high-end homeowners have chosen to pursue a "strategic default."

[shah269 0]

http://money.cnn.com/2012/02/23/real_estate/million_dollar_foreclosures/index.htm?hpt=hp_t3
Interesting

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"In the lower-priced houses you'll see more people defaulting because they can't afford the payments and it's a choice between feeding their family and paying the mortgage on a home that's under water," said Stuart Vener, a national real estate and mortgage expert with the Florida-based Wilshire Holding Group.

"In million-dollar homes, you're looking at people who can afford it, but they have to make a business decision: Does it make sense to make payments on a mortgage when the home is worth less than they owe?" he said. In many cases, it often makes more financial sense to walk away.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[rushmc 23]

Quote

http://money.cnn.com/2012/02/23/real_estate/million_dollar_foreclosures/index.htm?hpt=hp_t3
Interesting

Quote

"In the lower-priced houses you'll see more people defaulting because they can't afford the payments and it's a choice between feeding their family and paying the mortgage on a home that's under water," said Stuart Vener, a national real estate and mortgage expert with the Florida-based Wilshire Holding Group.

"In million-dollar homes, you're looking at people who can afford it, but they have to make a business decision: Does it make sense to make payments on a mortgage when the home is worth less than they owe?" he said. In many cases, it often makes more financial sense to walk away.

Well look for your rates to go up

Someone has to pay for the dead beats

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[shah269 0]

Everyone keeps telling me I should do this.
I can afford my place, I just hate throwing money into a very bad investment.
But unlike these folks....I have this thing called a sense of responsibility.

That said, if they are doing it.....why shouldn't the rest of us?
Yeah I know credit score and all that jazz.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[DrewEckhardt 0]

Its happens in business all the time.

The Mortgage Bankers of America (the same guys telling you that you have a moral obligation to pay your mortgage) would have defaulted on their Washington, DC head quarters but settled for a short sale where their lender got $41M on the property with a $75M loan in 2010.

http://online.wsj.com/article/SB10001424052748704829704575049111428912890.html

In 2009 Morgan Stanley returned their San Francisco skyscraper keys and walked away from a $2B loan after commercial property prices dropped 40%.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLYZhnfoXOSk

Do they teach that the world works like this in business school or do you need to pick it up in on-the-job experience?

[DrewEckhardt 0]

Quote

Everyone keeps telling me I should do this.
I can afford my place, I just hate throwing money into a very bad investment.
But unlike these folks....I have this thing called a sense of responsibility.

So fulfill your sense of responsibility by walking away thus helping property prices to revert to their historic mean so homes are more affordable for young people with limited job prospects.

It's called "efficient breach"

http://en.wikipedia.org/wiki/Efficient_breach

where you note that the penalties for breaching a contract are less than the costs of complying with it and walk away.

Quote

That said, if they are doing it.....why shouldn't the rest of us?

No reason once you'll come out ahead when the dust settles unless your mortgage + HOA + taxes - tax deductions are less than renting an equivalent property which make the arithmetic more ambiguous.

[yourmomma 0]

So if an individual does it with a mortgage they are a dead beat. But when a private equity firm does it with a business(no different than an LBO), it's called.... capitalism?

[shah269 0]

DrewEckhardt

That was very well put! I have to admit it now sounds more like a good idea.

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[DrewEckhardt 0]

Quote

So if an individual does it with a mortgage they are a dead beat. But when a private equity firm does it with a business(no different than an LBO), it's called.... capitalism?

Right.

Also note that when a residential recourse loan is forgiven the deficit is considered taxable income (although the prudent home owner would note the exemptions for insolvency where the amount beyond your net worth at fair market value isn't taxable, the temporary legal accommodation for the housing crisis, and that consulting lawyers and accountants knowledgeable in such matters is prudent).

When a business walks away from commercial property the balance is not.

All animals are equal, but some animals are more equal than others.

[airtwardo 7]

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DrewEckhardt

That was very well put! I have to admit it now sounds more like a good idea.

What's it do to your credit rating and the possibility of getting another mortgage later on?

~ If you choke a Smurf, what color does it turn? ~

[DrewEckhardt 0]

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DrewEckhardt

That was very well put! I have to admit it now sounds more like a good idea.

What's it do to your credit rating and the possibility of getting another mortgage later on?

It makes it more difficult to get a mortgage with a good rate for the seven years it's on your credit report. You won't get back to an 780 credit rating for that whole period time but starting at 680 it'll only take about 3 years to recover.

Where renting an equivalent property takes half the cash flow that can be a sensible trade-off.

[rushmc 23]

Quote

So if an individual does it with a mortgage they are a dead beat. But when a private equity firm does it with a business(no different than an LBO), it's called.... capitalism?

I see a difference between being able to meet your commitments and walking away, vs walking away because you have no other choice.


So I would call a company or business that just walks away because it is better for them deadbeats as well

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[DrewEckhardt 0]

Quote

Quote

So if an individual does it with a mortgage they are a dead beat. But when a private equity firm does it with a business(no different than an LBO), it's called.... capitalism?

I see a difference between being able to meet your commitments and walking away, vs walking away because you have no other choice.

So I would call a company or business that just walks away because it is better for them deadbeats as well

Walking away from a situation where the other side acted honorably may be ethically questionable.

Walking away when the other side wrote large mortgages on which they collected origination and servicing fees where the loans were less likely to be repaid but written anyways because some one else shouldered the risk (The government sponsored enterprises that bought or insured most mortgages and private investors who bought most of the remainder) thus causing property values to spike is less questionable.

Some would call it justice.

[GeorgiaDon 380]

Quote

ll animals are equal, but some animals are more equal than others.

So what you are saying, is that when it comes to business your word is worth nothing?

