Anyone done a short sale?

[cats mom]

Even as someone with an underwater mortgage, I completely agree. I think housing needs to crash even more. I wish I knew back in 2005 what I know now--that we were in a bubble and housing prices were outpacing fundamentals like income. People were paying for homes with creative financing. In my naivite, I just thought my contemporaries had much better jobs than DH and I.

This sooo hits home with me. When we moved to a much more expensive location we realized that our income, which was well above the median for the area, would only get us into a condo or townhouse using any traditional financing standards.

I kept asking the realtor we were working with how people were coming up with the $$$ to afford decent SFR's in the area. His answer was equity from a move up sale, unreported income, and/or family money. OK, I can understand the move up thing, but how many people really fall into the other 2 categories?

Then when he said we needed to start thinking of prices as if they were funny money, and that he knew a mortgage guy who could qualify us to buy a house that was priced almost 2x our target range, we knew it was time to take a step back and rethink buying.

Looking back I highly doubt that much unreported income and/or family money was being used to buy all those over priced houses. It was much more likely that most people were just buying far more than they could legitimately afford.

The crazy thing is that while values have tanked and overcorrected to the down side in some places, they're actually holding up quite well where we are... even though we saw some of the largest price increases in the nation during the bubble years. In fact IMO prices are still above where they should be using any traditional measure. It just doesn't make sense.

 

[Lisa loves Pooh]

I guess some of you are misunderstanding part of my point. Maybe people were able to make those high payments just fine, but they ended up with a high end home and when values tanked they were hit more than others

This gets bright up quite a bit. But one has nothing to do with another. With just the one variable you mention (tanking home values), that has no influence on the mortgage payment or its affordability. The payment (unless an ARM which you do not list), remains stable. No different than a car except in amount.

You go buy a car, agree to your $350 payment and as soon as you drive away, the value drops. Despite that, the payment stays the same.

Same deal with a house. Not sure why when the house is worth less than what you bought it for that it is suddenly unaffordable and needs to be ditched. (per the thread topic)

 

[punkin]

This gets bright up quite a bit. But one has nothing to do with another. With just the one variable you mention (tanking home values), that has no influence on the mortgage payment or its affordability. The payment (unless an ARM which you do not list), remains stable. No different than a car except in amount.

You go buy a car, agree to your $350 payment and as soon as you drive away, the value drops. Despite that, the payment stays the same.

Same deal with a house. Not sure why when the house is worth less than what you bought it for that it is suddenly unaffordable and needs to be ditched. (per the thread topic)

Because for the past decade we have been inundated with propaganda about what a great "investment" a house is. If it is an investment, we treat it like one, walking away when its value tanks.

 

[cats mom]

Because for the past decade we have been inundated with propaganda about what a great "investment" a house is. If it is an investment, we treat it like one, walking away when its value tanks.

Exactly

I still wonder how that idea became so widely accepted.
Housing as a speculative investment only makes sense when values are rapidly rising, and that just isn't the long term trend. Normally the rate of appreciation only matches inflation, the carrying costs are high, as are the transaction costs, and the market has always been prone to periods of illiquidity, although maybe never to the extent we're witnessing now.

But I think trying to prevent an onslaught of strategic defaults is one of the main reasons the powers that be are trying so hard to artificially prop up house values instead of letting the market naturally correct.

Attitudes are certainly changing. I saw a recent poll that said 48 percent of homeowners with a mortgage said they would consider walking away from their home if they owed more on it than it was worth. There certainly doesn't seem to be much moral stigma associated with strategic default anymore.

 

[tlbwriter]

This gets bright up quite a bit. But one has nothing to do with another. With just the one variable you mention (tanking home values), that has no influence on the mortgage payment or its affordability. The payment (unless an ARM which you do not list), remains stable. No different than a car except in amount.

You go buy a car, agree to your $350 payment and as soon as you drive away, the value drops. Despite that, the payment stays the same.

Same deal with a house. Not sure why when the house is worth less than what you bought it for that it is suddenly unaffordable and needs to be ditched. (per the thread topic)

Exactly. I don't understand why people think it's okay to walk away from your house ONLY because its value has gone down. As long as your payment doesn't change, and your income doesn't go down, the only reason your house would be less affordable would be because you were pulling out equity to live on. And that's not a smart move, and certainly not the lender's fault.

 

[punkin]

Attitudes are certainly changing. I saw a recent poll that said 48 percent of homeowners with a mortgage said they would consider walking away from their home if they owed more on it than it was worth. There certainly doesn't seem to be much moral stigma associated with strategic default anymore.

If the monetary incentives were there for me (and they're no because we have a huge amount of equity in our house and our market didn't tank as much as some) I would do it in a heartbeat. I don't think it's a moral issue.

Exactly. I don't understand why people think it's okay to walk away from your house ONLY because its value has gone down.

If you have no equity to lose in the house and if you can buy another house for half (sometimes less) than what you owe the bank, it makes perfect monetary sense to default, particularly in non-recourse states.

 

[AZMermaid]

If you have no equity to lose in the house and if you can buy another house for half (sometimes less) than what you owe the bank, it makes perfect monetary sense to default, particularly in non-recourse states.

This is what is wrong with people (in general). Until the stigma of foreclsure returns, people will skate out on their responsibility. I like the car analogy. Houses are different than investments. They CAN be investments, but most of the people we are talking about here are not investors. They are living in their homes, just like you would use a car.

If you buy stock for say $100,000, you might lose that money. You sell when it is down at $50,000- you have lost $50,000. If your house goes down to $50,000 and you just say "oops, my bad," you haven't lost any money. You could say your mortgage payments, but even if you had been renting you would have paid that anyway. It is your "usage fee." Why shouldn't you have to "lose" that $50K on your "bad investment."

You don't make payments on stock. You buy it first and then see what happens. With a house you COMMIT to pay that ammount. I just can not believe how many people out there are willing to say their word and signature means nothing.

 

[punkin]

This is what is wrong with people (in general). Until the stigma of foreclsure returns, people will skate out on their responsibility. I like the car analogy. Houses are different than investments. They CAN be investments, but most of the people we are talking about here are not investors. They are living in their homes, just like you would use a car.

If you buy stock for say $100,000, you might lose that money. You sell when it is down at $50,000- you have lost $50,000. If your house goes down to $50,000 and you just say "oops, my bad," you haven't lost any money. You could say your mortgage payments, but even if you had been renting you would have paid that anyway. It is your "usage fee." Why shouldn't you have to "lose" that $50K on your "bad investment."

You don't make payments on stock. You buy it first and then see what happens. With a house you COMMIT to pay that ammount. I just can not believe how many people out there are willing to say their word and signature means nothing.

Assume that you bought a house for $200K. you put down $40K (I am using 20% down, but the numbers look even better if you had limited equity in the house to begin with). It is now worth $100K. You have lost the $40K. If you continue to pay your mortgage, you will pay $160K + interest over 30 years. If you default and buy the same house across the street for $100K, you have just saved $60K + interest.

There are many markets across the US where housing has gone down in price that much. I can't see the reason to throw money away just because you can afford it.

 

[tlbwriter]

If you have no equity to lose in the house and if you can buy another house for half (sometimes less) than what you owe the bank, it makes perfect monetary sense to default, particularly in non-recourse states.

It also makes perfect monetary sense to walk away from your credit card bill instead of paying it. And I fail to see the difference.

 

[tlbwriter]

Assume that you bought a house for $200K. you put down $40K (I am using 20% down, but the numbers look even better if you had limited equity in the house to begin with). It is now worth $100K. You have lost the $40K. If you continue to pay your mortgage, you will pay $160K + interest over 30 years. If you default and buy the same house across the street for $100K, you have just saved $60K + interest.

There are many markets across the US where housing has gone down in price that much. I can't see the reason to throw money away just because you can afford it.

I think we all understand the math. What you're ignoring is the fact that you signed a contract agreeing to pay back that $160K.

 

[AZMermaid]

I think we all understand the math. What you're ignoring is the fact that you signed a contract agreeing to pay back that $160K.

Exactly!! Yes, I live in the 3rd worse state right now for housing. The majority of homes are worth half what people paid or refinanced for. But, they signed the agreement. No-one forced them to. I am not saying it is an awesome situation. It sucks. But, you (the collective you) agreed to it. You didn't have to sign that paperwork. You could have walked away. Sorry it didn't work out.

Yes, my house is worth about 10-15% less than I bought it for 2 years ago. Am I thrilled, no. But I plan to live here for the next 20 years. If you CAN make the payments and don't need to move, sorry, tough it out. Most of my friends (I am 31) bought starter homes in 2005 that they are stuck with. But, they have class and would not walk away "just because."

And then there are the people who walk away and take all the fans, lights, cabinets, sinks, AC units, heaters, pool pumps, doorknobs, garage door openers, etc etc. Those people should be in jail.

 

[NBCGal]

Depending on when you took out your mortgage & which investor currently owns your mortgage, you may be able to get some assistance through the following: http://www.makinghomeaffordable.gov/pages/default.aspx. The programs can be helpful to those who qualify. This gives the consumer options if they want to keep their home or if they no longer wish to keep it (like when you are upside down in your value or in cases like divorce).

 

[piperdown]

I’ll preface this by saying that we own our house outright, no mortgage, so my take may be different than most. If fact, I’m fine with my home value decreasing, because I can possibly get a decrease in my property taxes if I can convince the appraisal district. Just so happens we live in an area where the housing crisis has had very little impact.

I’m sorry, but I’m one of the ones that believe that banks and mortgage companies bear equal fault for the current housing crisis. Yes, the homeowners should have done their homework (and the math), but banks and mortgage companies had no business giving loans to people they should have known would not be able to pay them back. They are the professionals.

Toward the end of the housing bubble, mortgage companies were giving out mortgages without even verifying employment or income. They were actually called NINA (No Income, No Asset) loans. So tell me again, who made the bad investment? Why should the homeowner be held to a higher standard that the mortgage company? Who should have understood the implications more?

It came into perspective for me when I listened to This American Life’s episode called, The Giant Pool of Money (http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money). There was a lot of greed on part of many players that resulted in our current economic situation, and I believe that most homeowners were not the greedy ones. Overly ambitious…yes, greedy…no.

Would I make a strategic default? Probably not, if I could make the payment, and I had a steady income with little chance of relocation. However, if I knew that I was probably going to have to move in the next few years, or my income changed causing a hardship for my family, you bet I would walk away.

We all have to do what is in the best interest of our families….so judge away.

 

[cats mom]

If the monetary incentives were there for me (and they're no because we have a huge amount of equity in our house and our market didn't tank as much as some) I would do it in a heartbeat. I don't think it's a moral issue.



If you have no equity to lose in the house and if you can buy another house for half (sometimes less) than what you owe the bank, it makes perfect monetary sense to default, particularly in non-recourse states.

Oh no doubt about strategic default making sense for a lot of people, especially from a strictly financial standpoint. I'm actually surprised it's not more common than it is.

Although I'm sure if people in parts of Arizona, Nevada, the Inland Empire in CA, etc chime in, those of you who don't live in particularly bubbly areas/non recourse states might be shocked at just how common and accepted it is.

But when someone chooses to break a contract, I have a hard time seeing how it's not a moral issue.

Of course the fact that the government changed the rules first does soften my stance on that a bit. Not sure how anyone rationalized that privatizing profits and socializing losses wouldn't start things on a slippery slope.

 

[punkin]

I think we all understand the math. What you're ignoring is the fact that you signed a contract agreeing to pay back that $160K.

umm...not exactly. The contract says that if you don't pay, then the bank can take your house. That's the contract and I would be following it to the letter.

I fail to see a moral issue. I do see some monetary reasons why you might not want to default, but morality...nope.

 

[tlbwriter]

umm...not exactly. The contract says that if you don't pay, then the bank can take your house. That's the contract and I would be following it to the letter.

I fail to see a moral issue. I do see some monetary reasons why you might not want to default, but morality...nope.

Okay, so let's say you used your credit card to buy a rare coin that you assume will increase in value. A week later, you find out that someone discovered a stash of that very same coin and yours is now worth less than you paid for it. Morally, do you feel bound to pay the credit card bill? You borrowed money, and the asset lost value.

 

[punkin]

Okay, so let's say you used your credit card to buy a rare coin that you assume will increase in value. A week later, you find out that someone discovered a stash of that very same coin and yours is now worth less than you paid for it. Morally, do you feel bound to pay the credit card bill? You borrowed money, and the asset lost value.

My credit card bill was not secured by the coin. If the coin doubles in value, I still cannot mail it to the credit card company to pay off my bill. However, if my house doubles in value, I certainly can "default" and give the house to the bank to dispose of. If they sell it for what I owe (including expenses), I have no further obligation to them. The situations are not parallel.

 

[tlbwriter]

Well, it's certainly easy to justify what you want to do...

 

[punkin]

Well, it's certainly easy to justify what you want to do...

As I said earlier, it is not in my financial interest to default, so it's not what I want to do. I put down a deposit so big that even should my house devalue by half, I'll still have equity. I live in an area where house prices have stabilized nicely, and in fact, are going back up. I live in a school district where the houses are snatched up as soon as they go on the market. I have nothing to justify.

Seems to me like you (and others on this thread) are blaming people who are making the best financial decisions they can for themselves and calling them immoral. I wonder if that somehow makes you feel superior.

 

[AZMermaid]

Before my friend sucked it up and just paid off the $120K difference, she tried to look into the federal programs to help her. She didn't qualify for one because they had a 30 year fixed rate mortgage with a good interest rate, so they would not write off some of the reduced value. She did not qualify for another because they put too much down and she did not qualify for another because her house was worth so much less than she bought it for (about half). There have been many articles in our local papers about how maybe 1 in 100 people who try for federal assistance actual qualify with the way things are in AZ. So glad my taxes are going for a program that doesn't even actually help anyone.