Actually, that's pretty smart. In many states, the lenders have no recourse to collect outstanding mortgage debt once you foreclose. As soon as they take back the house, the calls and letters stop. With credit cards, the only way to discharge credit card debt is to bankrupt, which these days is a PITA to do.

You'll take a bigger initial hit to your credit score with a foreclosure, but after just one year of on-time payments, it recovers quickly. My understanding is that an unpaid credit card can drag on your credit for a long time, and that debt collectors can harass you for up to 7 years.

at least they can spend using credit cards

If you're hopelessly upside down on your mortgage, there's really no benefit to pay

Makes sense if you are in a no recourse state. If you're going to lose your house, might as well pay off your credit cards so you can have a clean slate.

Dinjiin: You'll take a bigger initial hit to your credit score with a foreclosure, but after just one year of on-time payments, it recovers quickly. My understanding is that an unpaid credit card can drag on your credit for a long time, and that debt collectors can harass you for up to 7 years.

Also, (and sadly, I know people who are crafty like this), you can file a Ch7 BK 3 or 4 years after a jingle-mail, while you're stuck with a seven year wait between formal bankruptcies.

nekom: MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

Not unless you intend to live there OR if you expect the market to turn around and change the dynamic. Otherwise, nope, here you go bank, a worthless house. Enjoy. Strategic default is a business decision, people need to look at it that way and stop throwing good money after bad.

You mean more good money than the 2% they put down on house that was WAY out of their price range?

Ken VeryBigLiar: You mean more good money than the 2% they put down on house that was WAY out of their price range?

That's what happens when banks don't underwrite their loans.

MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

That's because our system encourages deadbeat behavior. They gave you the money and you said you'd pay it back. "No (immediate) benefit" is a declaration of utter selfishness.

MugzyBrown: That's what happens when banks don't underwrite their loans.

In addition to people not doing their own diligence on the biggest purchase in their life.

Isn't that step one of the debt snowball, attack the smallest of your debt.

nekom: Ken VeryBigLiar: You mean more good money than the 2% they put down on house that was WAY out of their price range?

Just because someone made a bad financial decision doesn't mean they shouldn't cut their losses. The past already happened, people need only consider what's best for them at this point in time. You think if IBM launched a product that failed they're going to put more money into it in an effort to make it successful? Hell no, scrap it, that was a bad idea and we lost money, let's try something else. It's just business.

Not saying they shouldn't get out of them but they never should have been made in the first place. As Mugzy pointed out, when banks stopped underwriting and strayed from the old rules (20% down, housing not making up more than 3/8 of gross income, ect.) it opened the door for so much headache and pain.

When I worked for a personal lines insurer I saw this quite often before everything went to hell. Either it was the couple who had listed occupations that didn't gross over $40k each trying to get house in the 'burbs or the shlub who worked a good paying job who got duped into buying a duplex in the ghetto and got enticed by the rental income. Both of these groups shouldn't of had anything to do with those properties but lenders abandoned their basic responisbility to them and the bank.

wolvernova: MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

That's because our system encourages deadbeat behavior. They gave you the money and you said you'd pay it back. "No (immediate) benefit" is a declaration of utter selfishness.

MugzyBrown: That's what happens when banks don't underwrite their loans.

In addition to people not doing their own diligence on the biggest purchase in their life.

It's a business deal.

You loan me X, if I don't pay, you get Y.

It's really up to the bank to determine if they want to lend me the money.


If I'm honest on my application and I default, and the value of the collateral drops significantly, that just bad luck/bad business for the bank.

I lose the money I paid plus my credit history is screwed.

Ken VeryBigLiar: Not saying they shouldn't get out of them but they never should have been made in the first place. As Mugzy pointed out, when banks stopped underwriting and strayed from the old rules (20% down, housing not making up more than 3/8 of gross income, ect.) it opened the door for so much headache and pain.

