For years now I have been talking amongst friends about celebrities and mainly people in the West Coast simply turning in their keys to their home to their Bank.
Several years ago a company established a new business walking people through the legal process of how to walk away from your mortgage. One of the celebrities I can recall off the top of my head is Jose Canseco. We ran THIS STORY just over two years ago. Canseco owed a bank more than $2.5 million on the house and simply walked away from it.
Last night on 60 Minutes they did a segment on every day homeowners who COULD afford their mortgage simply turning in their keys to the Bank and walking away. Why, because their value dropped anywhere from 40% to 70% and quite frankly it wasn't worth paying a mortgage. By the time they excused their 10% down payment, (if they even had to put up that much) and went across the street and rented a similar home for less than half their mortgage payment, within only a few short years their credit would recover and they would have saved all that additional money for another down payment on another home. It's a risk, (credit wise) but one worth taking right now.
In my day and age, there was always a certain pride in fulfilling your contractual agreement and it was shameful for anyone to foreclose on anything. Today things are obviously different and quite frankly, I can't blame many of these people for walking away. It's a business decision, just like any other. Follow me for a second.
You see, the Banks have no remorse taking a home away from YOU, so why should YOU have a problem walking away from something they stated was worth X amount of money and it drops 40 to 70%? These are the "professionals" you and I are supposed to depend on.
There comes a time when you have to look at your losses and decide what's best for you and your Family. You might even say, two can play that game. Since it is not against the law to walk away from your home and mortgage, while this encourages even more of a financial disaster towards an already failing economy, it seems to be the ONLY way to get back at those who created a false economy. If it's not illegal to do so and the Banks continue to make billions of dollars off hard working Americans, well, perhaps now is the time to consider doing what others started doing years ago.
I called it years ago and to see 60 Minutes finally covering it, if you believed our economy was starting to come back, IMHO, those people who believed such a thing are more warped than ever before and should start wearing tinfoil hats.
Here's last nights segment.
Watch CBS News Videos Online
39 comments:
And we thought we controlled our dreams. Its all an illusion.
"THEY" ( the bank or other lender) do not establish the value of the home YOU are buying. YOU and the seller negotiate that and then an independent appraiser establishes an indpeendent value that the lender relies upon to make the loan.
Those appraisals are supposed to confirm to standards established by Fannie Mae and Freddie Mac so that the loans can then be packaged and sold in a secondary market...those sales free up new capital for the lender to loan out.
Everyone involved in the real estate bust made very bad risk assessments.To blame it all on lenders is to ignore your own personal responsibility as a buyer, that of appraisers, Fannie and Freddie as well as Congressional leaders who should have seen the absurd speculation that was occurring and stepped actually exercised some oversight.
But we have all gotten so used to blaming everyone else for our own bad decisions havent't we?
Guess who is going to end up paying for the deadbeats who made bad deals and are now walking away?
Anyone who ever takes out a loan again.
There all in bed togther buddy, and to call people dead beats that were doing fine until the home values plunmeted and the work disappeared is wrong. To do it as Annon is cowardly. Careful, pride is a dangerous thing. Now go back and profit from your short sales.
To Anon 12:56 P.M.
I highly suggest you go to cbsnews.com and read the post along with this video... Who cares if they want to walk away, its the right of the buyer... Would you pay 500k for a 10k car? NO so get over it... Secondly Fanny Mae And Freddie Mac are owned by China, that's right china... So any profit or money made with mae or mac goes out of our country to theirs... Thirdly WE already pay for thing for people to have who DON'T work, and won't work becasue we continue to pay for them... How about attacking the people who make you pay taxes and other stuff so we can't afford anything ourselves but to give it to the losers of the society who refuse to work becasue they can get government assistance and not have to work... I work 40 or more hours a week, if not more... I go to school full time... I can't even afford an apartment to rent becasue of the free loaders... You need to understand that ITS ALL ABOUT MONEY, NOTHING LESS... GET OVER IT.. OR DO SOMETHING TO FIX IT..
anonymous 12:56, allow me to share a personal experience with a Bank.
I owned a home, (10,200 sq. ft.) just outside Annapolis. It was my dream home. When it was built I only mortgaged around $300,000.00. I continued to add on to the home, built the largest residential pool ever built, (at the time) and increased its value quite a bit.
Every month I did what my accountants had suggested and I paid 1 1/2 times my regular mortgage payment to buy down the debt.
During a major winter storm some years back my home ultimately experienced what they called, Ice damning. I woke up one morning and there were waterfalls coming through my ceilings on all three floors.
While I had a premier homeowners police with Allstate, the damage was quite severe. Allstate had a "preferred contractor program" where they hired and fired the contractors to do all the repairs and to make a very long story short they tried to cover most everything up and took shortcuts. The next thing I knew, well before the work was anywhere near completed there was mold and mildew growing on the walls and I was medically removed from this beautiful home. I won a massive lawsuit against Allstate and the contractors but during that process one attorney said, call the Bank and tell them you're not going to make any more payments unless they got involved.
Because I had paid down my mortgage so much the Bank simply said, so what, we don't care. The land alone was worth more than $300,000.00.
While my case is extremely rare, I still encourage others to make additional payments on their monthly mortgage bills. A $300,000.00 mortgage, (back then at 9.5% interest) would cost more than $1,200,000.00 after 30 years. To ANYONE who makes the claim that you can write off that interest, trust me, it's not worth a damn in the long run. For those who believe if you were to sell the home in 10 years for $450,000.00 and believe you actually made money off that home, you've seriously mistaken.
Today, ALL of my properties are paid off and have been for many years. The Banks are not your partners in good times or in bad. The Banks also approve your loan based on their own appraisers. It's high time the people who created the false market become responsible for such.
Joe-I agree. Principal payments are the way to go. I mortgaged my home for 15 years and made a principal payment equal to the normal mortgage payment every month and had my house paid off in 7 years. Even if you can only afford a couple hundred dollars to apply to it, if you do it near the beginning of your mortgage, you will see the principal drop although your normal payments the first several years are basically ate up in interest.
I really hate to say this, but this what you get for voting for politicians that would rather give everyone a had out than make people responsible for their own actions. This a disease that will not stop until everyone is out of money.
Beware: We have not hit the bottom.
anonymous 1:31, just take a look back in history and you'll clearly see right here in America wars that were held on our own land. Soldiers would simply walk or barge into your home, kill those people in it and take it over. In many cases they'd burn it down. To believe, (like most Americans do) and so easily forget that even when you believe it's yours, IT'S NOT!
Now, could those days be coming again, perhaps. Rome wasn't built in a day but it sure as hell didn't take very long to collapse.
Our own government now tells us we much have tags on all our vehicles or it will be towed and fined. If our grass is too tall, they'll fine us. If our homes don't look like the Mayor's, they'll fine you until you can no longer afford to do what they ask and they'll take it from you, hence the west side of Salisbury.
America is no longer free and the American Dream is risky at best. How many times have I said it. They'll take from you until you're broke. Then they'll make you borrow against what you do own and take that too. We're nowhere near rock bottom in this Country and to watch the MSM send out messages that we're recovering is complete BS! Like I said, put on your seat belts because the rough ride hasn't even begun yet.
You cant get pieces of your heart back, it doesnt work that way.
The banks never loaned anyone any money. The borrower created the money with their promise to pay.
This is 12:56 again.I am not doing short sales and neither did I get involved is flipping contracts when the market was "hot".Im not invloved in residential real esate at all except for my own residence. I watched the entire 60Minutes episode and I understand the business decision that you have to make at times when you have gotten into a bad deal.I have had to make them in commercial ventures....but I never took any pride in it.
Of the two couples in the segment,I found the older couple more complelling.They seemed profoundly sad while the younger couple seemed a bit smug about it all.
Anyway, my real point here, which I did not make well enough, was that I totally disagree with the notion expressed in the original post i.e.that this was all the fault of lenders.This was a collective failure
I know a number of people who were gaming the system during the hot market. Entering contracts that they never intended to settle upon...simply flipping the contract as the market rose.Product was being built based on those phoney contracts and now those units sit empty and we are all going to pay for it in the long run.
There are alot of villains here...not just lenders.
anonymous 1:58, Again, I disagree with you.
You're suggesting that the BUYER should have known the market value as well as the financial trend in the near future. That's what we PAY professionals to do for us.
God forbid they're wrong, someone like you comes along, (with all due respect) and defends their position. There is NO position as there are NO laws against walking away.
Not much different from the Y2K crap and the DOT COM companies that were 99.9% BS!
