Interesting Article - House Is Gone but Debt Lives On

[Helen]

I agree. Very painful times. But the buck can't stop with the buyer because most aren't in the position to make good on the debt. So the buck stops with society thru taxes and fees. In that light I think it is imperative that one should reasonably be able to expect that the other cogs in the wheel are acting prudently, ethically, and competently. The tech bubble really isn't a fair comparison because you couldn't walkaway from your losses.

Good points.

 

[chinaco]

Some people just bought at a bad time. They were doing everything right... just timing. It is sad.

I lost money on some individual stocks I bought during the tech bubble... It was a lot of money (to me it was a lot... and probably would be to you). It hurt. But it did not ruin me because the investments were just part of my holdings... not excessive.


IMO - the really sad part is the job losses... which may bring about some defaults.

Fortunately, those people have a way out... bankruptcy or some sort of negotiated settlement with the bank.

Working borrowers... especially those that are solvent.... the banks are not going to do anything (IMO) because it would represent a large part of their mortgage portfolio. From their perspective they lost money on a decade of mortgage business. They are going to do everything they can to minimize their losses.

 

[jayc]

I feel that if someone is trying to hurt me, he belongs hurt himself. The mortgage scam over the recent period has been so egregious and corrupt that IMO anyone who can safely walk away from a large debt should.

Ha

So, being responsible for ones actions and decisions can be quite a burden.

 

[rescueme]

Love that quote, which I heard often in my youth.

Also, "don't bite off more than you can chew" applies to (any) debt.

 

[haha]

So, being responsible for ones actions and decisions can be quite a burden.

Whatever

 

[harley]

Sure you would. Private companies behave stupidly, naturally that's the government's fault.

Quite often, yes. Private companies react to incentives, and often the gov't gives them incentives to act stupidly. I'm sure they can act stupidly all by themselves, but they sure do get encouraged to do so by the gov't. Unintended consequences are the result of gov't action. I think that's one of the laws of nature.

 

[harley]

So, being responsible for ones actions and decisions can be quite a burden.

It sure can be when the others involved are rewarded for their irresponsibility and damaging actions. If the other players in the mortgage and housing mess were being held responsible I doubt Haha would feel the way he does. I can certainly see his point.

 

[sinjin]

I have one case in point of people being responsible and being screwed by the market. Friend's kid and hubby, both college grads who both worked full time while in college and after. They graduated before the peak of the housing bubble. Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

A couple of years pass and the market goes to ****. They are transferred for work and must sell. One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

 

[Texas Proud]

And the article didn’t even mention the dreaded 1099-C. The one where you have to pay tax on the debt you walked away from. Now you gotta pay your debts and pay your taxes ... what’s this country coming to, anyway?

Just to clairfy.... if the bank sends you a 1099-C, they can not go after that debt... the C means cancelled.... if they tell you they cancelled your debt then you don't owe them anything anymore... just like if you paid if off..

 

[ChrisC]

I have one case in point of people being responsible and being screwed by the market. Friend's kid and hubby, both college grads who both worked full time while in college and after. They graduated before the peak of the housing bubble. Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

A couple of years pass and the market goes to ****. They are transferred for work and must sell. One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

Something about them just doesn't garner a lot of sympathy from me. I don't think I'm not callous, but I just don't see why I should feel really bad for them. They have jobs, they have food, clothing and shelter -- they seem to be thriving and I bet they're very resilient -- so they lost some money and have some debt. I'm afraid I can't see them as "victims" of a stupid housing market.

 

[sinjin]

Something about them just doesn't garner a lot of sympathy from me. I don't think I'm not callous, but I just don't see why I should feel really bad for them. They have jobs, they have food, clothing and shelter -- they seem to be thriving and I bet they're very resilient -- so they lost some money and have some debt. I'm afraid I can't see them as "victims" of a stupid housing market.

Well that's fine. So they have college debt and outrageous housing debt, but you have no sympathy. Good on you. They are not thriving. They are struggling to make ends meet every day. They are doing all the right things and are still barely making it in this economy. I can't even imagine how out of touch you are.

 

[eridanus]

Unintended consequences are the result of gov't action. I think that's one of the laws of nature.

Unintended consequences are the result of most actions, especially actions from large, faceless, organizations such as governments...or corporations.

 

[clifp]

I have been waiting for this article to get published for the last three years. There have been dozen articles talking about the benefits of strategic defaulting even in recourse states like FL. I think this the first I have seen one taking about banks and credit unions going after strategic defaults. The not uncommon case of people buying another house while letting their existing property go into foreclosure is especially galling.

We have a system in this country which ensures that when someone gets over their head in debt, they can get a fresh start, while treating all of the creditors reasonably fairly. It is is called bankruptcy and seems to me that most people who default on a mortgage should file for it.

 

[meierlde]

Note that the original post related to a vacation home, where the rules are very different than on a primary residence (depending on the state). With a second home, if your willing to file BK you can get a cramdown (principal reduction). Of course that does mean going to the financial cleaners in general.
On the larger topic discussed, one wonders if the home ownership model and the mobility folks have are really consistent. If one changes jobs every 5-7 years and assuming home prices are stable by the time one pays the private real estate transfer tax (realator, title company and the like) one looses money on the house every time. (Not counting the equivalent rent offset). It is like in the old days preachers never owned a house because they move so often and the house was furnished by the church (tax free to boot). IMHO unless you see yourself staying for more than 10 years you should no longer buy. There are better ways to save money than a house.

 

[harley]

Well that's fine. So they have college debt and outrageous housing debt, but you have no sympathy. Good on you. They are not thriving. They are struggling to make ends meet every day. They are doing all the right things and are still barely making it in this economy. I can't even imagine how out of touch you are.

That's why there's an ignore list.

 

[Bestwifeever]

I have one case in point of people being responsible and being screwed by the market. Friend's kid and hubby, both college grads who both worked full time while in college and after. They graduated before the peak of the housing bubble. Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

A couple of years pass and the market goes to ****. They are transferred for work and must sell. One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

I am sorry for them--DD and her husband have seen their home go down by at least $150K since they bought in 2006. I don't know whose "fault" it is that your friend's kid and my kid has to make good on their loan. No one gave the bank any extra money when they made a boatload of money selling a house before the bubble burst, though, did they?

 

[pimpmyretirement]

I bought at the peak, but proactively paid my mortgage down as quickly as possible. As a result, I've never been in a position to walk away and stick the bank with the lost value of the house.

Watching the people that were able to walk away (after essentially failing at a leveraged investment), I always felt like I got screwed for doing the right thing. It makes me feel better to see the banks going after the defaulting parties to collect their losses. I had to pay, so should they.

 

[Gatordoc50]

When a bank sells a home in foreclosure, many times they don't accept the highest offer but instead favor all cash offers. As if it's not messy enough.

 

[Free To Canoe]

I bought my current house from the bank. The owner sold it to the bank for $1.00. After reading the article, I see the wisdom in this strategy vs foreclosure.

 

[sinjin]

I am sorry for them--DD and her husband have seen their home go down by at least $150K since they bought in 2006. I don't know whose "fault" it is that your friend's kid and my kid has to make good on their loan. No one gave the bank any extra money when they made a boatload of money selling a house before the bubble burst, though, did they?

I'm not saying it's the banks fault. It just annoys me when everyone assumes that it's the kid's fault for trying to make a bundle off the market, which was not the case. These kids did the responsible thing. They went to college, worked hard and bought a small home. Then the market tanked. They didn't default, they didn't walk away, they and their parents, who are retirement age, did the right thing and paid off the debt. ChrisC's response just made me .

They were just trying to live the american dream of owning a home. For what it's worth, my kids, both PhD's, have no plans of home ownership in the near future. Both think it's a suckers game.

 

[arebelspy]

I bought my current house from the bank. The owner sold it to the bank for $1.00. After reading the article, I see the wisdom in this strategy vs foreclosure.

What incentive is there for the bank to agree to that?

 

[ChrisC]

I'm not saying it's the banks fault. It just annoys me when everyone assumes that it's the kid's fault for trying to make a bundle off the market, which was not the case. These kids did the responsible thing. They went to college, worked hard and bought a small home. Then the market tanked. They didn't default, they didn't walk away, they and their parents, who are retirement age, did the right thing and paid off the debt. ChrisC's response just made me .

They were just trying to live the american dream of owning a home. For what it's worth, my kids, both PhD's, have no plans of home ownership in the near future. Both think it's a suckers game.

So, they lost money -- that's the bottom line. They're not on the street, are they? If my three kids lost a lot of money at this stage of their young lives I wouldn't be sad for them either. In fact, my oldest daughter has lost a lot of money in buying a condo a few years ago -- she's into big time negative cash flow in renting out her condo after she was relocated with her husband. If she sold her condo now, it would be a short sale and she'd be on the hook for the deficiency. I wouldn't be saddened if she had to exhaust her savings to pay for this debt. I feel sorry for people who are unemployed, living from paycheck to paycheck, who have lost their homes, or are struggling big-time financially --events you didn't say occurred with these kids in your original post. The fact that these "kids" did the responsible thing in paying their debt is laudable and it is the right thing to do, but why should I feel sad about someone doing the right thing?

Whatever. Now you and Harley can put me on ignore.

 

[eridanus]

The fact that these "kids" did the responsible thing in paying their debt is laudable and it is the right thing to do, but why should I feel sad about someone doing the right thing?

Sympathy doesn't have to be a line in the sand nor does it have to be all-or-none.

 

[ERD50]

I'm not saying it's the banks fault. It just annoys me when everyone assumes that it's the kid's fault for trying to make a bundle off the market, which was not the case. These kids did the responsible thing. They went to college, worked hard and bought a small home. Then the market tanked. They didn't default, they didn't walk away, they and their parents, who are retirement age, did the right thing and paid off the debt. ChrisC's response just made me .

They were just trying to live the american dream of owning a home. For what it's worth, my kids, both PhD's, have no plans of home ownership in the near future. Both think it's a suckers game.

But you are implying that if someone puts 20% down on a house, there should be some 'guarantee' that the resale value will not drop below that.

There is no guarantee. It's not about it being someones 'fault', or feeling sorry for anyone, it's life.

If I never invested another penny in the market after the first time I lost $50K, I'd probably still be working. Now that would be sad.

-ERD50

 

[Free To Canoe]

What incentive is there for the bank to agree to that?

They got the property and could sell it to cover most of what was owed. Plus the bank thought they could get more for it than they actually got. Perhaps in this case, the bank was misled. Still, 80-90% recovery of the loan is doing pretty good in this environment.