. It is useless to disagree. They just assume you are a whiner and they will never sell you anything, which has more than a grain of truth in it. I actually do not debate with them, but I also pay little attention to them. But they have that key box, which is the secret to the profession.

More broadly, real estate is sticky. Maybe an owner can sell a rental, if you think the market loss will be greater than the 10% or so transaction costs and certain amount of fix-up and lost rent. But try to sell you suburban house with kids in school and keep your wife through the process!
Selling a family home is a tough call, since prior to the last 5 years,>50 years of experience says prices go up steadily over time. How many people unplugged their index funds in 1999? Some did, but not many. It is very hard to walk away from something that is coining money. Especially a leveraged investment that is coining money

Ha
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Old 11-10-2011, 12:47 PM   #30
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"Lost His House" is just a catch-phrase ... he did a SHORT SALE and in all likely hood will not have his credit scared. Once the mortgage is released for the sale, the banks lost is sometimes forgiven.
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Old 11-10-2011, 06:01 PM   #31
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I’ve also learned some things about risk. Risk is an arbitrary concept, until you experience it. And I’ve noticed myself focusing more on the consequences of something going wrong than just the probability of that happening. As a result, I tend to urge my clients to make decisions that err on the side of caution.
Many people have this problem with understanding risk. Those people occasionally win and we get all kinds of articles about their bold risk taking, but really it was this misunderstanding. Mostly they muddle through until they lose.

This guy seems significantly underqualified as a financial planner. Possibly he was a good salesman. It wasn't just one mistake or bad stroke of luck that caused his problems. It was an extended series of poorly understood decisions, many of which were very risky. Many of which he should have known better as a financial planner, but I can only hope he gave better advice than what he did for himself. I wonder how his clients fared?
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Old 11-11-2011, 12:12 PM   #32
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This guy seems significantly underqualified as a financial planner.
I guess I am overqualified then, since I have 90% equity in my home and no other debt............
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Old 11-11-2011, 01:58 PM   #33
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It's quotes like that that really bother me when it comes to people rationalizing walking away from their obligations. Read the quote again. On the face of it, of course he should keep paying his mortgage. Simply being "under water" doesn't mean anything unless he's trying to sell. Every 100%-financed new car ever sold is "under water" the second they're driven off the lot, but that doesn't mean as soon as the owner gets home, he should be fretting about whether he should keep paying the payment, or hand over the keys. It's absurd on the face of it.

At the time he bought the home, he felt it was worth $x. He borrowed $x. He can easily afford the payments on the loan. Nothing in his financials has changed. The only thing that's different is some appraiser somewhere said, "I think today, it's probably only worth $x-y."

So what? That quote above says nothing about his friend's ability to pay. It only says that he's "under water," but is going to soldier on and keep paying his payment anyway.

Of course he should!
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Old 11-11-2011, 06:50 PM   #34
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Carl Richards appears to be more talented as an author than financial planner. Unfortunate for his clients.
Spending, saving, investing, managing risk and having realistic financial goals are the mainstay of financial planning. He failed across the board yet he continues to practice?
Why do you say "Unfortunate for his clients"? The article said nothing about how well or badly his clients fared. I don't think it is unusual for someone to be very objective wrt to others, but fail with themselves. Doctors who smoke, coaches who are overweight, and yes, FP's who go broke.

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It's quotes like that that really bother me when it comes to people rationalizing walking away from their obligations....

Of course he should!
I respectfully disagree. A mortgage is a financial contract, not a moral one. If it stops making financial sense, you should terminate it. That termination is not without costs & consequences. The person loses a home, their down payment, any improvements & has to pay more for a loan in the future, in case they ever qualify for one.
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Old 11-11-2011, 07:10 PM   #35
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I am about 8 months away from paying off my condo that is worth $80K less than what I paid for it for 4 years ago. I have even been piling all available cash flow toward the mortgage for the last 4 years to pay it off early. It feels like the right thing to do. When I read stories like this it makes me 2nd guess my strategy but I then focus on the fact that I will never have another debt the rest of my life and let that "feel good" sink in.
Your doing the right thing. A deal is a deal. Never mind the legal minimum. Yeah what I did was legal but was it was not right. Sorry, but as one highly disillusioned and ticked off penn state alum I needed to vent
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Old 11-11-2011, 09:50 PM   #36
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Why do you say "Unfortunate for his clients"? The article said nothing about how well or badly his clients fared. I don't think it is unusual for someone to be very objective wrt to others, but fail with themselves. Doctors who smoke, coaches who are overweight, and yes, FP's who go broke.
I said "unfortunate for his clients" because it appeared to me he had failed in "Spending, saving, investing, managing risk and having realistic financial goals", and I believe these are "the mainstay of financial planning".
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Old 11-11-2011, 11:18 PM   #37
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I respectfully disagree. A mortgage is a financial contract, not a moral one. If it stops making financial sense, you should terminate it. That termination is not without costs & consequences. The person loses a home, their down payment, any improvements & has to pay more for a loan in the future, in case they ever qualify for one.
I disagree. Every contract is a moral contract. You've committed to pay the mortgage as long as you're able. If you're no longer able, the contract spells out the clauses which kick in to try and make the lender whole. However, the lender did not enter into the agreement expecting that the borrower would activate the "default" clause by choice, rather than necessity.

When you skip out on the bank, it's nice to think you're just screwing a gazillionaire CEO, and no one else. But in reality, you're screwing the shareholders. That's your grandparents, your pensioners, maybe even yourself.

People who are able to pay, but skip out, are thieves. Dirty, amoral, worthless scummy thieves.
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Old 11-12-2011, 12:09 AM   #38
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People who are able to pay, but skip out, are thieves. Dirty, amoral, worthless scummy thieves.
Come on, please tell us what you really think.
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Old 11-12-2011, 08:07 AM   #39
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I disagree. Every contract is a moral contract. You've committed to pay the mortgage as long as you're able. If you're no longer able, the contract spells out the clauses which kick in to try and make the lender whole. However, the lender did not enter into the agreement expecting that the borrower would activate the "default" clause by choice, rather than necessity.

When you skip out on the bank, it's nice to think you're just screwing a gazillionaire CEO, and no one else. But in reality, you're screwing the shareholders. That's your grandparents, your pensioners, maybe even yourself.

People who are able to pay, but skip out, are thieves. Dirty, amoral, worthless scummy thieves.
I bounce back and forth on this issue, as walkinwood said there is a price to pay for defaulting. However, the people (many in Vegas area have done this) who buy a second house across the street for 1/2 the price of their identical home they live in, then strategically default on the original, seems very unfair. Not only do they get out of the burden of the depreciated assest, they stand to achieve an immediate capital gain on any uptick in the market. It appears to me these people get to have their cake and eat it too, compared to the ones who sit tight and pay.
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Old 11-12-2011, 08:37 AM   #40
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A contract is a legal obligation, not a moral one. When one party is unable or unwilling to fulfill its obligation the contract specifies the remedy. In Nevada if the mortgage provider feels the borrower has the ability to pay it is free to go to court and demand payment. While a few may have found ways to take advantage of this, for most borrowers, homebuyers, lenders and all those that are (or were) employed providing related services it is a huge mess with everyone getting hurt in some way.
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