Foreclosure fix: Who won't get help

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mathwhiz
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Foreclosure fix: Who won't get help

Post by mathwhiz » Sun Feb 22, 2009 4:22 pm

http://finance.yahoo.com/news/Foreclosu ... 25790.html
Take Joe Martinez of Bristow, Va., who fits the profile of the "responsible" homeowner Obama cited in the plan. The government contractor and his wife thought they did everything right when they bought their brand new $600,000 house two years ago. They put 5% down and got a 30-year fixed-rate mortgage they could afford.

Others in their neighborhood, however, couldn't keep up with the payments. As foreclosure rose, the value of the couple's home plummeted to $450,000, leaving them doubtful they'd ever recover their investment.

Martinez called their lender to try to get into the Hope for Homeowners program, which would reduce their loan balance to 90% of the home's current value. But they were turned down because they weren't in default.

So two months ago, the couple stopped paying their mortgage, hoping they could then qualify. But even if they don't, they are willing to take the hit on their credit scores to stop throwing money down the drain.

"There's just no point to stay here," said Martinez, 29, adding he could rent the house across the street for half his monthly mortgage payment. "We don't want to give up our home, but it's never going to come back."

grumel
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Post by grumel » Sun Feb 22, 2009 4:34 pm

Contractor, wife apperently not working, 5% downpayment, 600k home with 29 years........

Responsible :lol:. Good joke.

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Opponent Process
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Post by Opponent Process » Sun Feb 22, 2009 4:38 pm

the main problem I see is "$600,000" house. four walls and a roof is just not worth that much money. of course you can rent something for half the money: the rent is telling you the true value.

it sounds like the plan is to devalue our currency to the point that a $300K house becomes "worth" $600K.
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deepdrive
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Post by deepdrive » Sun Feb 22, 2009 4:40 pm

I hope he ends up on the street. He signed the dotted line for that $570,000 mortgage. He should pay it.
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Index Fan
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Post by Index Fan » Sun Feb 22, 2009 4:46 pm

Renters and people who bought affordable mortgages will end up bailing him out through their taxes in the name of fairness or something of the sort before it's all over. Give it time.
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HockeyMike35
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Post by HockeyMike35 » Sun Feb 22, 2009 4:58 pm

I do not blame this guy one bit. Why the hell should he work hard to pay for his house when he will only be taxed to pay for his neighbor's house?

At some point it is just not worth it anymore. When you reward bad behavior and punish people for doing the right thing they will eventually stop doing the right thing. We are pushing it to a point where more and more people will simply give up. This guy is stuck playing in a fixed game where the best option is to simply stop playing.

I would prefer we hold ALL people accountable for their debts. If these are the rules then the best strategy is to buy a house you can not afford and let the government lower it to 90% of the current value when you miss your payments. You would be a fool to save up and buy something you can afford.

mikepru
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Post by mikepru » Sun Feb 22, 2009 5:36 pm

You're kidding. This guy is considered responsible?

Wonk
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Post by Wonk » Sun Feb 22, 2009 6:27 pm

I think that sums up the general mentality of the average homebuyer of the last 7 years.

Look, everyone invests and borrows based on their perception of risk and what they are willing to lose. I don't blame this guy at all for walking away.

Is it morally reprehensible? Definitely. But it's a business decision. The bank was stupid enough to lend the guy 600k with only 5% down. What did they think was going to happen? It's the bank's fault for lending him the money.

On the other hand, I don't want this guy(or anyone else) crying for taxpayer dollars because he doesn't want to ruin his credit by walking away. That's the price he pays.

Problem is, we keep giving scumbags like him taxpayer money and then real decent people become jaded and start walking away from their mortgages too because they don't feel like paying anymore. It'll become a new "bigger fool" game of who can steal the most taxpayer dollars. Maybe that's the last bubble.

SkylightMT
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Post by SkylightMT » Sun Feb 22, 2009 6:52 pm

Everyone's going to want their mortgage to be at current value. Who wouldn't?

They should make it an even playing field, as suggested by Jim Kramer (http://www.cnbc.com/id/15840232?video=1041787898&play=1) and summarized by Steve Conover (http://www.optimist123.com/optimist/): The government offers 40-year, 4% fixed rate mortgages to everybody, not just deadbeats and knuckleheads, for their home's appraised value, and protects the lenders by issuing them equity participation certificates for the difference, which the lenders use for regulatory capital.

And if the homeowner STILL can't make the mortgage payments under those conditions, well, then, he'll just go into foreclosure. Probably hopeless anyway at that point for the homeowner.

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Post by Jack » Sun Feb 22, 2009 7:58 pm

Index Fan wrote:Renters and people who bought affordable mortgages will end up bailing him out through their taxes in the name of fairness or something of the sort before it's all over.
The original question was "who won't get help." It doesn't appear that this person will be eligible for assistance under the new plan. First, his mortgage is too big for Fannie and Freddie so he won't be able to get assistance at a lower rate. The second part of the plan only works with lenders willing to reduce payments to 31 percent of income. It doesn't appear that he fits into that profile either since his problem is not ability to pay. So he won't be getting any sort of bailout.
deepdive wrote:I hope he ends up on the street.
That may indeed be his plan if he stops making payments.

mathwhiz
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Post by mathwhiz » Sun Feb 22, 2009 8:05 pm

His best financial decision is probably to go into foreclosure and wipe out his debt. Yeah, it'll destroy his credit so he'll have to stay within his means and save up 6 months worth of rental payments he can pay in advance to persuade someone to rent to him. And then he's wiped out a $600,000 debt. Aint America grand?

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nisiprius
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Post by nisiprius » Sun Feb 22, 2009 8:05 pm

I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.

I can see that it becomes a financial issue if you want to move, but as long as you're staying in the house why would you care?

When they bought the house, they thought living there was worth the payments they needed to make. It's still the same house, still the same payments, so what has changed? Why do they feel they're "throwing money down the drain?" I'm just baffled here. It's a mild psychological bummer to feel that you overpaid, but there doesn't seem to be any real financial issue at stake here.

Do they enjoy the house less just because someone else places a lower dollar figure on it? It's still in the same location, still has the same number of rooms, square feet of space...

Am I missing something?
Last edited by nisiprius on Sun Feb 22, 2009 8:09 pm, edited 1 time in total.
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avalpert
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Post by avalpert » Sun Feb 22, 2009 8:08 pm

nisiprius wrote:I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.

When you bought the house, you thought it was worth the payments you needed to make, so what has changed? Why do they feel they're "throwing money down the drain?" I'm just baffled here. It's a mild psychological bummer to feel that you overpaid, but there doesn't seem to be any real financial issue at stake here.

Am I missing something?
Nope you have it perfectly right.

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Post by richard » Sun Feb 22, 2009 8:11 pm

nisiprius wrote:I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.
Many people can't afford the payments now. Many could cut payments if they walked away and bought a similar house across the street.

It's interesting to see many of those who not long ago were vigorously denying there was a housing bubble and were cheerleaders for home ownership now saying those who followed their advice were irresponsible.

mathwhiz
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Post by mathwhiz » Sun Feb 22, 2009 8:19 pm

I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.

When you bought the house, you thought it was worth the payments you needed to make, so what has changed? Why do they feel they're "throwing money down the drain?" I'm just baffled here. It's a mild psychological bummer to feel that you overpaid, but there doesn't seem to be any real financial issue at stake here.

Am I missing something?
Maybe he considered it both a home and an investment. Most people don't spend 30 years in the same house and pay off the mortgage. The average move is about every 7 years. So if he plans to move in that time frame and he not only won't make any money on the house but will be underwater to the tune of $150,000, why stay?

Lots of people have lousy credit and they still manage to survive. He'll learn to live on cash and within his means and rent and in the future when his credit improves, he'll probably buy another house and do the same dance again.

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Post by Jack » Sun Feb 22, 2009 8:37 pm

nisiprius wrote:I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.
In many cases you are probably right, but in this case the man claims he can rent the house across the street for half the cost of his mortgage payment. Whether he can actually do that with a foreclosure on his credit record is another question.

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DiscoBunny1979
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Post by DiscoBunny1979 » Sun Feb 22, 2009 8:59 pm

richard wrote:
nisiprius wrote:I must be missing something. I honestly don't understand why it's a problem for a house to have a lower value than the amount remaining on the mortgage, if you've living in the house, if you can afford the payments, and the payments haven't gone up.
Many people can't afford the payments now. Many could cut payments if they walked away and bought a similar house across the street.

It's interesting to see many of those who not long ago were vigorously denying there was a housing bubble and were cheerleaders for home ownership now saying those who followed their advice were irresponsible.
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It's kind of like in the SF Bay Area where folks that have lived there and owned their house for 30+ years are paying a fraction of the property taxes that new homeowners are paying due to Prop 13. Do new homeowners feel awful that they overpaid and are overpaying for their Property taxes??? For instance, someone that bought a house in SF in the late 60s and still own, have a property tax bill somewhere abouts $1,000 for a house that can now be sold for about $750,000. . .however if you buy that house today, Property taxes would be at least $7,500. Is that fair? Are people throwing in the towel because over time, they will be paying tens of thousands more than their neighbhor in taxes?

Property values go up and they go down. For this couple to have bought with ONLY 5% down on a non-conforming loan is their fault and the fault of the lender. It's also the fault of the apprasier that valued the house at a price that was not sustainable. I agree a house is only foundation, walls and roof . . . anything that costs $500 a square foot either better have a view of something great or toilets lined with gold.

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Opponent Process
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Post by Opponent Process » Sun Feb 22, 2009 9:17 pm

DiscoBunny1979 wrote:valued the house at a price that was not sustainable.
I think this is what doesn't get enough attention. a lot of these homes were simply overvalued, or overpriced to begin with, a complete disconnection with reality. whose fault was that? if someone can't make payments on a $600K house, big deal. the bank can always find another buyer because the house is worth $600K, right? at the same time, if the house/mortgage sits there unowned, has the bank really "lost" $600K? I don't see how this is possible.

alternatively, I could proclaim I have a potato chip with the image of Elvis on it that's worth $600K, and then later claim that, in fact, it's not really worth anything. so did I just lose $600K? can I ask to be recompensed for what I lost? or was it just that I had a funny-looking potato chip and I still have a funny-looking potato chip? no net loss.
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MnD
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Post by MnD » Sun Feb 22, 2009 9:45 pm

$600K?
Does the guy make $200K a year which would make that loan reasonably affordable?

I doubt it.

ttcbj
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Irresponsible

Post by ttcbj » Sun Feb 22, 2009 9:47 pm

I must be missing something.
I think the reality is that many people in the last few years bought a get-rich-quick-scheme, not a house. If you saw the CNBC special 'House of Cards', it featured a California man who honestly had this plan:

* Buy a $600K home that he couldn't afford (he made $50K/year) with no money down and a teaser rate.
* Wait one year, refinance, and use the money to start a business.

The guy was sincere. He believed that was an intelligent plan. And, had he done it earlier, maybe it would have worked for him. Try going back and watching 2005 episodes of home value TV shows. Inevitably, the host tells the people "Your house is now worth $XXX", and their immediate response is to scream and say "now we can plan our dream wedding", or "now we can put in a pool." These attitudes were pervasive.

My point is that when the get rich quick scheme no longer produces riches, it loses its utility. The reason that the bailout schemes will mostly fail is that many people who bought during the bubble didn't want the house, they wanted the free money that everyone else seemed to be deriving from the house. And when the free money dried up, they lost interest in struggling to make the payments.

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Post by grumel » Sun Feb 22, 2009 9:52 pm

* Buy a $600K home that he couldn't afford (he made $50K/year) with no money down and a teaser rate.
If someone gives him the money, its a good idear. Would have done the same thing, its a free call option on the price of one house. Even in a bubble free call option is hard to resist, who knows maybe the bubble still lasts a bit.

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