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I was listening to NPR this morning. They were discussing Fannie Mae and Freddie Mac lowering the principle on troubled mortgages up to $50k. Someone then mentioned how bad of an idea this was since it would trigger a tidal wave of strategic defaults by those who had no trouble paying their mortgages.
Would you do it?
http://www.npr.org/2012/03/23/149166...ge-write-downs
Why would you want to do a strategic defalut? If you purchased a house which you liked and intend to continue to live in and can currently afford it is not really relevant if the "estimated value" is higher than what you still owe on it. A default will also harm your credit if you want to buy another house in the next few years (I believe it will stay on your credit reports for seven years though somebody may want to check on that). I would not do a "strategic default" if I could still make payments on the house. If you simply cannot afford to make payments, that is a different question.
(As I recall, to qualify you must be perfect in making on- time payments on your home currently and have good credit).
If there is a viable financial reason to strategically default then of course, why not? There is no shame or moral weakness is making prudent financial decisions. Banks don't loan you money because they like you. They make loans to people based on risk. There are millions of people who banks lent money to stupidly, and there nothing wrong with those banks paying for their mistakes if someone decides to strategically default.
If a couple bought a house in 2006 with no money down, adjustable rate mortgage, interest only payments for the first 3 years, and all of the sudden their house tumbles to half its value there is nothing wrong with making the financial decision to not pay that mortgage. You would be crazy not to strategically default in that instance even if you had the money. Live in the house as long as possible and offer up a deed in lieu and get out.
I take it you have no problem with people walking away from contracts they signed if they want to- even if you can afford to keep the contract. That is what you are doing. They agreed to do it (both the individual and the bank). Should the bank likewise be able to forclose on you if the price of your home goes up instead of down? If you can walk away if it goes down, they should be able to walk away if it goes up.
Reads much cleaner...Quote:
Originally Posted by Aurave
I could care less...Quote:
Originally Posted by Zippyjuan
http://www.pbgc.gov/wr/trusteed/plans.html
You have the situation almost exactly backwards.Quote:
Originally Posted by Aurave
Is it a different house than the one they bought? Did the bank come and take half of the house away? Is it somehow providing them half as much shelter as it did in 2006? If not, then the house has the same value it had when the couple bought it.
Actually, what happened is that the couple did not purchase the house based on its current value. They, instead, bought it based upon what they thought the future price would be. And they were wrong. It wasn't the bank that made a poor economic decision, it was the couple.
huh?Quote:
Originally Posted by Zippyjuan
But part of that contract states that if they don't pay then the bank gets the house. So walk away and the bank owns the house. The contract has been honored.Quote:
Originally Posted by Zippyjuan
Just think if everyone in America no longer had a house payment...mortgage forgiveness stimulus
The poll , says 60 % in favor , at this moment ( only ten votes though ) . I did not vote...
Here's a better option - try to get a debt write down as well.
It is a highly rational and reasonable function of a market economy. Bubble forms, - banks and homeowners BOTH have rough balance sheets due to over leverage. Banks do not want to lose income, homeowners do not want to lose their homes. They negotiate. Bank lowers the principal amount, refinance at a higher interest rate (or not?)...homeowner can now afford to stay in the house (or simply want to because they won't lose their shirt on the asset value) and the bank stays solvent as their income does not dry up.
Shwing.
The REAL solution to this crisis is not keeping interest rates low, or pumping QE...It's a MUTUAL agreement between lender and borrower.
The banks are just as sick as the borrowers. The banks got their bailout and **MIGHT** not be able to get more without a violent revolt.
It's in their best interest to forgive principal to maintain solvency and income streams.
THAT would create a recovery.