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From cnbc.com: http://www.cnbc.com/id/39873678/
A new survey by Pew Research says 36 percent of Americans believe walking away from their mortgage is perfectly acceptable. We want to know if you would ever simply leave your mortgage and your home behind.
Tell us what you think. Share your opinion:
Would you ever leave your mortgage and your home behind?
Yes: 54%
No: 46%
Total Votes: 2267
No, I would not walk away. My home would be the last asset to go besides my paid off 2002 car. Got to live somewhere when the house is gone :).
Yes, if I had enough foresight to buy with little down.
I really can’t answer, because I didn’t put myself in that position so my circumstances aren’t relevant. That said, I have no problem advising anyone else to walk.
Reverse the positions and you know the bank itself would walk, because it’s a black and white business decision for them. Why should people act any differently?
To me, this is a sad commentary on where our societal ethics have slumped at the “highest” and “lowest” levels to. The Mozilla’s of the world to the those who used their house as an ATM. I was part of the dot-com bomb. All the way up, stock market, etc., we employees could see this was not sustainable. Same with the housing bubble, I think most knew the truth with both, but rode it as long as they could. History, sadly, does repeat itself because humans are the only beings that seem to think that repeating the same actions over and over action will result in a different outcome. Jim-You can ban me now from posting to your blog, but I still believe in everything I learned in Kindergarten. WC-sorry, we have different characters. But you’ll probably come out on top.
The Question is not clear. Is it assuming that I can pay my mortgage but the house is deeply underwater?
My answer to that is no, if we are talking about my existing house. Even if the value of my house drops well below my note, I still can’t rent for less than my mortgage.
On the other hand:
If I had vastly overpaid during the bubble and could rent something comfortable at 50% less cost in a comparable neighborhood…yeah, I’d walk away. There’s no winning in that situation.
it’s not a simple 1-Dimensional decision.
I see the decision tree going like this.
1) Am I Underwater
2) Will i likely remain underwater for a long time.
3) Will the bank go after me for a deficiency or can i send them the keys and skate
4) will a place cost me more or less in rent then my payment.
but the Mortgage Bankers skated on their building and the banks screwed everyone.
“Ever?” As in “given the universe of possible scenarios, can you imagine a circumstance where you might walk away?”
What a stupid question.
Yet another example of the myriad reasons not to watch CNBC.
I didn’t during the last real estate bust in the ’90’s, but I was 20%+ invested. This bubble, most people were zero invested. Loans to dead people. No risk. Buy a house and it goes up in value. If it doesn’t, walk. Live for free until the bank takes it back.
If I had a do-over, I’d consider buying w/zero down and if I were underwater, I’d probably live for free, then walk. Got nothing to lose. Damn tempting. The banks made it easy to buy and now easy to walk. Who could resist?
@Josie
I couldn’t have said it better.
If doing so is beneficial for me and my family YES I will leave mortgage & home. There is nothing wrong or immoral about it, my obligation is for my family not my lender.
All the talk about morality is a one sided deal the banks don’t worry about it. A mortgage is a contract and defines what happens if one does not pay. If I could not pay without touching retirement funds, I would let the house go. There is no morality involved, any more than anywhere in business morality is involved. The business types default on loans a lot, so why hold consumers to a higher standard?
“The business types default on loans a lot, so why hold consumers to a higher standard?”
And this is the fatal flaw with the government being in the business of mortgages. If personal mortgages are to be a business decision with consequences, then the government (taxpayer) should not be on the hook when banks make stupid loans which give a buyer all the upside with no downside risk.
Something has to give here. We need to return to the days of 20% down and abolish government loan guarantees. I don’t believe that the banks would have made such stupid loans without implicit government backing. I am somewhat skeptical but at least encouraged by the latest commentary on the future of Freddie/Fannie coming from Washington.
As a recent home buyer, a major shift away from government involvement in mortgages is going to be painful on my wallet but so be it. I would gladly see my home value go down a couple hundred large if it meant getting the government out of the mortgage market forever.
Good to see that ethics are alive and well in SD.
The people that walk away from their mortgages to me are deadbeats. Would I do the same thing if I were underwater? Most likely no, but I would never get myself into that kind of situation.
Although not paying your mortgage is bad the real jerkoffs are the buy and bailers. Buying a new house while letting your old one go is strait up fraud. People that participate in the practice and those that enable it should all be put in jail.
It’s funny idiots that rob a gas station will get put away for 10-20 years. During the robbery they might steal a couple hundred to a couple thousand dollars. Deadbeats and buy and bailers steal hundreds of thousands of dollars. Yet nobody considers what they’re doing a crime.
Won’t the selective enforcement of society’s laws eventually bring lawlessness?
More than half of the people who responded at cnbc would walk away, and it must be due to the lack of penalty.
Defaulters are encouraged by the servicers to not pay. Borrowers get comfortable with not paying, and then get brazen when they don’t get an easy loan-mod ticket because they can midnight-move and risk very little threat of punishment. Bad credit for a few years isn’t enough.
I don’t know that it’s lack of penalty, Jim. Someone walking away is losing some money, even if they went in at zero down. They still paid out a good chunk of cash. They are also going to take a credit hit that won’t wipe for 7 (?) years.
At the end of the day, a contract is a contract. Pay as agreed or the asset goes back to the bank. As wawawa wrote, you really have to run the numbers. If hanging on to the house is going to destroy your family financially, the decision becomes easier.
I don’t think it’s an easy question to answer, it depends an awful lot on the exact circumstances. Although, in my opinion, if you are going to walk away then don’t sit there and take advantage of the free rent program for 2 years. Yeah, you are sticking it to the bank, but you also are probably not paying your property taxes, which is starving your school district and community for funds. I, personally, think people running the free rent game are dirtbags, but at the same time I have some sympathy for wanting to stick it to banking system that was more than happy to hand out jumbo loans to anyone who could fog a mirror.
Overall, I think it’s a complex question that really comes down to, “If the circumstances were such that walking away was the best move for your family financially, would you do it?”
It would be interesting to see the response if the same question was asked of Canadians. Because of strict government regulations, our banks weren’t able to commit the same mortgage shenanigans as the banks in the rest of the world. As a result, none of our banks ever defaulted or needed a bailout during this entire financial collapse.
“And this is the fatal flaw with the government being in the business of mortgages”
peneliza
Fannie freddie used to require 20% down so they were safe and FHA only provided mortgages for the poor.
The Bushies lifted all the rules and made the Taxpayers responsible for wall street gMBLING
a little bit old but fits perfectly haha:
http://www.ritholtz.com/blog/2010/10/mortgage-bankers-association-strategic-default/
btw. since I´m young & single the strategic default would be a no brainer for me…
What is life without a shadash “deadbeat” comment? Yawn
I knew what I was getting into when I signed my contract, so I wouldn’t walk away if the value of my house took a nose-dive. I worked too hard to save up for my deposit – I didn’t go FHA – and maintained a good credit rating and job history.
Of course, I made the “good business decision” to hold out until prices were more reasonable and found a house that needed a bit of work at a great price.
Art Eclectic stated the case rather eloquently, but I’ll add that “this time really is different”.
This wasn’t your typical housing boom/bust cycle, so the response isn’t going to be typical either.
Everyone — including the government, media, friends & family — were exhorting people to buy, finance far more than they can possibly afford, and do it before the opportunity passed them by forever.
Consequently, the magnitude of the bubble guaranteed that even people that could afford their payments would be so far underwater that they’d never see equity again.
It was as big a fraud perpetrated on the people as the banker bailouts that followed.
All the talk about morality is a one sided deal the banks don’t worry about it.
The reason “the banks” don’t worry about it is their losses are being underwritten by Joe and Jane taxpayer.
Why would anyone ever want to hold mortgage paper? If the interest rates drop the borrower refinances. If interest rates rise the borrower can pay to maturity. It value of the collateral drops below the note balance the borrower can defalt, live rent free, and demand cash for keys. Seems like the lender rather than the owner assumes all of the risk.
Would it be fair if the mortgage holder had the right to claim the collateral of a performing mortgage in an appreciating market and sell it for a profit?
Oh if only this were true. the lender sells this mortgage as soon as possible so that someone else is holding the bag. Why do you think the “lenders” were so will to give out liar loans?? The ones assuming all the risk are pension funds that bought AAA rated mortgage backed securities that were actually junk. People would hold mortgage paper pre-casino days because they were a safe, solid investment. But a 2% return isn’t good enough for the wall street gamblers so they created some wonderful “financial innovation” that nearly took down the global economy. They made billions on the front end and were bailed out to the tune of billions on the back end. And you claim they take all the risk. What a f’ing joke.
Yes it’s okay to walk away or go BK.
Mozart,
Aren’t you a huge housing bull?
Ironic that you feel it’s ok to skip on your mortgage or BK considering it’s the main reason home prices fall in neighborhoods.
Come on shadash. This is not ethics, it is business. Most people did not buy the house with intent to default so all they did was make a bad business decision.
This guys house will never be worth what he paid. He may not have overpaid either, he just failed to see that the city he bought in was declining fast. Should he just suck it up set his finances back 30 years in the name of ethics?
http://www.reddit.com/r/RealEstate/comments/fl90e/why_wouldnt_i_strategically_default/
How come no one is claiming “societal ethics are in a shambles” or “moral obligation” when a big business walks away from it’s mortgage??
http://www.huffingtonpost.com/2010/01/31/tishman-speyer-walked-awa_n_443659.html
I’d really like to know the answer to that question from all of you who think a mortgage is something other than a loan SECURED BY COLLATERAL???
Anonymous,
The lender is the holder of the paper. The lender is the the pension fund. For example Countrywide is not the lender, but the originator. Under your scenario Car dealers would be the largest lenders in the auto industry.
bill, the purchaser (eg. pension fund) of a mortgage backed security is not the lender. those resources are made available via a process called securitization. Here’s the definition from Wikipedia:
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors.