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I Changed My Mind – Go Ahead And Walk Away From Your Mortgage.

Back in February of 2008, I wrote a post titled Do You Think It Is OK To Walk Away From A Mortgage You Cannot Afford? that got a lot of attention and comments. In it, I said “I gotta say that I think it is kind of crappy ““ I mean, people should take some responsibility for what their financial decisions, right?” – and at the time I fully believed that. In fact, I still do – but not when the banks are taking advantage of us who have saved them from failure. And with our government telling banks to start working with homeowners facing foreclosure instead of taking people’s homes, what are the banks doing? Not much – the help is just not coming to people who need to refinance and/or restructure their mortgage…so homeowners are starting to walk away from mortgages in droves. And I don’t blame them anymore. From the NYT:

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

This isn’t about having your credit score ruined or not being able to get another mortgage for a few more years. It also isn’t about a moral choice anymore, as I thought it was back in 2008. This is about people who have gotten screwed over by the very banks that we have been paying to keep in existence. The banks get all the help they need while the people get nothing – it’s a messed up system right now. I fully believe in personal responsibility (I know, surprising for a liberal, right?) and doing the right thing, but in these cases where a home isn’t worth much of anything anymore and banks are not willing to work with borrowers to keep them in their homes, I tend to side with the regular folks. If the banks and Wall Street can be unethical in how they conduct business, well… so can the people.

Unless, of course, you directly caused the problems you are in like, say, credit card debt from too much shopping. Please do the responsible thing and pay them off without filing for bankruptcy.

:)

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Comments (31)

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  1. Vera says:

    I agree with what you’re saying. Now, there are situations where people knew that they could not possibly afford the home on their salaries and bought it anyway. They hoped that the interest rates would go down, or property value would go up and they’d sell, or their incomes would rise – and none of this happened. While banks are also responsible for their BS lending practices, the borrowers are to blame as well. And these people will walk away from their homes whether we like it or not because the bottom line is, they never should have bought the house anyway.

    Now some people walk away because they are just pissed off about the decreasing property values and banks that won’t work with them. And you know what? I don’t blame them either. Like you said here – if the banks get bailed out with our tax money, we should get something in return, and that is not happening. Maybe some could afford to keep up with their mortgage payments if they cut down on everything else, but it becomes hard to want to do the right thing when banks are consistently doing the wrong thing.

  2. Clothdragon says:

    I find myself sadly agreeing. I hate this culture that values a business over a person. They’re even working on giving corporations the same rights as an individual though a corporation does not have the ability to go to jail for misdeeds. We can’t continue to support these companies as they continue to disregard our well-being focusing solely on profit.

  3. Sarah says:

    I mostly agree with you but like the previous post if they were negligent buyers in the first place, “hoping” that something would come along in the near future to make it work, that’s their fault. On the other hand, walking away just because you’re mad is what I would consider an example of two wrongs don’t make a right.

    If you are tens of thousands of dollars upside down on it and seeing as it will take in some markets 10-20 years to recover, I can’t blame them.

  4. Bucky says:

    @Vera

    Not sure that anyone is walking away from a mortgage because they are “pissed off.” There are some very real and negative consequences from walking away from a mortgage and I imagine that there are very few people stupid enough to ruin their credit for a decade just because they are pissed off at the real estate market.

    @Clothdragon

    Completely agree that the evolving idea that corporations should have all the rights of individuals without any of the responsibilities is a dangerous thing. I say that the next time a “corporation” does something illegal, instead of hitting them with some inconsequential fine, we should round up all of the shareholders and throw their asses in jail.

    Or maybe I just need to spend the $1,000 and incorporate myself so that I can avoid taking any personal responsibility for any of my actions.

  5. Ron says:

    You’re a liberal hybrid! Actually, that moves you a little closer to (gasp!) a Libertarian (socially liberal, fiscally conservative).

    I tend to agree with you. If a bank received a bunch of taxpayer money and did nothing but pad its own bottom line **when the money was supposed to help homeowners** then walking away might be a feasible option.

    As far as the 75 percent thing, my mortgage balance is only about 65% of my home’s current value, so I’m staying!

  6. ctreit says:

    I am with you, also when you say, “people should take some responsibility for their financial decisions.” But I would like to extend this explicitly to all parties involved. When you take out a mortgage there is also somebody who gives out the mortgage, i.e. a financial institution like a bank. Both parties have to take (different) responsibilities in this transaction, right?

  7. Evan says:

    David,

    Is this the same author that thought he shouldn’t claim his Haiti deduction? For the betterment of the gov’t?

    Just to connect the posts, you think it is ‘better’ (whatever that means to you) to walk away from your mortgage and the direct harm to a bank AND it is better not to deduct your charitable donations?

  8. David says:

    How are these even connected at all? A few things:

    A. I never said it was better to not deduct it; I said I am choosing not to. It has zero to do with any governmental reasons. I give because I want to give, and I don’t need the bonus of getting back a few pennies to do it. We already underfund the vital services that we need our govt to perform for us (schools, libraries, parks, police, fire, EMT, etc etc), and maybe – just maybe – those few pennies will go towards that. Probably not though, cause we all know war is more important than education.

    B. After watching the government give my tax dollars to these banks to keep them alive and lending and then watch the banks stop working with the very people who helped them while handing out multi-million dollar bonuses to employees who helped cause this mess with said tax dollars…why wouldn’t one want to walk away? The govt isn’t going to get my tax money back from the banks, so why should the banks get money back from the very people it doesn’t want to work with to help them stay in their homes?

    These are 2 completely unrelated items, but glad you wanted to try to tie them together.

  9. David says:

    I am very close to that, Ron. I am VERY liberal when it comes to social issues, and sometimes that treads over into the financial sector when it comes to those in need. But I do think that people should have to work for their money, that not everything should be a hand out, and that if a bank starts taking tax money to stay afloat yet won’t work with me to help me in a time of a terrible economy that they helped create, well, then we as homeowners can walk away if we so choose. (BTW, I don’t even own a house – but I would walk away if I felt I had to after the way the banks have treated us after taking our money to keep them in private jets and million dollar bonuses)

  10. David says:

    I do agree – but even negligent buyers should be able to work with the very banks that took our money to stay alive, you know? I don’t want them walking away because they bought too much house, and maybe the bank should work with them to refinance and/or extend their terms…or something.
    :)

  11. Rini says:

    But those clothes that I bought on my credit card aren’t worth NEARLY as much as I paid anymore! And that food that I bought from the restaurant? It’s not worth anything at all now! That credit card company is just screwing me, charging me interest when the stuff isn’t even worth anything anymore!

    Yeah, no dice. I think if you signed the line and promised to pay, you should do so. Integrity means doing what you say you will do. Even when it sucks.

  12. Rini says:

    Not to mention of course, that if you take out a mortgage for $250,000, the bank is paying out $250,000. They don’t magically get their money back when the value of the house drops. The current value of the house does NOT change the agreement you made with the bank. At all. The seller got a good deal, perhaps, but it’s the seller that has that extra money, NOT the bank.

  13. oregonsun says:

    I guess I will be the one to take the unpopular stand and disagree with you. Sorry I think you are just flat out wrong. When a person buys a new car the value is starting to drop as they drive off the lot. Should they walk away too? There is personal accountability and it doesn’t stop when things get hard, don’t go our way or businesses are not playing nice. Our home has lost $80,000.00 in value. Painful, disappointing and certainly not what we expected. Fortunately or maybe from your viewpoint unfortunately, we put down over 40%. Should we just decide that we didn’t bargain for loss?

  14. David says:

    As I said in the post, I am only talking about real estate and banks. Last time I checked, the bank wasn’t serving me food at a restaurant.

  15. David says:

    Honestly? I don’t give a crap what happens to the banks. They were bailed out, with taxpayer money, which they then turned around and handed out bonuses with. You think anyone should really care about the “poor banks” who have houses that aren’t worth as much?

  16. David says:

    Again, missing the point about the banks. It’s not about the house – its about the govt handing out money to bail out banks. And per that “agreement”, banks are then supposed to work with people who are struggling – and they aren’t. Instead, they hand out million dollar bonuses to the very people who caused the problem.

    Besides, people do walk away from car loans – then the repo man comes, and the bank sells your car again. Both sides take a risk in these ventures, but banks, in terms of this economic downturn, don’t want to. They want to privatize any gains but socialize losses. I don’t feel for them 1 tiny little bit.

  17. David says:

    Exactly – both parties take risks, and both have responsibilities. The banks are not living up to theirs, so why should the borrowers?

  18. Evan says:

    I don’t care about the whole morality argument. But HSBC entered into a contract with me, they gave me the money and are servicing my loan, and I am paying them back. What didn’t they live up to?

    The fact that they made bad loans to other people? How does that change my relationship with them?

  19. David says:

    OK so you want to totally disregard what you were trying to say earlier about Haiti. Fine, we can do that.

    In case you missed the first 5 times I said it, or you haven’t seen the news lately, the banks were given money by the government. Our money. To be used to keep them afloat. Part of the conditions of said money was to help out homeowners who may be struggling by either refinancing their loan and/or adjusting the term. The banks are not doing that, and more and more homes are being foreclosed on, when they should not be – if the banks held up their end of the bargain. They aren’t. Yet everyone else has to, while the bank gives the money that was meant for “us” as new loans, etc., as bonuses?

  20. Evan says:

    I’d love to go back to Haiti cause I didn’t think you made sense on that post or on this post. They are analogous in terms of how you think you are damaging or helping.

    The deal they made with the TARP has nothing to do with the individual loans made.

    Also there is little reason to be a dick about it.

  21. David says:

    Only being dickish because of your tone, but thanks for all your comments. You can’t expect to tell people they don’t make sense and then get offended when they don’t roll over and agree with you. And I am sorry to know that how I decide to do things bothers you so much that you feel the need to prove you are “right” – you aren’t for me, only for you and in your mind. I don’t give a crap that you are on a “journey to millions” which I could care less about; money doesn’t interest me enough to try to make millions or be mad about those who do. Just saying that I didn’t come to your site and start telling you that your desire or decisions to make a million bucks is wrong, did I?

    You can disagree all you want – but when you come to a site and say:

    “Is this the same author that thought he shouldn’t claim his Haiti deduction? For the betterment of the gov’t?

    Just to connect the posts, you think it is “˜better’ (whatever that means to you) to walk away from your mortgage and the direct harm to a bank AND it is better not to deduct your charitable donations?”

    You are, in fact, being a dick.

  22. Evan says:

    I never thought I was being a dick, but then again, who *thinks* they are the dick. I simply thought that what I see to be 2 opposite views from the same person interesting. I guess you don’t see a connection, and that’s fine.

    I don’t expect anyone to rollover for me, except maybe my dog, and even she only does it about half the time.

    Lastly, I have no interest in proving anyone right or wrong, nor do I believe you should give a “crap” about my journey.

  23. I think it is unethical to walk away from a mortgage if you can still afford to pay it.

    Plain and simple

  24. [...] Away From a Mortgage – Is it Okay? By Hazzard David over at My Two Dollars blogged about whether he thinks it’s okay to walk away from a mortgage. Originally, back in [...]

  25. [...] Sean Dave echos a sentiment I’ve begun to hear more and more often. Apparently, it’s getting more and more OK to walk away from ones mortgage: This isn’t about having your credit score ruined or not being able to get another mortgage for a [...]

  26. [...] I Changed My Mind ““ Go Ahead And Walk Away From Your Mortgage [...]

  27. [...] Two Dollars has changed his mind about walking away from your mortgage. I’m still not sure I am completely comfortable with [...]

  28. Frugal Babe says:

    During the boom real estate years, it was common to hear stories of people who bought houses for $200,000 and sold them for $300,000 a few years later. In those sort of scenarios, should the homeowner have been required to pay a sum of money to the person who sold them the house for $200,000 – to make up for the huge gains that the house made?
    I doubt that sort of argument works if we look at it in reverse…
    Basically, when we buy real estate, we have to accept that one of three things can happen: the value can go up (sometimes by a lot), it can go down (sometimes by a lot), or it can stay the same. When we take out a mortgage, we have to keep in mind that there is no guarantee as to what the value of the property will be a few years down the road. I think way too many people had the idea that property values would always go up… alas, that is not the case.

  29. [...] I Changed My Mind – Go Ahead And Walk Away From Your Mortgage. @ My Two Dollars [...]

  30. thought alot says:

    We got an 80/20 loan where the first loan is an interest only and ARM. We are now up side down living in a house worth 140 K paying on a 318 k loan. I remember asking our loan officer at the time if what we were doing was risky and the response was don’t worry about it everybody refinnances in 10 years and the bank was more than willing to help originally aproving us for one amount then upping that number. I admit we are smart people who did a dumb thing, and now we are not putting aside money for retirement, kids college, or making necessary repairs just so we can continue to pay on a mortgage. Why should I let my retirement fund and kids suffer their future just to make the bank happy. A bank who refuses to help modify a loan because we are not “poor” and we are so up side down they won’t get any gov help. Do I really want to go through the credit dings, uproot my children, no. I’m not poor yet but we will be if we continue to pay on this house. If you see a train coming do you wait to the bitter end to die or does it make more sense to get out of the way first? We’ve talked to realtors, lawyers, the bank and to each other as a couple to figure out what to do reviewing consequences. I can rent something equivalent for half the price of my mortgage. All my neighbors are under water and there are many foreclosures in our neighborhood. The smart ones are either buying now or have already been here for more than ten years and don’t have crazy loans. They will still be here no matter what we do or don’t do. Ironicly, we have been working the last five years to pay off all credit card debt and we are now credit card free. So maybe we are just half dead beats to those righteous among us.

  31. [...] the article, David (the author) said that he’s changed his mind and that he now thinks that it’s OK to walk away from your mortgage if your property value has declined to where you’re underwater on your mortgage.Even if you [...]

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