<p>^I wish it were simple as that, some people decide to trash the house on their way out. I know 2 at work who are already talking about it.</p>
<p>I recommended that people with negative equity in their home to walk away sometime ago, right here on CC. It is clearly not a very popular position… but a rational one none the less. Given a choice between doing his rich friends right or the American public right, Paulson has chosen the former. Why shouldn’t Americans do the same?</p>
<p>Some people saw it coming, and was mocked for it. </p>
<p>[YouTube</a> - Peter Schiff Was Right 2006 - 2007 (2nd Edition)](<a href=“http://www.youtube.com/watch?v=2I0QN-FYkpw]YouTube”>http://www.youtube.com/watch?v=2I0QN-FYkpw)</p>
<p>I bet few among the public would take his side of the argument back in 06 or 07.</p>
<p>Should people whose stocks are down walk away? The money is already lost on paper but–and it’s a big but, if homes or stocks rally then not only have you ruined your credit but you also miss out on the rebound that has always followed a major downturn. I think you have to look at your exact position–is the home in a desirable area or in one of the poorly located distant suburbs? One will come back quickly while the other–not for many years if ever. I’d be pretty sure that good markets will bounce back before 7 years go by. Then you have both your home and credit.</p>
<p>^^ I know several people who dumped their stock at the lowest point. These were people who didn’t need the cash for other reasons then. I don’t think they made the best decision and I hope they don’t prove me wrong.</p>
<p>On the flip side, my recently graduated D now has a chance to buy a reasonable starter home in this area due to the downturn in prices. A lot of other people are also now in a position to be able to purchase a home now that they’re not unduly inflated. For at least some people, there’s a silver lining to this.</p>
<p>There are bargains out there, and those who can buy right now may be in luck. However, the loss of a home is a traumatic thing to most people. If someone wants to ditch his home, that is one thing. There are consequences to doing so, creditwise, but if it is worth it to the person to do this, then that is his choice. Too often it is the only choice. There are neighborhoods that are sinking because of the number of foreclosed homes. SOme of these are in middleclass neighborhoods that are mostly filled with families, a number of them now in substandard home conditions. This is not good for society as a whole. If dumping the home is the best option out there, it is a harmful one for most of us. I wish something were done to give folks better options.</p>
<p>Canuckguy, thanks for the link. Peter Schiff is brilliant, he should be in the Obama’s economic Advisor team.
I remember 6 months ago people kept saying there was no recession until we have the text book definition of a recession as “a period of general economic decline; specifically, a decline in GDP for two or more consecutive quarters”. So much for text book definition.</p>
<p><a href=“http://talk.collegeconfidential.com/parent-cafe/502334-reminder-recession-two-negative-periods-growth-row.html[/url]”>http://talk.collegeconfidential.com/parent-cafe/502334-reminder-recession-two-negative-periods-growth-row.html</a></p>
<p>Actually there are far more limited consequences for walking away from a home right now than most know. You no longer have to pay tax on the Delta and most banks are very cooperative with short sales right now.</p>
<p>I’d have to agree there are many who it only makes sense to walk for. They will never be able to afford the houses they are in for the long term. Unemployment’s up, wages are down and most real estate will only appreciate slowly if at all for some time. Most Americans are going to have to settle for less which was not at all the thinking when they bought these homes.</p>
<p>Honestly, after the SoCal fires and the recent flooding here in Washington, I thought this thread title was literal.</p>
<p>toblin: that new scam were someone buys downsize and lets the big home go into repo was just on the news recently. It’s bad. How do you stop it? You mentioned that they rent but i saw a report where they buy a downsized unit while credit is good and walk away from the expensive home. Credit is ruined,but has anyone LATELY gotten credit turned down for a new car, a line of credit on the AMEX, a increase on the credit card? There is no credit available so these people dont feel like they are losing anything when they ruin their credit.</p>
<p>I guess I think this whole mortgage “buyout” thing should be doing something for the RESPONSIBLE mortgage holders as well. When we bought our first home, we didn’t have two dimes to rub together…but our home was our only debt (no car payments, no student loans, no credit card debt). We bought a home that WE felt comfortable paying the mortgage for…not the overly inflated amount the bank felt we qualified for. We have never missed a payment. We were able to refinance a couple of times on that first house…first to lower the interest rate (remember those 14% rates in the 80’s?), and then again to a 15 year mortgage. When we sold that house, we built another, but again we didn’t buy above our means and we also took into account what our finances would look like if one of us lost our job. Our mortgage payment is a fraction of what we hear others are paying. In fact, you can’t rent a one bedroom apartment in the nicer burbs near here for what we are paying for our mortgage. We have only 4 years left on this mortgage, and our payments are NO HIGHER than they were on that first house back in the 80s. </p>
<p>SO…really what this buyout is saying is that those of us (and I’m sure there are a LOT of us here on this forum) who have been responsible really are just going to get the shaft. No buyout, no mortgage reduction, no interest rate reduction, nada. You know…we are the type of family that would actually SPEND that money on things that would invigorate the economy…not just pay off our overblown mortgage. Sheesh…if we got something, we might hire someone to repave our driveway, put in new countertops, or recarpet our upstairs. But being responsible, we will just tighten our belts until this economy allows us to do more…or our kids graduate from college. </p>
<p>I guess the “big irresponsible spenders” are the ones getting rewarded all the way around. </p>
<p>Oh…and if the federal government decides to do another incentive…I certainly HOPE that they either allow ME or allow my college kids who are over 18 but are still dependents to be recipients of this incentive. Another way I felt I got the shaft…kids couldn’t get it because they were dependents. I couldn’t get it because they were over 18. What was THAT all about?</p>
<p>It is not that the “big irresponsible spenders” need to get rewarded. Something needs to be done so that the alternative does not hurt us more. It’s a big problem for all of us when homes are let go. Do not think for a moment that these issues do not hurt those who are going through these financial ordeals.</p>
<p>Right now, if you have more house than you can comfortably pay, what are you supposed to do? Wait until you cannot possibly pay, and let things fall as they will as a punishment for your mistake? Right now, the best move is to let the house go. The bank has lent you the money with the house as collateral and you can now give them the house. It is really a financial decision, but don’t look at it as a windfall. even those who have been responsible, can do the same. Borrow against your house, take the money and then default. It is not an easy thing to do.</p>
<p>I belong to a group of parents who are truly under siege because they have children with cancer. Many have depleted their insurance and are in tremendous debt. Many have to lose their homes. The stress is unbelievable. Anytime a family has to leave their home, it is a big event. For those who are fortunate, smart, prudent enough to have purchased within their means with room to spare, you are now spared this whole ride of how to resolve an unaffordable home. Believe me, whatever bailout that is coming is going to be far too small to be a reward for most people. Yes, there will be a few that may get a windfall, as it always happens in these programs. But this is not going to be a bail out that most who are recipients are going to be glad they are in that situation. Far better to be where you are.</p>
<p>“I belong to a group of parents who are truly under siege because they have children with cancer. Many have depleted their insurance and are in tremendous debt. Many have to lose their homes.”</p>
<p>Different subject, but worth mentioning at every opportunity: </p>
<p>This is one of the areas where health reform is badly needed. The idea of “insurance” is to spread the risk. Whether it’s regulated private or national public, we need to prevent the few stricken from losing their life savings, homes and retirement funds. The small “employer” pools should be eliminated; ideally we would all be in one huge pool, whatever reform path we take, public or private.</p>
<p>We all benefit by such a bailout because it will stabilize the values of homes in your area and get them away from becoming vacant eyesores which kill a neighborhood.</p>
<p>I KNOW that we all do benefit from having a stable housing market. Believe me…I know that. But I do find it irritating that folks in my small neighborhood (no McMansions here but nice houses of reasonable size) are just watching as other neighborhoods get bailed out.</p>
<p>Nearby (neighboring town) there is a neighborhood of what used to be $850K homes. I’m not sure the prices have dropped below $750K, but there are a number of foreclosures in that neighborhood. Houses are huge…over 4500 sq ft. Oddly the lots are small (1/2 acres)…houses actually take up most of the open lot area. Folks bought four to five years ago and their 5 year bump mortgages are coming due. Many thought they would be transfered…and they haven’t been (the businesses that did this moving around are doing a lot less of it, it seems). Some thought they would be promoted or given substantial raises or bonuses. For some that hasn’t happened either. Of course, from the outside (me) looking in (at them), I have to wonder WHY they ever bought such gigantic and expensive homes to begin with.</p>
<p>I have no problem helping out the first time homebuyer who is in their first home and just bit off more than they could chew…or got laid off. There are plenty of folks in that position. </p>
<p>BUT someone who BOUGHT an $850K home with a subprime mortgage when they easily could have bought a $500K home with a regular mortgage (yep…plenty of older resales in the area…ah but no granite, no pool, no jacuzzi, no “media room”)…sorry…I just am having trouble with this.</p>
<p>I know a lot of folks who bit off more house than they could chew. We sort of did. A misstep and we could be in trouble. Usually when you buy too much house, however, you can sell it and move on. In this market, nothing is even moving. There were a lot of people who could comfortably afford that $850K house, and it was a reasonable choice given their prospects at the time. The whole subprime thing boggles my mind as I never could understand why the danged banks even offered those things, but even then, in this area it would not have been that big of a deal except for the fact that nothing is moving. People who don’t want to ditch the house may be forced to do so. Thumper, I doubt any bailout is going to be a panacea for more than a few people. You always get that handful that make out no matter what you do. But my fear is more that the bailout is not going to have the effect it should. If it is less painful to just let the house foreclose, which has always been an option when buying a house with its accompanying penalties, people are going to do it. But to me, having to do something like that is very painful even if it is the best route. </p>
<p>I should have sold our house several years ago when the thought first crossed my mind. But the thought of uprooting everyone, moving, the work involved even in an honorable move was too painful to pursue because we did not HAVE to do it and could still justify having the big house with all that was happening and all the family members living here including both grandmoms, oh I could go on justifying the lack of action. But the fact of the matter is that someone like you or your neighbors who are in an affordable house is far better off than those who went out on the limb. Sort of like qualifying for the PELL in terms of fin aid. It can mean full ride for a small select group of kids, but for the most part it is not a an easy ride. Though it may not feel like it, being able to afford schools with flexibility is a far better place to be.</p>
<p>A friend of mine was forced to connect to the town sewer line as housing spread to the outliers of town boundaries. She had bought her house many years ago and was perfectly happy with well water. She was not in any financial shape to pay for the sewer hook up. Well, everyone has to do it. The town just put a lien on the house for the amount for those who could not pay for the install. It increases with interest, and has to be paid before the house changes hands. However, the town is not going after anyone for that amount; they’ll get it when title change occurs. Some modified form of this could be done with some sort of federal student loan permanence of the debt so that it will always be collectible. Some bailout can be designed so that it is not a free ride, and not something you want unless you are in bad straits already. Yes, of course there will be those who really benefit, but for most it will be another load to carry. </p>
<p>Right now in this area, the bail out money is not being released. I could not sell my house if I wanted to do so, as they just are not giving out much in terms of mortgages. When you get the number of closings that banks are reneging upon, nothing is moving. The money is being used to improve the bottom line of the banks. Not enough conditions and oversight with the bailout. Here in NY, threats are being levied to the financial institutions that salaries and bonuses this year will be scrutinized because there is more than a sneaking suspicion that the funds are going there which is not going to be helping the communities. The bailout funds have been oked. The funds now need to flow to where it benefits neighborhoods, housing market, not line the bank drawers and bottom lines.</p>
<p>So sorry to hear about your child, cpt! Is he/she doing well now?</p>
<p>My college freshman is a cancer survivor. He is doing well. No further treatment after finishing chemotherapy more than 10 years ago. Was a 3 sport athlete in high school and played a club sport in college. On no meds, no known effect of his medical history or treatment other than surgical scars from biopsies and chemo port. Thanks for asking, question_quest. The experience with him showed us a whole group of families struggling under our system through no fault of theirs, and little resources for them. I saw a lot of families lose their homes, and if they did not lose their children, they were grateful for that and felt that the home loss was bearable. But still it is a crisis for families under siege. However, I feel strongly that any family who is forced out their home undergoes enormous stress and trauma. Even the threat and worry of such an event is a heavy burden. In this economy, anyone with a high mortgage, depending on income has this concern. You just cannot sell and get out gracefully if catastrophe occurs. No buyers. </p>
<p>Really, my main concern is for many of the middle class neighborhoods that have many foreclosed houses in it. The Sunday Times had a story about a Brooklyn neighborhood with a striking front page in that section of photos of all of those vacated homes. Frightening. These are not luxury homes, but really pretty shabby, small family houses. Where did those families go? There was an article addressing that question as well. Families are being ripped apart with this. Marriage is difficult enough without such stresses. Raising kids is difficult without such instability. Many kids are yanked out of their schools when this happens. I don’t begrudge bailouts for these families even with no strings attached. It is really for the good of all that intervention is needed. I would no more envy them than I would the family who had food bank priviliges or qualified for subsidized housing. Even if they were foolish in taking out those mortgages and overextending for those homes. Rather than trickle down, I’d like to see a build up in this area. As we address homes that are more expensive and families with more assets the conditions should be more stringent.</p>
<p>“I bet few among the public would take his side of the argument back in 06 or 07.”</p>
<p>Lots of people thought real estate was overheated in 2004 and 2005. There’s been a nice blog about it running for several years: thehousingbubbleblog.</p>
<p>I am a bit surprised that folks on the right of centre are calling for bailouts. We have no way of stopping the business cycle from unwinding. All we are doing is delaying the inevitable. Can we really bailout a credit bubble with more credit?</p>
<p>Personally I see no way that the housing market will turn around anytime soon. What is the rent ratio in California now? 20 times? It is still too expensive. At the height of the bubble, Northern Cal was up around 35 times. I could hard believe my ears…</p>
<p>Here is Art Laffer’s reply to Bill Maher, concerning the bet with Peter Schiff.</p>
<p>[YouTube</a> - Art Laffer Regarding Challenge & Bet Made With Peter Schiff on The Bill Maher Show](<a href=“http://www.youtube.com/watch?v=z3WjgKUf-kA&NR=1]YouTube”>http://www.youtube.com/watch?v=z3WjgKUf-kA&NR=1)</p>
<p>Interesting</p>
<p>Art Laffer is in favor of raising taxes on unrealized capital gains :eek:.(around the 3:40 mark).</p>
<p>Well, home prices at 20 times rents, we are getting closer to the average ratio of 16 times. So that’s the good news.</p>
<p>Can we really bailout the credit bubble45 by issuing more credit? Sounds dubious.:)</p>
<p>We can help ourselves by reducing the cost of the credit we already have. </p>
<p>I think the American people have woken up to the fact that cheap credit isn’t so cheap.</p>
<p>It’s going to take time to get out of this economic mess.</p>