Strategic Defaulting on Mortgage.

[swm462]

So we need a bigger house. We currently own, but now we want to rent until we no longer have to pay for daycare. Our family has grown, and we also want to move to a different area, a better area for our kids. Right now we're 5 years into a 40 year mortgage and our house is worth about 70 % of what we owe. We are looking into our options and I think I may rent the house out while eating a couple hundred dollars a month. I was also thinking of just walking away "strategic Default" I know it is considered unethical by some, however I'm not worried about hurting a banks feelings. I know that won't stop some of you from judging anyway, just letting you know-I don't care.

I have read about some of the risks involved and it seems to be on a case by case basis. What I want to know is, do any of you know anyone who has gone through the "strategic Default" process and what was their experience? This is a giant anchor that is weighing my family down. Thanks!

P.S. We have also tried refinancing, called maybe 15 different companies and most of them wont even call us back. Apparently we are way underwater to even consider.

 

[dash1975]

So we need a bigger house. We currently own, but now we want to rent until we no longer have to pay for daycare. Our family has grown, and we also want to move to a different area, a better area for our kids. Right now we're 5 years into a 40 year mortgage and our house is worth about 70 % of what we owe. We are looking into our options and I think I may rent the house out while eating a couple hundred dollars a month. I was also thinking of just walking away "strategic Default" I know it is considered unethical by some, however I'm not worried about hurting a banks feelings. I know that won't stop some of you from judging anyway, just letting you know-I don't care.

I have read about some of the risks involved and it seems to be on a case by case basis. What I want to know is, do any of you know anyone who has gone through the "strategic Default" process and what was their experience? This is a giant anchor that is weighing my family down. Thanks!

P.S. We have also tried refinancing, called maybe 15 different companies and most of them wont even call us back. Apparently we are way underwater to even consider.

We went through this process with a house we owned and it was not a great idea. At the time it was what I had to do, but it sure has cost me. I am in the process of buying a house right now and I still have to go to an alternative mortgage company instead of my bank. I know I can re-finance in about a year but I am still stuck with this other lender. Most lenders will tell you it takes over 5 years after a default as long as you have good credit since. Navy Fed requires 7 years after a foreclosure, at least that is what they told me. If you can afford to stay in your current house I would definitely stay. If not then consider doing a short sale if the bank will approve it. Most lenders will lend to you only after a couple of years following a short sale. Just my opinion. Good luck with what ever way you go.

 

[tommyjo]

I was also thinking of just walking away "strategic Default" I know it is considered unethical by some, however I'm not worried about hurting a banks feelings. I know that won't stop some of you from judging anyway, just letting you know-I don't care.

Strategically defaulting doesn't only impact you or your bank...since you don't care about others opinions and you obviously don't care about your neighbors or community...why should anyone give a damn about you?

 

[czygvtwkr]

40 year mortgage?

 

[Larry Gude]

Strategically defaulting doesn't only impact you or your bank...since you don't care about others opinions and you obviously don't care about your neighbors or community...why should anyone give a damn about you?

Ok, so, when a stock starts to fall in value, keep it, right? For your community's sake? That right? That how it works? Work cuts your wages by 1/3 and you have other options, you just stay put, yes? For your neighbors? That the plan?

They're having economic concerns, the OP, and the bank is supposed to be first in line, right? Can't get refinanced by those neighborly, community oriented banks but, for your neighbors, for your community, the 'ol mortgage, on an asset that isn't worth what you owe, not even close, MUST be paid? That how we do?

Listen up, dumb ass. You assume a risk when you buy a home but, you look at it as a good risk with the trust that all the policies, the regulation, the 500 pieces of bull#### you have to sign when you buy one, the government and, yes, the banks, must know what they are doing and it's a good risk to take. The bank, likewise, takes a risk.