The govt currently offers and backs loans with almost nothing down and very dangerous DTI ratios. A lot of those people who are defaulting today bought after the days of subprime. They bought without realizing that prices were going to continue tanking, and want to live rent-free for a long time before bailing on their house and their obligations.

wolvernova: MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

That's because our system encourages deadbeat behavior. They gave you the money and you said you'd pay it back. "No (immediate) benefit" is a declaration of utter selfishness.

MugzyBrown: That's what happens when banks don't underwrite their loans.

In addition to people not doing their own diligence on the biggest purchase in their life.

The time for being a judgemental prick has passed, people are up to their eyeballs in debt, property values have fallen, wages have been declining for decades and the economy is weak.

I'm glad your diligence has earned you the right to be a prick to other who are less fortunate but I really don't think it's helping anything to kick people who are already down.

wolvernova: The govt currently offers and backs loans with almost nothing down and very dangerous DTI ratios. A lot of those people who are defaulting today bought after the days of subprime. They bought without realizing that prices were going to continue tanking, and want to live rent-free for a long time before bailing on their house and their obligations

These are the type of people that remind of a time I took a new agent in our company out to shop for a cell phone for his business line. We went past a Verizon kiosk... "nope, own them money". Same story with 3 other carriers; thought we might have to get him a Cricket phone the way it was going.

/Did make me wonder how he passed the credit check.
//Glad I don't work for that company anymore.

MugzyBrown:
It's a business deal.

You loan me X, if I don't pay, you get Y.

It's really up to the bank to determine if they want to lend me the money.


If I'm honest on my application and I default, and the value of the collateral drops significantly, that just bad luck/bad business for the bank.

I lose the money I paid plus my credit history is screwed.

I'm not talking about it from a legal perspective. I'm referring to the utter selfishness of these people. They wanted to use their house as an ATM machine, and want out when they can't score profits. They're deadbeats and should be castigated out of society.

DevideByZer0: The time for being a judgemental prick has passed, people are up to their eyeballs in debt, property values have fallen, wages have been declining for decades and the economy is weak.

I'm glad your diligence has earned you the right to be a prick to other who are less fortunate but I really don't think it's helping anything to kick people who are already down.

Spare me the b.s. sob story generalizations. These people are under no stress due to prices falling unless they had plans to tap the equity or they have to relocate for their job. In the latter case, they can rent the house out. The former case, they're being selfish assholes.

So yes, I absolutely will be judgmental.

As someone who has been trying to scrounge up money for a down payment, I'll agree with that once the government stops unloading a shiat-ton of money to keep real estate prices from returning to their pre-speculative idiocy levels.

DevideByZer0: The time for being a judgemental prick has passed, people are up to their eyeballs in debt, property values have fallen, wages have been declining for decades and the economy is weak.

I'm glad your diligence has earned you the right to be a prick to other who are less fortunate but I really don't think it's helping anything to kick people who are already down.

wolvernova:
I'm not talking about it from a legal perspective. I'm referring to the utter selfishness of these people. They wanted to use their house as an ATM machine, and want out when they can't score profits.

Well the banks just wanted to use those same houses as interest generating machines, it's not like they're any less selfish.

TheAlgebraist: Well the banks just wanted to use those same houses as interest generating machines, it's not like they're any less selfish.

Didn't imply or say that they weren't. Are you saying that individuals should peg their morals and motivations to those of unsavory financial institutions?

nekom: That's actually pretty stupid. If you're in a position where you can't pay all of your bills and bankruptcy is imminent, paying credit card debt is about the dumbest waste of money there could possibly be. And if you can pay all of your bills, why aren't you?

Because it allows them to 0 out their debt and put money aside to get into an apartment or rental house after the foreclosure finally happens. That is about 1-2 years of mortgage payments to get them back on their feet.

My friend is doing the same thing. His wife has some serious medical issues that forced her to stop working and she was the lion's share of the income. After working 80 hour+ weeks on two jobs for over a year they both just said screw it the house is killing them so they stopped paying.

Ken VeryBigLiar: nekom: MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

Not unless you intend to live there OR if you expect the market to turn around and change the dynamic. Otherwise, nope, here you go bank, a worthless house. Enjoy. Strategic default is a business decision, people need to look at it that way and stop throwing good money after bad.