Our government failed to protect us when there were laws in place. Oh, a hand full of people, (Enron, fo exaple) were arrested, BIG DEAL! Every Banker should have been exposed and locked up as well. I personally am NOT satisfied with what the MSM released, while trillions of American Investors dollars were screwed.
I say, payback is a b!tch.
The real victims are the little kids that dont understand why its not their bedroom and house anymore. Think that ever leaves ya.
I never understood all the people out buying the overpriced houses in the first place.
I watched and kept saying to myself "these houses are NOT worth this kind of money - it's a FAKE bubble".
To those who just HAD to have that huge house for the HUGE dollars when the one they were living in was just fine, I don't feel sorry for you one bit and it ticks me off that those people are walking away from their obligations.
There is a saying "a good deal is only a good deal if YOU feel like you got a deal"! How could those people honestly feel they were getting good deals to begin with?
anonymous 2:17, if that's all you have to worry about in life, well, you're a spoiled brat. Some of us grew up moving from town to town, sometimes from one end of the country to the other.
anonymous 2:42, better get used to it. Millions of Americans were first time home buyers and didn't know what they were getting into. Sure, those of us in out 40's and older should have known better and I agree with you there. However, most of our children grew up in very good times where their parents gave them cell phones, credit cards, cars, the whole nine yards. Now we wonder why they're all screwed up.
We reated these monsters and ultimately we're all going to pay the price. For what it's worth, my kids didn't get cell phones, credit cards and or vehicles until they could afford it on their own.
My kids aren't too proud to shop in a Rugged Warehouse to purchase the same clothing they'd pay 4 times more for in Macy's.
I'd like to think I raised them right. How about you?
Joe: 1:58 (12:56)...I agree with most of what you just said.Yes, there are people who through no fault of thier own got caught in the downturn just like people who got creamed in the stockmarket.No doubt many of them should walk away.And no there is no law against it nor should thier be.
But it is not just the banks who will pay for all of these "strategic defaults"...trust me on that one...especially if Obama gets another 4 years ( God Forbid)
And you are absolutely right when you say that the system failed.Federal officials were asleep at the wheel.The same ones who we will rely upon to reform financial markets...good luck with that , right?
But do not ignore the people who were gaming the system and who now want to be "victims". Flipping contracts.Buying homes they knew damned well they could not afford because they thought appreciation was going to allow them to buy again before thier ARM adjusted etc.
I remember driving Coastal HWY in OC and seeing all the luxury condos going up..watching all the home building here in Wicomico.. and wondering "who is going to buy all this product and how can they afford it"?
You knew that the bubble had to burst...just like it did with the tech sector..just like it did with oil.
And it has...and we are all getting splattered.
anonymous 2:46, You said: "and we are all getting splattered." WE, WHO? Real Estate Agents, Bankers, do tell me WHI all these people are who are getting splattered.
How do you not know what you're getting into when you're buying a house. Everything is in black and white, read the fine print! Especially the first time buyers, who do not know the process, should read and evaluate everything 10 times over. You don't know what ARM is? Maybe you should look it up before signing the contract. If you only make 40K per year, something should tell you that you probably cannot afford a 500K home.
Didn't know... That's a lame excuse for irresponsible borrowers who were just plain greedy and stupid. They got what they deserve - that's healthy economy.
I am not defending banks here, but the banks did not force you into the mortgage.
The American taxpayer and the American consumer. You saw TARP...who paid for that? WE DID ( or will). Now, when these "strategic foreclosures" hit, who do you think will bear the brunt? We will. Through taxes,higher Federal deficits and through higher borrowing costs. Its already hard to get a loan...wai till this stuff hits the system and gains momentum.
WE ALL will pay....just like we are now after the first wave.
Barney Frank and Chris Dodd going to help?....Pelosi or Reid???
No,they'll blame the banks and "greed" and then print more money.
We're about 10 to 15 years from looking like Greece.
Alex, get a grip, please. Clearly YOU have never experienced going through a mortgage, "look at the fine print" PLEASE!
In some cases we even depend on our lawyers, (right Don Richardson) to provide all the proper information and they screw it up. It happens.
Nevertheless, the bottom line today is, IF you're buried in a mortgage you cannot break even with, bail. I guess it's also OK with you Alex, bailing out GM, Chrysler and ALL of the other banks and institutions Obama did, but NOT the hard working Americans who got boned NOT ONCE BUT TWICE!!!!!