But, guess what? If it goes belly up, who got bailed out? Not you. All the blood, sweat and tears you put into a place is GONE. The bank's risk only runs as far as the nearest moron politician who thinks the bank IS the neighbor, the bank IS the community and the bank is the one in need of support, not some poor Schmoe who has lived in the thing, laughed, loved, built, remodeled, and turned that ####ing house into a HOME.

So, if they, the ones who have the emotional capital invested, decide it's worth considering then, guess what? The bank is still covered.

As for the 'community', the real neighbors? They expect you, like they would, to do what you gotta do. They, like most sentient beings, know, that we, the people, through our politicians through our regulations, through our culture, ran towards the blaze of the housing market, like moths to a flame and, ultimately, it's our fault. That said, the people that needed bailing out is NOT Wall Street and AIG and school pensions and foreign governments that likewise ran towards the flame but, we, the PEOPLE, the ones footing the bill, the ones making houses into homes.

Politicians and Wall Street merrily led us down this path. THEY BAILED THEMSELVES OUT. Don't you ####ing DARE come in here and talk about things like 'neighbor' and 'community' when those two words never came up under TARP and haven't come up since. If the politicians and banks gave two ####s about those two words, they would have reset mortgages and kept people in their homes. Not said 'thanks for the bailout, punk. Now, get your #### and get out of my house.'

You are stupid.

 

[ftcret]

What Larry said.

 

[my-thyme]

What Larry said.

 

[czygvtwkr]

You dont buy a home as a monetary investment, there are far better things you can invest in if your goal is to make money. You invest in a home as a place to live, grow, share good times etc.

I think that people that default on their mortgage just because it leaves them better off are dirtbags.

 

[Larry Gude]

You dont buy a home as a monetary investment, there are far better things you can invest in if your goal is to make money. You invest in a home as a place to live, grow, share good times etc.

I think that people that default on their mortgage just because it leaves them better off are dirtbags.

The hell you don't. For the vast majority of us, our home is THE central investment of our lives be it appreciation to sell it and move to a more desirable place or get it paid off and live happily ever after.

I think anyone that hangs with a bad investment is...hanging with a bad investment. So, #### you. I wiped out my savings and took an enormous cut in my pay to try and hang on to the house and it only got worse.

So, with all due respect, #### you. Very much.

 

[czygvtwkr]

The hell you don't. For the vast majority of us, our home is THE central investment of our lives be it appreciation to sell it and move to a more desirable place or get it paid off and live happily ever after.

I think anyone that hangs with a bad investment is...hanging with a bad investment. So, #### you. I wiped out my savings and took an enormous cut in my pay to try and hang on to the house and it only got worse.

So, with all due respect, #### you. Very much.

As a monetary investment it is stupid. Think about it, most people are happy if their home doubles in value in say 10 years. But dont think about the initial principal that the home cost, factor in what was paid in interest, what was paid on the principal, all that money that you spent on payments and very little of it actually went to the principal, not to factor in taxes, maintaining the home etc. The people I bought my house off held out for a while for 5k extra, but what they did not understand is that they paid about $1500 in interest to get that extra $5k from me.

So did your payments go up? You buy more house than you could afford or did you get an ARM? Sorry I have no sympathy for you if that's why.

 

[Larry Gude]

As a monetary investment it is stupid. Think about it, most people are happy if their home doubles in value in say 10 years. But dont think about the initial principal that the home cost, factor in what was paid in interest, what was paid on the principal, all that money that you spent on payments and very little of it actually went to the principal, not to factor in taxes, maintaining the home etc. The people I bought my house off held out for a while for 5k extra, but what they did not understand is that they paid about $1500 in interest to get that extra $5k from me.

So did your payments go up? You buy more house than you could afford or did you get an ARM? Sorry I have no sympathy for you if that's why.

Economy tanked, margin shrank, business suffered. Wasn't smart enough or strong enough or lucky enough to do better. Something had to give.

I'm not asking for sympathy. I just wish we, the people, had been bailed out instead of Wall Street.

 

[czygvtwkr]

Economy tanked, margin shrank, business suffered. Wasn't smart enough or strong enough or lucky enough to do better. Something had to give.