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[rushmc 23]

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Quote

Quote

So if an individual does it with a mortgage they are a dead beat. But when a private equity firm does it with a business(no different than an LBO), it's called.... capitalism?

I see a difference between being able to meet your commitments and walking away, vs walking away because you have no other choice.

So I would call a company or business that just walks away because it is better for them deadbeats as well

Walking away from a situation where the other side acted honorably may be ethically questionable.

Walking away when the other side wrote large mortgages on which they collected origination and servicing fees where the loans were less likely to be repaid but written anyways because some one else shouldered the risk (The government sponsored enterprises that bought or insured most mortgages and private investors who bought most of the remainder) thus causing property values to spike is less questionable.

Some would call it justice.

Agreed

and putting your name to a contract for more than you can afford (whether you understood that or not) is just as questionable

I understand situations change

I got my butt in deep a few years back
I was told to take bankruptcy and I would clean it up fast

But I made the mess, I had the ability to clean it up

And I have

Because my word and my name are important to me

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[airtwardo 7]

Where renting an equivalent property takes half the cash flow that can be a sensible trade-off

Quote

Since there is no equity I'd say renting for 1/3 or 1/4...

~ If you choke a Smurf, what color does it turn? ~

[shah269 0]

I have an 800 credit score +/- 10 points.
On the books my place is worth $200k so have to look at those taxes and see hwo they work out.
Especially since I have an 80/20 thing going.

Rent for me for a very high end location is equal to what I pay. For an ok location it's $1k less than what I pay!

For me it doesn't feel right. I would rather come to an agreement and keep my end of the deal.

But that's just me, maybe I'm oen of those dumb honest folks.

But thank you

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[rushmc 23]

Quote

I have an 800 credit score +/- 10 points.
On the books my place is worth $200k so have to look at those taxes and see hwo they work out.
Especially since I have an 80/20 thing going.

Rent for me for a very high end location is equal to what I pay. For an ok location it's $1k less than what I pay!

For me it doesn't feel right. I would rather come to an agreement and keep my end of the deal.

But that's just me, maybe I'm oen of those dumb honest folks.

But thank you

The idea of working something out with the bank sounds like the best thing for you
Of course they have to go for it

And their choice would be made by deciding what is best for the bank

You walking away or working something out with them

Get creative

Make an offer that helps you and looks good to them

You already spent the money to start the process, right?

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[shah269 0]

Yes I have, they contacted me regarding a refinance under HARP.

After I paid $500 for the appraisal and a few $$ to the bank they changed their mind.

Per my last conversation with them i was told that "they were no longer issuing new loans thus they were no longer in the refinance business, however i was free to look for a new bank."

To say that I find that rude is an understatement.


I wonder if you get the same level of disrespect if your home is worth say $1mill and you owe $1.5mill?

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[DrewEckhardt 0]

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Where renting an equivalent property takes half the cash flow that can be a sensible trade-off

Since there is no equity I'd say renting for 1/3 or 1/4...

With a 6% loan, .5% PMI (or 80/20 loan with a similar effective interest rate), and 1.5% state taxes Shah could be paying 8.7% of his property's value to "own it" and with a 30 year amortization would have paid principle totaling 10% after 7 years.

At half the cash to rent he could put 4.35% of the property value in safe instruments like CDs and end up with 28% of the value after 7 years or 180% more equity.

[airtwardo 7]

Excellent point! Hadn't considered that.

~ If you choke a Smurf, what color does it turn? ~

[shah269 0]

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Quote

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Where renting an equivalent property takes half the cash flow that can be a sensible trade-off

Since there is no equity I'd say renting for 1/3 or 1/4...

With a 6% loan, .5% PMI (or 80/20 loan with a similar effective interest rate), and 1.5% state taxes Shah could be paying 8.7% of his property's value to "own it" and with a 30 year amortization would have paid principle totaling 10% after 7 years.

At half the cash to rent he could put 4.35% of the property value in safe instruments like CDs and end up with 28% of the value after 7 years or 170% more equity.

Dude I'm hiring you as my money manager!

Life through good thoughts, good words, and good deeds is necessary to ensure happiness and to keep chaos at bay.

The only thing that falls from the sky is birdshit and fools!

[NewGuy2005 53]

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DrewEckhardt

That was very well put! I have to admit it now sounds more like a good idea.

What's it do to your credit rating and the possibility of getting another mortgage later on?

Not to mention your employability. Credit checks are pretty standard procedure in the hiring process.

[kelpdiver 2]

Quote

With a 6% loan, .5% PMI (or 80/20 loan with a similar effective interest rate), and 1.5% state taxes Shah could be paying 8.7% of his property's value to "own it" and with a 30 year amortization would have paid principle totaling 10% after 7 years.

At half the cash to rent he could put 4.35% of the property value in safe instruments like CDs and end up with 28% of the value after 7 years or 170% more equity.

still not understanding the "half the cash" assumption. How did you arrive at it? He's in a high tax situation - dumping the mortgage gives that up. He's also in a high rent situation. Where I am I probably (don't understand how AMT would fuck it up) would pay only slightly more to have a mortgage...the primary difference is the long commitment to one place. It is hard for me to see him cutting his monthly housing costs (after taxes) in half.

And he better sign the lease before the ditched loan shows up on the credit report.

[normiss 897]

And insurance, and other loans.
There can be a costly long term effect to a hit on your credit.

One of the lesser value homes in our neighborhood is a BoA repo. Credit ding to the previous owner - $348,000 on a $260,000 loan.

They'd be lucky to get $70,000 for that place.

[Southern_Man 0]

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That said, if they are doing it.....why shouldn't the rest of us?
Yeah I know credit score and all that jazz.

I wish you would do a strategic default. Then you wouldn't have to start 2-3 repetitive whining threads a week about the same topic.

"What if there were no hypothetical questions?"