Owners Stop Paying Mortgages, and Stop Fretting

[nebris]

From The NYTMay 31, 2010

Comments

[peristaltor]

I'm completely divided on this issue. First, since I hail from hardy and cheapskate stock, I would never buy more than what I can afford, never take out more of a loan than I could reasonably assure myself I could pay in full.

That said, when you buy such a house at the peak of the bubble, only to find it plummet in value, what should you do when you do lose the job or the wife gets sick? The house has no value, no equity. It can not be sold, at least not for the value of the loan. By simply not paying, you might find you have more than the two options everyone keeps saying you have.

Then you remember that there were two signatories to that mortgage; you're only one of them. Not all of the other players -- the ones that approved that initial loan at an incredibly inflated price, but who keep insisting only you suffer for their poor decision -- are doing a poor job with their legally-required responsibilities regarding marking your oversized bungalow to its market value.

To me, this staying past your mandated eviction date creates two winners. You win, because you get to keep some savings and housing. Your bank wins, because:

• by delaying the foreclosure it prevents the house from being re-assessed and marked to market (robbing the bank of listed asset value), and
  
• because an occupied home keeps more of its value by not rotting and becoming another meth lab or homeless squat.

In fact, I'm willing to bet the banks actually do better in this situation. They get to ride out the bad times. You get to have a forced foreclosure follow you around for decades, sullying your credit report.