I'm not asking for sympathy. I just wish we, the people, had been bailed out instead of Wall Street.

While I dispise most European attitudes I do like their thoughts on a home much better than the American way of thinking. American way of thinking is if I do x then my home will increase by y. European thinking is I want this done to my house and they do it without thought about selling it. The houses are also much sturdier (but clost alot more). I think America has watched too much HGTV and shows like flip this house.

So your cash flow shrank below what could pay for the house? I don't get the part about you took a pay cut to try to keep it, maybe i misunderstood but isnt is because you took a paycut you couldnt keep it?

 

[Larry Gude]

So your cash flow shrank below what could pay for the house? I don't get the part about you took a pay cut to try to keep it, maybe i misunderstood but isnt is because you took a paycut you couldnt keep it?

That was confusing. My bad. What I meant was that I redirected resources to the breaking point in trying to keep the house. Dividends v. salary.

Suffice it to say I stretched myself to the breaking point to do as you would argue; keep paying the mortgage. If I were a little smarter/stronger/luckier, it would have never been a problem. However, as I am not, it would have been better had my customers, we, the people, been bailed out rather than what TARP did do.

 

[Larry Gude]

While I dispise most European attitudes I do like their thoughts on a home much better than the American way of thinking. American way of thinking is if I do x then my home will increase by y. European thinking is I want this done to my house and they do it without thought about selling it. The houses are also much sturdier (but clost alot more). I think America has watched too much HGTV and shows like flip this house.

I never had any intentions of flipping the house.


As for Europe, I hear you. A vendor of mine, a tech guy support guy for the vendor, lives in Amsterdam. His house is over 400 years old. And has been in his family for all of that.

 

[ProfMoneyWise]

I have always bought homes to live in them. If I happened to make money then great but it has never been my focus.

I learned with my first one to not buy what others thought I should but to buy what I wanted and could afford.

I learned also to not buy until I was:

Debt-free

Had a fully funded emergency fund.

Had 20% down . . . PMI disgusts me

and

15yr mortgage with a total Principal, Interest, Tax, Insurance and HOA (if applicable) no more than 25% of my monthly take-home pay.

I've also learned to think of buying what I could conceivably pay off in full. I decided if I could not conceive the amount ever being paid back in full then I was thinking about buying to much of a house.

Found out the money that some say you save by buying over renting hides in 1% - 3% of the homes value on a yearly basis for things that break, need gas, need paint, need planting and the list goes on and on.

I came to these conclusions all during the time the already mentioned "moths to the flame" effect was happening and money was being thrown at anyone who wanted it. I came to these conclusions while people high-minded others at gatherings about their "strategy" to take equity of of their home and invest it in the market. The margins were there and it was an obvious no-brainer . . . until 2008 that is.

OP asks not to be judged on walking away from a promise. Ok, I won't judge OP but I do know I could not do it and I hope OP and others think a bit about this post and the criteria I use to make a buy decision. You may not end up with anything others think you should have but you sure don't end up with the problems some of them walk themselves into either.

Low-risk is a peaceful way to go.

 

[ProfMoneyWise]

If we ever sell what we are in now I'm not so sure we will ever buy again and if we do I don't see spending more than we have in our pocket.

 

[czygvtwkr]

That was confusing. My bad. What I meant was that I redirected resources to the breaking point in trying to keep the house. Dividends v. salary.

Suffice it to say I stretched myself to the breaking point to do as you would argue; keep paying the mortgage. If I were a little smarter/stronger/luckier, it would have never been a problem. However, as I am not, it would have been better had my customers, we, the people, been bailed out rather than what TARP did do.

Ok I understand your situation, what I don't believe in is the thoughts of oh my house is loosing value, hell with it ill dump it.