You mean more good money than the 2% they put down on house that was WAY out of their price range?

You do realize that most of the foreclosures are not houses that were way out of peoples price range right? You did do some actual research on this housing crisis?

Subprime hit first. These were the ugly ones with massive interest increases and or balloon payments that ended up being way out of individuals price ranges as mortgages would jump from 800/mo to 2k+/mo. These nearly all defaulted causing a massive slide in property values which caused prime borrowers to quickly become very underwater. It became cost effective for them to get a second mortgage on a similar house at half the price and walk away from their first mortgage.

There is also the other part about the entire economy collapsing and about 3-4% of the workforce being out of jobs. Because housing was/is so over priced in most regions a single income cannot afford a mortgage.

Not to mention the normal foreclosure causes such as medical expenses etc that happen even during a strong economy.

That is the rough and dirty of it.

wolvernova: Ken VeryBigLiar: Not saying they shouldn't get out of them but they never should have been made in the first place. As Mugzy pointed out, when banks stopped underwriting and strayed from the old rules (20% down, housing not making up more than 3/8 of gross income, ect.) it opened the door for so much headache and pain.

The govt currently offers and backs loans with almost nothing down and very dangerous DTI ratios. A lot of those people who are defaulting today bought after the days of subprime. They bought without realizing that prices were going to continue tanking, and want to live rent-free for a long time before bailing on their house and their obligations.

You're talking about FHA loans and the government doesn't cover the whole loan and it doesn't do it for free. Borrowers pay mortgage insurance (currently they pay 1% of unpaid principal balance up front and 1.15% of UPB annually) until the loan to value is below 78%. If the borrower defaults before the loan to value gets to 78%, the bank receives only the amount to get the LTV to 78% from FHA, not a penny more.

wolvernova: They gave you the money and you said you'd pay it back. "No (immediate) benefit" is a declaration of utter selfishness.

So you suggest that people who purchase stocks should be unable to sell them immediately? What is an appropriate amount of time that they should be forced to hold a stock before a sale can happen?

Because this is exactly what you are proposing since it is "utter selfishness".

ddam: You're talking about FHA loans and the government doesn't cover the whole loan and it doesn't do it for free. Borrowers pay mortgage insurance (currently they pay 1% of unpaid principal balance up front and 1.15% of UPB annually) until the loan to value is below 78%. If the borrower defaults before the loan to value gets to 78%, the bank receives only the amount to get the LTV to 78% from FHA, not a penny more.

My point was that people are taking out loans with very little down and at ratios exceeding safe "norms" of the past. This is being done at the auspice of the U.S. govt, with taxpayers a) subsidizing the loans and b) on the hook for when they default. It's ridiculous.

wolvernova: They're deadbeats and should be castigated out of society.

No, they're businessmen. Sometimes people do things that make them money at the expense of others. Welcome to capitalism. If you don't like it, Cuba is a few hundred miles off the coast.

ddam: wolvernova: Ken VeryBigLiar: Not saying they shouldn't get out of them but they never should have been made in the first place. As Mugzy pointed out, when banks stopped underwriting and strayed from the old rules (20% down, housing not making up more than 3/8 of gross income, ect.) it opened the door for so much headache and pain.

The govt currently offers and backs loans with almost nothing down and very dangerous DTI ratios. A lot of those people who are defaulting today bought after the days of subprime. They bought without realizing that prices were going to continue tanking, and want to live rent-free for a long time before bailing on their house and their obligations.

You're talking about FHA loans and the government doesn't cover the whole loan and it doesn't do it for free. Borrowers pay mortgage insurance (currently they pay 1% of unpaid principal balance up front and 1.15% of UPB annually) until the loan to value is below 78%. If the borrower defaults before the loan to value gets to 78%, the bank receives only the amount to get the LTV to 78% from FHA, not a penny more.

And the "very dangerous DTI ratios" is bullshiat too.

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%.


29% is nowhere near dangerous.

Dinjiin: So you suggest that people who purchase stocks should be unable to sell them immediately?

Of course not. The purchase them with their own money. Houses are NOT stocks.