3:15 you're missing the point. It usually does not take an attorney to know that your APR will go from 2% to 15% in 2 years.
It also does not take a legal genius to know that working at Walmart will not buy you a mansion.
I am not sure what GM and Chrysler bailout has to do with it, but I am not ok with government bailout of Chrysler in particular because it's 100% private company. I disagree with the administration there.
Alex, IF you knew anything about adjustable mortgages, the rate CANNOT increase more than 2% a year, or 5 years or whatever your term is.
If your lending institution knew you worked at Walmart and sold you a mansion, shame on your Bank, walk away and screw them for what they allowed.
Now let me try to explain once again what I mean by Obama's bailouts. Why is/was it ok for Obama to bail out corporations THAT PAY NO REAL TAXES yet screw the every day Joe Taxpayer/Homeowner? If it was good for the Banks and Auto Industry, it should be good for the every day American.
In fact, think about this one Alex. If you want to get back at your Government for their reckless spending, every American should stop making mortgage payments while it is legal to do so.
Oh, that's right, I forgot. Your children will miss their bedroom. Yeah, that's a tough one.
Did I miss something here? I didn't see 60 minutes talking about Arm's at all -- only about people who can afford to pay their mortgage but are walking away because the value of their home has dropped so much that they can't sell it without taking a loss, etc.
Yes Nicole, you're right.
Joe: There were alot of "liar loans" and alot of the lending for those people came from lenders other than traditional banks. And the loans were processed by kids who were fresh out of college.They got paid on volume,not quality..because the loan got sold the minute it settled.
Now,if you dealt with a local lender,in most instances the proper due diligence was done.But you still might be upside down depending on when you purchased.
No one was protected against the insane value escalation ...which of course was all delusional.
Nicole: No, you didn't miss a thing except that they are not walking away because they have to sell at a loss.They are walking away because they can now rent a nicer home for less money than paying thier mortgage and they believe that they will be able to buy again once thier credit score recovers and be in a better debt to equity postion.
It's not bad thinking financially.They gamble they are taking is how long it iwll take to get that credit score back up and whether future lenders will pass on lending to "strategic Defaulters"
We are all responsible for this society we have created. Kids are raised to be coddled and have no idea what struggle is. Parents try to protect their kids from failure by providing them with everything they need. What parents fail to understand is that competition and failure is good. It teaches kids strategic planning and gives them the drive to survive. My children did not get anything handed to them. They worked and saved for everything they wanted. I would make deals to match what they saved on needed items such as a vehicle to get back and forth to a job with, but they never got a free ride. I was on my own at 17 and I was buying my own school clothes and necessary items as soon as I could work and I now thank my parents for that. You learn the value of a dollar real fast when you are the one sweating for it and you also learn that good things in life never come easy such as all the easy money that became available in the real estate bubble. Our society is weaker than its ever been and pure greed has brought it down. This is all a very good lesson for the kids, if nothing else positive comes out of it. I spent lots of time with my grandparents who lived through the depression and I heard repetitive stories. I am so glad for that experience. Parent's are doing a disservice to their kids by making them a bunch of pansies.
anonymous 3:52, EXCELLENT comment and parenting!
As a first time homebuyer this process was terrible and ultimately left me wondering "what in the hell do these people get paid for?" As a young person, my suggestion is dealing with someone a little older, someone who might have once gone through an economic downturn like we are now b/c they know what's important and where to get new home owners focusing in times like these. There has to be another way...I felt completely on my own but meanwhile I've got these people working for me who are "looking out for my best interest"...it's so scary buying a home and I think most of these people (agents/lenders, etc) lose site of that...just like the guy above who was instructing first time home buyers to read everything 10 times over. Is that how you got your degree or credentials, reading something 10 times over? did you or did you not rely on the person teaching and also the person you were paying for your education? Kind of like the way first time home buyers rely on the "professionals" they use to buy their home.
"Buyer be ware" Why is there no shame in choosing to default on your loan? I don't get it. Regardless of the market today, these people made a decision to borrow money to buy something that THEY felt was worth it. Appraisals are for the bank not the borrower. I know, I am an appraiser. The appraisal provides an opinion of value of the collateral for the BANK. The buyer has already decided they are willing to pay X amount when they make an offer. They then go ask the bank for a loan. Value is determined by the market (what buyers and sellers are doing) not by appraisers. Ignorance is not an excuse for this situation. A lot of these walk aways bought these houses and cashed out to buy that fancy car, boat, face-lift, vaction, etc. They borrowed against their equity. Why is that the fault of the appraiser and the bank?
How would those 60 minutes people deal with their "situation" if they had paid cash for their house and now it is worth X? And no one has ever complained about their house being worth MORE then they paid for it. So why all the sobbing for the reverse? I purchased my house in 2000 and never borrowed against it again. I saw the value rise and then fall again. I am ok with it because I made a decision based on MY ability to repay what I borrowed. Life's not fair and sometimes you get the crap end of the stick but that's life. I am surprised at all the whining about this housing market situation. If everyone has a problem borrowing from a bank then next time either save until you can pay cash or go get a loan from a loan shark, I bet he doesn't take it lightly when you try walking away from that promise to pay him, no matter what the reason.
4:11
What do you mean you've "got these people working for me who are looking out for my best interest"? That person is you! The others involved are doing a business transaction, just like when you buy a car, groceries, or a coat at the mall. Why is it someone elses fault that you cannot ask questions and inform yourself? The market has up turns and down turns all the time....sometimes they are big sometimes they are small.
Those first time buyers don't do much complaining about all the tax breaks and the $8,000 rebate, now do they. I bet they are all over the fine print on how to apply for that!
If you are buying a home in order to sell it in a few years to make a profit - that is a RISK. Sometimes risk pays out, sometimes not. Now if someone buys a home for a specific dollar amount what difference does it make if the appraised value drops? We bought a newly constructed house and borrowed about 65% of the value, just got our tax assesment in the mail, and we are only about 10k above the break even point. Why should that change whether I want to live here anymore? Heck, my taxes are going to go down! If I decided it was worth x dollars a month to live here 4 years ago, why does a peice of paper change that?
"I never understood all the people out buying the overpriced houses in the first place.
I watched and kept saying to myself "these houses are NOT worth this kind of money - it's a FAKE bubble".
To those who just HAD to have that huge house for the HUGE dollars when the one they were living in was just fine, I don't feel sorry for you one bit and it ticks me off that those people are walking away from their obligations.
There is a saying "a good deal is only a good deal if YOU feel like you got a deal"! How could those people honestly feel they were getting good deals to begin with?
2:42 I totally agree with you. Too many people want to live way beyond their means just because so and so has a bigger house, a nicer car. My wife and I went by the therory that if you can't afford it, you dont buy it. We were able to pay off 2 homes, retire early and paid for our retirement home in Florida. We are not wealthy nor distiute but live a pretty good life. My wife shops for clothes at Consignment shops, etc and usually when she goes out her entire ensamble will not exceed $20 but she is complimented almost daily on how nice she looks. But many have to have the $300 dress, etc. Shame on them. jackkcharl@aol.com
The mortgage companies (government backed) loaned money they did not have. The buyers borrowed money they could not pay back.
End result: transfer of the real asset (house) to elite banker shareholders.
Fiat money is difficult to discuss without stating the obvious. It is only paper. You are not defaulting on a real loan. The money never existed. You created the money. Each of us are creating the money we "spend" when / if we use credit.
Fiat money is paper. Get it? It has no instrinsic value. You do not owe anyone. Only your credit score is affected. Either you make payments to the elite and grow your credit score (with the elite) or you don't. Once a person catches on to the "game" of fiat money - she/he will stop "paying".
The elite are printing money and charging us interest to use it.
Gold, silver, platinum, copper, food, bullets, houses, cars, are all assets. They are hard assets because they EXIST. Hard means it EXIST. IT is material.
Fiat currency is a soft asset.
It comes down to integrity. You signed a contract... HONOR IT. I guess some people have it and some don't.
7:56... ummmm... WHAT?
Tell you what... you keep dealing in Fiat money and let us adults deal with the Bentley money.
I like the golden rule...
Do unto others as they have done to you.
No one seems to be able to answer this question for me. If all these people bought these houses with little to no money down they would have to have PMI (private mortgage insurance) If they default on the loan doesn't the PMI pick it up? Are the banks really losing money? Maybe I dont understand what PMI really does. Hopefully someone can clue me in.
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