Back to investments, about 5-6 years ago I invested in a stock that was about $2 a share because I saw a future for it, it kept dropping and dropping, but I still believed in it so I bought more, finally it was under $0.30 a share but I knew there was value still there and because I had no intention of selling soon I held on. While I am a big advocate in it doesnt matter where a stock has been, what matters is where it is going I still held on because I knew the financials were sound and I knew I had lost no money until I sell. Well I finally sold it last week for over $3 a share, all said and done with all the extra shares I bought at basement prices I ended up with a 240% profit and had to pay no interest or taxes in the time I held onto it. Now this is what I mean by better monetary investments than homes.

I bought at the height of the bubble and still have very few regrets because I bought it to live in and one that was reasonable. Sure I could have had more house, but like I said I didn't buy it as an investment and couldn't care less what it is worth "today".

 

[Larry Gude]

Ok I understand your situation, what I don't believe in is the thoughts of oh my house is loosing value, hell with it ill dump it. .

Why not? You keep pushing the 'sound investment' angle. If it's not smart to buy a house as an investment in the first place, how in the hell is a good idea to then hold onto it if it is losing value?????

 

[czygvtwkr]

Why not? You keep pushing the 'sound investment' angle. If it's not smart to buy a house as an investment in the first place, how in the hell is a good idea to then hold onto it if it is losing value?????

I don't consider a house any more an investment than a car (and we know those dont appreciate), table saw, new shoes etc.

So why buy any of those things either?

People that think they made money on their house are usually wrong. Lets say you buy a house for $100k in 1990 and sold it for $250k in 2010, most people think they made a profit of $150k, as a buisness man you know better than this, they either made far less or even lost money.

Lets say gerber daiseys, they cost you $1 each, would you consider the profit on them only what you make minus the cost of them? You have alot more overhead costs than just the cost of the daiseys don't you?

 

[Larry Gude]

I don't consider a house any more an investment than a car (and we know those dont appreciate), table saw, new shoes etc.

So why buy any of those things either?

People that think they made money on their house are usually wrong. Lets say you buy a house for $100k in 1990 and sold it for $250k in 2010, most people think they made a profit of $150k, as a buisness man you know better than this, they either made far less or even lost money.

Lets say gerber daiseys, they cost you $1 each, would you consider the profit on them only what you make minus the cost of them? You have alot more overhead costs than just the cost of the daiseys don't you?

You are not imputing the value of the things associated with home ownership. So, as a pure investment, with no context provided, I concede it is not the 'best' idea.

However, and this is why this is a hot button issue for me, is that, in America, as an American, the home is sacred. Property ownership is the cornerstone of a free people. Where our leadership went wrong was in treating the housing bubble as just another bubble. They had a moral duty, as leaders, especially because Bush warned of the coming problem in April of '01, to soften the blow and even try to prevent it and the LAST thing they should have done was TARP. The original idea, troubled asset relief, was the correct impulse; protect the asset, the home. But, they chose to protect the OTHER asset; shareholder value.

There is no simpler way to make clear the have/have not mindset of the rich, of 'let them eat cake' when you choose to protect the wealthy at the expense of the common man. There is no better indictment of capitalism than the might makes right result of TARP.

And, worse, this is what opened the door for an avowed socialist like Obama. If the 'conservative' free market guys are all about the rich and screw the little man, maybe the socialists have a better idea?

At the end of the day, my predicament is MY fault. As I say, smarter, more disciplined, stronger, you name it but, there is no getting around that we are SUPPOSED to be a nation of THE people and that means, warts and all, our general screw ups, when the chickens come home to roost, it is the people that should be looked after. Bail us out. Get us through this.

That's the moral, idealistic argument. The simple investment argument, one that should appeal to you is the fact that had assets been revalued, people kept in homes, the people who would have taken the hit, individual investors as well as institutions, would be the very ones who would most readily benefit from the rebound an asset revaluing would have wrought; economic recovery, WHILE at the same time healing an economy that would also provide the opportunity for the common Joe and Jane.

As is, we did what we did and have exploded dependency to boot, including the legitimizing of Too Big To Fail and you can't get THAT Genie back in the bottle. It should have NEVER been let out.