Dinjiin: Because this is exactly what you are proposing since it is "utter selfishness".

No, it was a very poor analogy.

Kazrath: You do realize that most of the foreclosures are not houses that were way out of peoples price range right? You did do some actual research on this housing crisis?

Subprime hit first. These were the ugly ones with massive interest increases and or balloon payments that ended up being way out of individuals price ranges as mortgages would jump from 800/mo to 2k+/mo. These nearly all defaulted causing a massive slide in property values which caused prime borrowers to quickly become very underwater. It became cost effective for them to get a second mortgage on a similar house at half the price and walk away from their first mortgage.

And many of these people took ARMs and balloon payments why? Because they weren't able to secure financing through traditional mortgages or were foolish enough to think interest rates weren't moving. When your payment goes from $800/mo to $2000/mo you just might be living outside of your means.

DevideByZer0: wolvernova: MugzyBrown: If you're hopelessly upside down on your mortgage, there's really no benefit to pay

That's because our system encourages deadbeat behavior. They gave you the money and you said you'd pay it back. "No (immediate) benefit" is a declaration of utter selfishness.

MugzyBrown: That's what happens when banks don't underwrite their loans.

In addition to people not doing their own diligence on the biggest purchase in their life.

The time for being a judgemental prick has passed, people are up to their eyeballs in debt, property values have fallen, wages have been declining for decades and the economy is weak.

I'm glad your diligence has earned you the right to be a prick to other who are less fortunate but I really don't think it's helping anything to kick people who are already down.

If people would stop living way beyond their means, maybe we'd be able to collectively force ourselves to face the reality of the economy right now instead of years down the road. Kind of ironic in the instant gratification sense.

wolvernova: The purchase them with their own money.

Incorrect. I can take out a loan to purchase stock. There are special rules to do so, but in the end, I can use the bank's money to do it.

wolvernova: ddam: You're talking about FHA loans and the government doesn't cover the whole loan and it doesn't do it for free. Borrowers pay mortgage insurance (currently they pay 1% of unpaid principal balance up front and 1.15% of UPB annually) until the loan to value is below 78%. If the borrower defaults before the loan to value gets to 78%, the bank receives only the amount to get the LTV to 78% from FHA, not a penny more.

My point was that people are taking out loans with very little down and at ratios exceeding safe "norms" of the past. This is being done at the auspice of the U.S. govt, with taxpayers a) subsidizing the loans and b) on the hook for when they default. It's ridiculous.

The problem is not the loan to value and anyone getting higher than 80% LTV loan pays mortgage insurance either to HUD if FHA loan or to a private mortgage insurance company (there were 8 companies approved to opperate nationally but there might be less now).

The problem has always been the income ratios. It used to be 29% of income for mortgage + taxes + ins for the house and 41% for all revolving debt. However, and this is where I agree with you, it has been way too easy to get waivers to those standards.

With real income being stagnant for the past 40 years for middle class and banks being de-regulated in 1999, the real estate bubble was not something unexpected for the majority of us in the business. Sure, a lot of public people like to talk about how the real estate market crash too everyone by surprise but we all knew that we had to make as much money as fast as we could before those pay option ARMs reached their first rate reset. And guess what? The bulk of those loans had their first rate reset in 2006-2007 and that's when the market crashed.

wolvernova: My point was that people are taking out loans with very little down and at ratios exceeding safe "norms" of the past.

This all goes back to Congress and Ronald Reagan attempting to restart the economy after the stagflation era of the late-70s and early-80s. When Bush Sr. came around, nobody had the balls to put the genie back in the bottle, even though experts were warning that a housing bubble was in the works.

Even today, people have it in their heads that home ownership is a fundamental right and that the government should be there to make it happen. It is like social security - the giant elephant in the room that everyone is too scared to touch.

That's why you'll never see a return to 20% down and the elimination of the mortgage interest tax deduction.

jst3p: And the "very dangerous DTI ratios" is bullshiat too.

You have no idea what the hell you're talking about.

FHA Loans Looking Eerily Similar to Their Subprime Predecessor

Continue reading on Examiner.com: FHA Loans Looking Eerily Similar to Their Subprime Predecessor - Portland Credit | Examiner.com http://www.examiner.com/credit-in-portland/fha-loans-looking-eerily-similar-to-t heir-subprime-predecessor#ixzz1MdTgUcU6
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Historically, before the housing bubble decade, Fannie Mae, Freddie Mac, and the banks used a standard 30/36 ratio.
...
Debt ratios have climbed over the last decade, growing to a high of 50/60 during the subprime mortgage boom of 2004-2007.

...
The DTI ratios are consistently 40/48 or 41/52. A job loss or large expense like a medical co-pay or braces for the kids pushes the homeowner to the edge of default.

jst3p: And the "very dangerous DTI ratios" is bullshiat too.

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%.

29% is nowhere near dangerous.

I don't know what you are quoting right there, or what it's talking about, but go apply for an FHA mortgage and look at what they're willing to offer you. My broker gave me a range of scenarios lately, one being FHA, and I almost shiat myself when I saw what they assumed I could afford.

Dinjiin: wolvernova: The purchase them with their own money.

Incorrect. I can take out a loan to purchase stock. There are special rules to do so, but in the end, I can use the bank's money to do it.

And you have to make good on the amount lost.

Like I said, houses are not stocks. The point of buying a house has never been about turning a quick profit until the past ten years when people's eyes became too big for their stomachs and tried to engage in a get-rich-quick scheme. You're defending one of the most abhorrent behaviors that Americans engage in today.

But you can't buy that new flat screen 3D HDTV with your mortgage. Or get the latest "i" product. Or eat at nice restaurants. Why pay your other bills when there is stuff you want? You deserve it! You live in America! Why should other people get to have nice things just because they earn more money? I mean the bank should be thanking you for staying in that home you are not paying for. You deserve a free home! I mean banks are all made up of evil, rich, heterosexual, white males. It's not really stealing when the person makes more than you! It's only FAIR that you should have everything you want even if you can't afford it. Actually earning things is hard! It is not FAIR that you should have to do anything that is hard.

Dinjiin: wolvernova: My point was that people are taking out loans with very little down and at ratios exceeding safe "norms" of the past.

This all goes back to Congress and Ronald Reagan attempting to restart the economy after the stagflation era of the late-70s and early-80s. When Bush Sr. came around, nobody had the balls to put the genie back in the bottle, even though experts were warning that a housing bubble was in the works.

Even today, people have it in their heads that home ownership is a fundamental right and that the government should be there to make it happen. It is like social security - the giant elephant in the room that everyone is too scared to touch.

That's why you'll never see a return to 20% down and the elimination of the mortgage interest tax deduction.

Not sure if the root of the problem is Reagan. Never heard that one before. But almost every administration and congress over the past 40 years has helped push home ownership. This needs to end. We need 20% DP requirements and saner DIT ratios on those loans. Govt needs to get out of the debt ownership business, including ending the mortgage interest deduction.

wolvernova: I don't know what you are quoting right there, or what it's talking about, but go apply for an FHA mortgage and look at what they're willing to offer you. My broker gave me a range of scenarios lately, one being FHA, and I almost shiat myself when I saw what they assumed I could afford.

I am quoting the requirements for an FHA loan. You are absurd. I got an FHA loan last September, I know what they are willing to offer me.

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If the maximum allowable is 29% then the guy who said:

The loans that have come across my desk recently are pushing the limits of affordability. The DTI ratios are consistently 40/48 or 41/52.


Can't be talking about FHA loans. He is being deceptive and you are buying into it.

jst3p: wolvernova: I don't know what you are quoting right there, or what it's talking about, but go apply for an FHA mortgage and look at what they're willing to offer you. My broker gave me a range of scenarios lately, one being FHA, and I almost shiat myself when I saw what they assumed I could afford.

I am quoting the requirements for an FHA loan. You are absurd. I got an FHA loan last September, I know what they are willing to offer me.

Link (new window)

If the maximum allowable is 29% then the guy who said:

The loans that have come across my desk recently are pushing the limits of affordability. The DTI ratios are consistently 40/48 or 41/52.


Can't be talking about FHA loans. He is being deceptive and you are buying into it.

I see, you are talking about fixed payment to income:

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%.

You think it is dangerous to only leave people with 59% of their income as disposable?

Ken VeryBigLiar: Kazrath: You do realize that most of the foreclosures are not houses that were way out of peoples price range right? You did do some actual research on this housing crisis?

Subprime hit first. These were the ugly ones with massive interest increases and or balloon payments that ended up being way out of individuals price ranges as mortgages would jump from 800/mo to 2k+/mo. These nearly all defaulted causing a massive slide in property values which caused prime borrowers to quickly become very underwater. It became cost effective for them to get a second mortgage on a similar house at half the price and walk away from their first mortgage.

And many of these people took ARMs and balloon payments why? Because they weren't able to secure financing through traditional mortgages or were foolish enough to think interest rates weren't moving. When your payment goes from $800/mo to $2000/mo you just might be living outside of your means.

First off. Subprime was the smallest sub-sector of foreclosures. They had the highest percentage by type but they were a small total amount compared to jumbo prime and regular prime.

Two reasons on subprime:

1) They did not really understand what they were getting into.

2) They thought they could flip for profit.

Bad business practices were the erosion. Subprime was the first couple of rocks that started the avalanche. Prime is the landslide.

If banks/lenders were not trying to make a buck in any underhanded way they could then individuals would have not been "Taken by the bank". This would have prevented the bubble and the prime foreclosure crisis. The overvaluation of property driven by easy to acquire and many fraudulent loans are ultimately what has caused this whole problem.

I think you would have to be a very unhappy and small person in real life to take pleasure in reigning down abuse upon those who are hurting in this economy as though it is entirely their fault.

Wolvernova, I hope you get ass cancer and suffer a major medical bankruptcy.

Kazrath

You do realize that most of the foreclosures are not houses that were way out of peoples price range right?

Because housing was/is so over priced in most regions a single income cannot afford a mortgage.

Ummm, so they were out of their price range.

They should have bought a farking cheaper house.


My biggest problem isnt with the banks or the people taking the mortgages, it is with the legislatures that passed no-recourse laws.

Not that in recourse states banks ever go after the money. But they can, and if there is evidence of obvious assets, the bank can go get it. Not surprisingly, there seems to be a bit of correlation between bubble size and no-recourse laws.

DevideByZer0: I think you would have to be a very unhappy and small person in real life to take pleasure in reigning down abuse upon those who are hurting in this economy as though it is entirely their fault.

I didn't say it was entirely their fault, did I? I have little sympathy for somebody that took hundreds of thousands of dollars that they never earned, used it to make a huge purchase with less forethought than they would their weekend dinner plans, then gets to live for over a year rent-free before shedding the loss onto the lender and potentially the taxpayer with no recourse. Pardon me for declaring that the person is not a victim, and is in fact a deadbeat.

I hope you get ass cancer and suffer a major medical bankruptcy.

I have complete sympathy for those who lose their jobs, fall victim to medical bills, as well as other horrible circumstances beyond their control. But your insinuation that this is the makeup of every foreclosure "victim", or that it's even a sizable portion of those who are strategically defaulting, is a bunch of malarkey. You're taking the real pains of a select group of people and applying them to the majority of retards and deadbeats who are looking for an easy buck while incapable of living up to their commitments.

For that, I hope you some day get smacked in the face with a lesson in morality and personal responsibility so painful that you'll actually learn to appreciate and yearn for a populace that isn't full of fly-by-night dipsh*t cheapskates who'd rather fark over 10 people than pay a simple bill they owe.

nekom

That's very easily discharged in bankruptcy.

Sure, but it forces bankruptcy.

If I was a banker (Im in a recourse state) and you came in and couldnt afford your mortgage and could show it and wanted a voluntary foreclosure without recourse, sure, no reason not to give it to you.

You jingle mail me, and I will drive you into bankruptcy.

/Maybe its good Im not a banker