Why America will not work.

http://www.npr.org/templates/story/story.php?storyId=121907594#commentBlock said: http://www.npr.org/templates/story/story.php?storyId=121907594#commentBlock Many homeowners who are tens thousands of dollars underwater on their mortgages — meaning they owe more than the value of their homes — have decided it's just not worth it. Some, like Heather Baker, can even afford their payments, but they're walking away anyway. Baker is done with being a homeowner. Last month, she stopped paying her mortgage. "Who says that my American dream has to be a home with a white picket fence and all of that?" says Baker, sitting at her dining room table. But that's not what she was saying three years ago when she bought her four-bedroom home in a distant suburb of Washington, D.C. Baker was about to turn 40 and felt like she needed to own. "I was like, 'Wow, you know, I need to have a home. I need to be in a home,' " Baker says. "My birthday was in September. I purchased the house in August. So I got the house before I turned 40, but it wasn't a great investment." A Bad Investment She figures the house she bought for $465,000 won't sell for more than $225,000 now. That lower figure is what a house down the street went for earlier this year in a foreclosure auction. Like a lot of people, Baker bought her house with no money down. The mortgage broker she worked with told her she qualified for the loan based on her credit score alone. "He was like, 'Go get whatever house you want. It doesn't matter.' And that's pretty much what I did, unfortunately," Baker says. Starting to sound familiar? Baker's experience is a classic case of the mixed-up logic that ruled the housing boom. But there's a difference: Baker is solidly upper middle class. She has a good income and can actually afford her payments. "I'm looking at the investment part of it," she says. "Not just, 'OK, yes, I can afford this house.' But I just don't see it as a good investment." Baker and two daughters plan to live in this house payment-free for the next several months. Then, before her foreclosure is finalized and her lenders kick her out, she'll move into a rented townhouse that's almost as big as her house. She'll pay hundreds less each month and cut her commute in half. "I hate to sound cold and uncaring and contract-breaking, but I'm really OK with it," Baker says. "I'm actually looking forward to moving." A Strategic Default This is what's known as a strategic default. She's giving up her house as a business decision — not because she has to. Walking around her neighborhood, Baker says she feels bad for her neighbors who bought high like she did and will be left with a foreclosed home on their block. "But I'm not the first to do it. It happened right here in this house," she says, pointing to a two-story home with a satellite dish mounted on it. Not being the first foreclosure on the street made her decision a whole lot easier. "I hope that my neighbors would know that that had a lot of bearing on my situation," Baker says. She isn't alone. A recent study from Experian-Oliver Wyman found that 17 percent of the mortgage defaults in 2008 were strategic. "The majority of the people that call us this year, I would say, and even more so in the last few months, are people like her," says Jon Maddux, CEO of Youwalkaway.com. For a fee, the company guides homeowners through the foreclosure process. Baker is one of the firm's clients. "They've run the numbers," Maddux says. "They've done the math, and if they strategically default they are going to possibly have a better outcome in the end, financially." But it's not always so simple. "It's more than an economic decision. It's a contract," says Guy Cecala, publisher of Inside Mortgage Finance. "There are liabilities associated with defaulting on a loan." He says in most states banks can come after homeowners for the losses caused by the default. And a foreclosure is a black mark on credit reports for seven to 10 years. Baker knows all this — and she's still walking away.

having watched the housing market skyrocket away from my income.. I almost welcome this. A little sanity might bring a house within my grasp

I wonder what the average % of income a person spends on owning a house is today compared to say the 60's. I wouldnt be surprised if its doubled or more.

heather baker and the guy running the internet scam...i mean firm need a solid throat punching from Ali in his glory years

GlennS wrote: I wonder what the average % of income a person spends on owning a house is today compared to say the 60's. I wouldnt be surprised if its doubled or more.

Easily doubled.

4cylndrfury wrote: heather baker and the guy running the internet scam...i mean firm need a solid throat punching from Ali in his glory years

Incorrect. This guy running that firm is a brilliant example of capitalism.

I am debating going into the Real Estate business with my dad now.... It's a good time to buy so that suckers can come along later and purchase from me...

Capitalism works. If you start thinking you are a victim, you will be a victim...

I still cannot understand why the current value of an investment makes the payment on the loan you took out to make that investment any easier or harder to pay. My GM stock tanked - if I took out a loan from the bank to buy it, does that mean I don't owe them anymore? Who said every house was an investment, anyway? If you buy a car on a loan do you feel you're able to return it if its value drops? People are dumb.

Hopefully these people have this on their credit score for decades to come, rather than the typical 7-10 years. If it were up to me, I wouldn't even rent an apartment to this type of person.

In reply to tuna55: +1

I'm not one to advocate needless litigation, it usually makes me ill, but...

I hope her neighbors sue her for willfully damaging their property values. Surely that can be done- she's not bankrupt, she's apparently got plenty of money, she just thought with her hormones (zOMG, I'm getting OLD!!1 I better BUY A BIG HOUSE so people think I am a REAL GROWN-UP!!!1) instead of her head and got burned on a house in a market that was way overcooked.

mad_machine wrote: having watched the housing market skyrocket away from my income.. I almost welcome this. A little sanity might bring a house within my grasp

Amen brother! I think the market didn't collapse as most think of it, I think it's adjusting itself to where it should be.
On that note, this lady is a terrible person IMHO. YOU made a mad decision, YOU need to live with it. What a jerk, she is going to lower her neighbors resale value because it suits her needs? What a self-centered person. I've been out of work for most of the last 16 months. I could walk away from my house, but I signed a contract and I will live up to it if at all possible. I know plenty of folks that walked away from a house, but in each case it was because they lost a job and could no longer afford it. I don't have a problem with that, that's called survival (especially when the banks wont work with you AT ALL).
She is the stupid chick that didn't count the cost when she signed on the dotted line. She entered into an agreement and thinks it's cool to just back out? What if the bank sent her a letter saying "Remember that house you bought through us? Yeah? Well, you paid $455,000 dollars for it a few years ago and we just had someone offer us $555,000 for it. We kinda like that number better so you have until the first of the month to vacate the premises so we can make more money.
Your cooperation is greatly appreciated.

I am a person who keeps his word and totally understand the anger at people who choose to make a "strategic default", but I can also see why some people are doing it.

We continually punish those who do the right thing and reward those who do not through the tax code and all the bailouts, at some point people will simply decide they've had enough and join those who are benefitting from this mess. So some bank (or Fannie Mae) takes a hit when the property forecloses. so what? They will just get more bailout money if they need it. Your property value drops because your neighbor walks away from their house? So what, your property taxes will be less. Housing prices are too high still and eventhough the government keeps trying to keep the bubble inflated (first time home buyer's credit, absurdly low interest rates, mortgage interest deductions, etc.) they will fall until they make sense.

Maybe we should all just walk away and meet up in the Grassroots version of Galt's Gulch.

I think the most simple issue here is are you going to keep your word? Are you going to follow through on what you say you are going to? If circumstances change and you cannot do what you in good faith, agreed to, what kind of effort and creativity are you willing to put forth to get as close to it as possbile.

Corporations and governments have gotten very adept at using the laws to renig on promises made. It is perhaps not surprising that some people might try to emulate that for personal gain. You can create justifications for it for days on end, but the bottom line is either you are good to your word and follow through on agreements to the best of your ability or you are not.

Don't be mad that some are gaming the system to better their position and standing. It's the american way.

Jake wrote: I hope her neighbors sue her for willfully damaging their property values.

Hey, can I sue everyone involved in the housing bubble that tanked MY house value?

Sorry, SHE didn't make the houses there worth half what anyone paid for them to begin with.

As for who said that houses are a good investment? For the last 40+ years, EVERYONE that taught financial independance and investing said so. It was hammered home in high school classrooms, in college, and in every how to invest wisely in your future book on the market for the last 4-5 decades. Smart money was on real estate. Now, after a lot of us grew up listening to that and finally getting to invest in it ourselves, we're being told that it's stupid to think that? Great timing.

Getting mad and suing for ANYTHING that reduced your home value (as is alluded to in the post I quoted above) was, and apparently still is considered valid because home value as an investment is serious business. It's why HOAs sprung up (and I love the fact that all the crap that HOA members put up with to keep their home values up didn't help them when the bubble burst...).

The bank made a poor choice in loaning to this woman. She made a poor choice in paying too much for the house. Both sides are to blame for what this situation has become.

Look at this from a business point of view. If the bank were in a bad situation due to this home do you think they would continue to honor the contract? If this woman stopped paying, costing the bank profits, they'd evict her. They would consider the loss a cost of doing business and move on. As of now the bank still makes money because she continues to make payments on a house that will never see the value of the loan. Why pay $450k on a house that will not be worth $225k? To advocate doing that is putting emotion before logic.

She has evidently weighed the pros and cons and doesn't see any financial incentive to continue the business relationship. The bank would do the same if the partnership/contract wasn't profitable for them. Why blame her for doing what any business would do? Cut losses and run.

Neighbors suing her for the loss of value? Crackah please! I'm going to sue you for making us looks less intelligent on this board by posting such an obvious knee-jerk reaction. So come on now...reign in the emotion and look at this from a profit/loss perspective.

TJ wrote: I am a person who keeps his word and totally understand the anger at people who choose to make a "strategic default", but I can also see why some people are doing it. We continually punish those who do the right thing and reward those who do not through the tax code and all the bailouts, at some point people will simply decide they've had enough and join those who are benefitting from this mess. So some bank (or Fannie Mae) takes a hit when the property forecloses. so what? They will just get more bailout money if they need it. Your property value drops because your neighbor walks away from their house? So what, your property taxes will be less. Housing prices are too high still and eventhough the government keeps trying to keep the bubble inflated (first time home buyer's credit, absurdly low interest rates, mortgage interest deductions, etc.) they will fall until they make sense. Maybe we should all just walk away and meet up in the Grassroots version of Galt's Gulch.

I am ready to go Galt too

I'll play devil's advocate here.....

Disregard the part about lowering the neighbors property values for the time being, that part sucks.

But why should I care about a bank that gave a $465,000 loan based on a credit score alone? She had no money down, no equity in the property, and no reason to follow through with the terms of the loan. Yet, the bank gave it to her anyway. Why? Because they were also greedy. They figured that if she defaulted that they would just sell the house for more than the loan amount seeing as property values were skyrocketing at the time of purchase. If the bank would have made a responsible loan than we wouldn't have to worry about bailing them out.

Xceler8x wrote: Neighbors suing her for the loss of value? Crackah please! I'm going to sue you for making us looks less intelligent on this board by posting such an obvious knee-jerk reaction. So come on now...reign in the emotion and look at this from a profit/loss perspective.

Last night I watched a show on CMT that has Bill Engvall coming in and remodeling trailers in the Cracker Nation. THAT is a waste of money that I support.

ignorant wrote: It's an unfortunate by-product of the entitlement mentality that has pervaded our society since the new deal era, and in no way represents the ideals upon which this country was founded.

i think there's something wrong with your keyboard, ig.

I expect the banks to go after these people. Bet there will be a few firms specializing in collections too!

I did a bit of research on my least favorite phrase "homeowner" a while back. To me, a home owner is one who owes no money on their house. 1960 the "homeowner" percentage was about 63% 2006 the big news was that it passed 70% and was a great thing! 1960..of this 63% about 46% were homes that were paid off. 2006 of the 70% about 22% were paid off!!

I would need to find my numbers but the one fact that stuck out was that there are now (2006) 33,000 fewer homes owned outright than in 1960.

Average equity in 1960 was 55% versus 2006 with 18% equity (might be 28%, I will recheck). A house is worth what the bank will loan on it! A paid off house is the last thing a bank wants.....a $400,000 house with a new owner at $200,000 making payments and a contract/judgment with another person for the other $200,000 is gold for them!

Bruce

egnorant wrote: I expect the banks to go after these people. Bet there will be a few firms specializing in collections too! I did a bit of research on my least favorite phrase "homeowner" a while back. To me, a home owner is one who owes no money on their house. 1960 the "homeowner" percentage was about 63% 2006 the big news was that it passed 70% and was a great thing! 1960..of this 63% about 46% were homes that were paid off. 2006 of the 70% about 22% were paid off!! I would need to find my numbers but the one fact that stuck out was that there are now (2006) 33,000 fewer homes owned outright than in 1960. Average equity in 1960 was 55% versus 2006 with 18% equity (might be 28%, I will recheck). A house is worth what the bank will loan on it! A paid off house is the last thing a bank wants.....a $400,000 house with a new owner at $200,000 making payments and a contract/judgment with another person for the other $200,000 is gold for them! Bruce

In 1963 my folks paid cash for their 1st house. He was a newspaper truck driver and she was an accounting clerk at a grocery. I'm going to say that even adjusted to today's dollars the $6500 it cost for that 2 bedroom fixer-upper house on a 1/4 acre was a little easier to swallow than today. They sold it for $225k in '05 to a young couple that were just starting out - they certainly did not pay cash.

If you were to ask my Dad... home ownership was a pretty good investment. I'm not sure that couple will be giving the same advice to their kids at all.

Marty! The quicker picker-upper.... wrote: But why should I care about a bank that gave a $465,000 loan based on a credit score alone? She had no money down, no equity in the property, and no reason to follow through with the terms of the loan. Yet, the bank gave it to her anyway. Why? Because they were also greedy. They figured that if she defaulted that they would just sell the house for more than the loan amount seeing as property values were skyrocketing at the time of purchase. If the bank would have made a responsible loan than we wouldn't have to worry about bailing them out.

it's not about the bank and it's not about the loan and it's not about the credit score. it's about people making a commitment and then not having the character to honor their commitment. her signature is her "reason to follow through". she is a dishonorable person, teaching dishonorable traits to her children.

Marty! The quicker picker-upper.... wrote: I'll play devil's advocate here..... Disregard the part about lowering the neighbors property values for the time being, that part sucks. But why should I care about a bank that gave a $465,000 loan based on a credit score alone? She had no money down, no equity in the property, and no reason to follow through with the terms of the loan. Yet, the bank gave it to her anyway. Why? Because they were also greedy. They figured that if she defaulted that they would just sell the house for more than the loan amount seeing as property values were skyrocketing at the time of purchase. If the bank would have made a responsible loan than we wouldn't have to worry about bailing them out.

Remember that a bunch of frannie mae and freddie mac loans were made to people whom the banks themselves didn't deem worthy of the loan, but the government run portion (by none other than "Fannie and Freddie are well capitalized and fine" Barney Frank) coerced 0 down loans and whatnot. Corporate greed had little to do with it, as I see it.

AngryCorvair wrote:

ignorant wrote: It's an unfortunate by-product of the entitlement mentality that has pervaded our society since the new deal era, and in no way represents the ideals upon which this country was founded.

i think there's something wrong with your keyboard, ig.

Can we enable the use of the +1 feature multiple times? Like thousands?

Ig, now dont ge tme wrong, Im normally plusone-ing you to death, but seriously, enabling people to shirk their responsibility simply because they changed their mind is as anti-american as the day is long. Theres a reason they make you sit down for a bazillion hours to sign 3687563758 documents before they hand you the keys...the powers tha be are giving you a second and a third and a fourth and afifth etc etc chance to think it over and MAKE SURE you want, and can afford to buy the house in question. I still stand by my throat punching comment

AngryCorvair wrote: it's not about the bank and it's not about the loan and it's not about the credit score. it's about people making a commitment and then not having the character to honor their commitment. her signature is her "reason to follow through". she is a dishonorable person, teaching dishonorable traits to her children.

Shareholders would applaud if she had them. Gordon Gecko would promote her. She is operating purely from the logical standpoint of profit/loss and if the banks don't find a hammer to hit her with she will come out much better than if she honored the contract. That makes her a good capitalist. I wonder if the lenders who are getting screwed will see the irony.