February 29, 2008
Walking away from your mortgage
It's been very busy. I just did an interview with the Financial Times on walking away from your mortgage. And, today…
The New York Times has an excellent article on walking away from your mortgage.
Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.
This is the essence of the problem, I think. We don't have a subprime problem, we have a no-equity problem. Too many homeowners were seduced by their own greed, and the greed of banks and mortgage brokers earning huge commissions.
As the article says:
said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.
“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”
I got an email from Chris which is interesting, on this topic:
Yes I would like to add my two cents and you can use my name. I would like to say that when people took these adjustable rate mortgages they did not know that gas prices would more than double, home heating would more than double , the cost of living would more than double and the town would reevaluate your home to determine if you are paying your fair share of property taxes when the properties are at a all time inflated high value so that your property taxes would go up 25% or more.
So when I hear so called economists talking about all these people that were fooled into taking these adjustable mortgages on houses they could not afford or that they should have known better I say its a bunch of rubbish.
Once the cost of things start to go up all business increase prices to adjust for rising costs of materials in an attempt to mantain profit levels however the basic empolyees wages do not increase and in most cases that employee is the one that the increases hurt the most.
This is a good point, Chris. I would put it this way. The mentality of Wall Street, gambling with other people's money and in many cases funny money (fake money manufactured by the banks through inflationary processes) has seeped down to the every day person. So many people became financial speculators as a way to try to get back on their feet.
The average person in the US is getting poorer in terms of buying power. I'll tell you my proof. The actual prices of things as you describe, Chris, cost of living, home heating oil and all that, are going up fast. Yet wages are stagnant. Year after year, this means that your "real" income, that is the buying power of what you make, is falling.
So no wonder people got in on this great asset inflation. And now of course the other side of the coin, asset deflation, makes us all have a very difficult time. And it will get worse.
For a solution to this problem, please see my video on doing a short sale if you want to walk away from your mortgage. I give you inside specific tips and a complete tutorial on whether you will have personal liability, how to get the lender to say yes, tax consequences and much more.
Type your first name and email and I'll bring you right to the video, instantly.
And also for more information, see: