The Church advises walking away from your house if you're underwater

[byu71]

Even that is tricky. I have watched my FIL hand over at least $50,000 to his son over the last 10 years in an attempt to help better his position, and has not seen one dime paid back.

Oh I know the problems that can cause. Especially amongst the siblings. However, when I loan money to my kids, I don't count it in my net worth anymore. If it comes back great.

Actually my kids don't hit me up for loans hardly ever. The control I get over their lives in return for the loan isn't worth it for them. I learned that from my mom and God bless her for it.

[Moliere]

But, we have to remember the profound power that the old question "Are you honest in your dealings with your fellowman?" has on people because one bishop might say you're not if you walk away and another might not bat an eye.

My personal belief is if someone walks away from an underwater mortgage under the default clause in the mortgage contract there is nothing dishonest about that. Both you and the bank took a risk and you are both now paying for it. If the house doubles in value and you sell it are you then dishonest if you don't share the increase in value with the bank?

Now if someone is screwing the system by walking away but taking a loan out on a similar home before the default hits their credit then that is dishonest and something should be done to the laws to prevent something like this.

Oh I know the problems that can cause. Especially amongst the siblings. However, when I loan money to my kids, I don't count it in my net worth anymore. If it comes back great.

Actually my kids don't hit me up for loans hardly ever. The control I get over their lives in return for the loan isn't worth it for them. I learned that from my mom and God bless her for it.

Well said.

[statman]

$650k in Lehi?

Yup in Traverse Mountain.

Why would you not pay tithing? Do you deduct your mortgage from your increase? I'm not sure that would be okay for me and my house.

Owning a second house that you don't live in, don't rent, and will sell at a huge loss is not part of an "increase" - especially when the house we were living in was a dump much smaller than the nice empty house. We paid tithing on our income minus what it cost to carry the second house. Our Bishop actually recommended the idea...

[Soccermom]

I try not to look at what anyone else does and get upset by it, and I think many people who walk away from loans are trying to do what is best for their families, but on a personal level, it bothers me enough that foolishly or not, Aristides and I want to stay put with our home, even though we could rent a home like ours for half our mortgage and even though we are now underwater because of the massive drop in home prices.

A and I both know if we wanted to walk, it is legal, and would not need to seek counsel from a church leader to make such a decision. But my problem is that if I walk away from my home, it isn't just hurting my credit score and the bank. It is hurting my neighbors as well. Too many empty homes in a neighborhood invites crime, makes everything look less attractive, and probably further adds to the problem of falling prices as more inventory is out there. Perhaps I am foolish and don't know what I am talking about, but the savings of walking away and renting doesn't seem worth it to me, especially since we hope to stay here long term. I just can't do that to my neighbors unless there is no other option for my family.

Plus, many of bargain basement prices on homes these days require lots of improvements. Homes in our area that have been left empty are pretty stripped down --people take everything including light fixtures, kitchen sinks, door hinges. So, it doesn't really bother me when I see someone buying a home as big or bigger than mine for $200K less. C'est la vie. Barring some catastrophe, I hope to stay in our house very long term. And who knows . . . prices may go up again one day. Or they may not. But for me personally, I can't justify walking away just because I am underwater. I don't really want to be 40 years old before I can buy another home because we had to wait for our credit to recover, I don't want to deal with the stress and shame of walking away (that I would feel), and I most importantly can't in good conscience do that to my neighbors. Plus, I didn't grow up with a lot, my parents could not afford a big house, and the house I live in now is actually the nicest house I have ever lived in, so I can't really complain.

Like I said, I may be foolish, but that is how I feel.

[RobinFinderson]

I try not to look at what anyone else does and get upset by it, and I think many people who walk away from loans are trying to do what is best for their families, but on a personal level, it bothers me enough that foolishly or not, Aristides and I want to stay put with our home, even though we could rent a home like ours for half our mortgage and even though we are now underwater because of the massive drop in home prices.

A and I both know if we wanted to walk, it is legal, and would not need to seek counsel from a church leader to make such a decision. But my problem is that if I walk away from my home, it isn't just hurting my credit score and the bank. It is hurting my neighbors as well. Too many empty homes in a neighborhood invites crime, makes everything look less attractive, and probably further adds to the problem of falling prices as more inventory is out there. Perhaps I am foolish and don't know what I am talking about, but the savings of walking away and renting doesn't seem worth it to me, especially since we hope to stay here long term. I just can't do that to my neighbors unless there is no other option for my family.

Plus, many of bargain basement prices on homes these days require lots of improvements. Homes in our area that have been left empty are pretty stripped down --people take everything including light fixtures, kitchen sinks, door hinges. So, it doesn't really bother me when I see someone buying a home as big or bigger than mine for $200K less. C'est la vie. Barring some catastrophe, I hope to stay in our house very long term. And who knows . . . prices may go up again one day. Or they may not. But for me personally, I can't justify walking away just because I am underwater. I don't really want to be 40 years old before I can buy another home because we had to wait for our credit to recover, I don't want to deal with the stress and shame of walking away (that I would feel), and I most importantly can't in good conscience do that to my neighbors. Plus, I didn't grow up with a lot, my parents could not afford a big house, and the house I live in now is actually the nicest house I have ever lived in, so I can't really complain.

Like I said, I may be foolish, but that is how I feel.

It isn't foolish, it is just a values judgment, and your values seem admirable. Your values also make you an ideal mark for all kinds of scams, but I guess that is the price of living a principled life.

[beelzebabette]

I try not to look at what anyone else does and get upset by it, and I think many people who walk away from loans are trying to do what is best for their families, but on a personal level, it bothers me enough that foolishly or not, Aristides and I want to stay put with our home, even though we could rent a home like ours for half our mortgage and even though we are now underwater because of the massive drop in home prices.

A and I both know if we wanted to walk, it is legal, and would not need to seek counsel from a church leader to make such a decision. But my problem is that if I walk away from my home, it isn't just hurting my credit score and the bank. It is hurting my neighbors as well. Too many empty homes in a neighborhood invites crime, makes everything look less attractive, and probably further adds to the problem of falling prices as more inventory is out there. Perhaps I am foolish and don't know what I am talking about, but the savings of walking away and renting doesn't seem worth it to me, especially since we hope to stay here long term. I just can't do that to my neighbors unless there is no other option for my family.

Plus, many of bargain basement prices on homes these days require lots of improvements. Homes in our area that have been left empty are pretty stripped down --people take everything including light fixtures, kitchen sinks, door hinges. So, it doesn't really bother me when I see someone buying a home as big or bigger than mine for $200K less. C'est la vie. Barring some catastrophe, I hope to stay in our house very long term. And who knows . . . prices may go up again one day. Or they may not. But for me personally, I can't justify walking away just because I am underwater. I don't really want to be 40 years old before I can buy another home because we had to wait for our credit to recover, I don't want to deal with the stress and shame of walking away (that I would feel), and I most importantly can't in good conscience do that to my neighbors. Plus, I didn't grow up with a lot, my parents could not afford a big house, and the house I live in now is actually the nicest house I have ever lived in, so I can't really complain.

Like I said, I may be foolish, but that is how I feel.

I like your approach. I've always talked about the effect on the neighbors when this topic has come up with friends more than the effect on the banks. I can't pretend like I'd have any idea what I'd be thinking in your situation or those mentioned in Vegas. It does seem like you approached your home purchase like an investment--may gain, may lose, still going to pull the trigger to have a home for my kids. I'd be interested, if I could figure out where to collect the data, to see the age distribution of people walking away. I don't know how meaningful it would be because many older folks have lived in their homes longer, but I'd still like to see it.

[cougjunkie]

Because the bigger house is now cheaper

Also, they try to get the new loan before the foreclosure. There is a realtor in Cedar that actually walks potential homebuyers through this thought process :swear:

This is actually very, very very very very (I can not emphasize this enough) illegal. Its called a buy and bail and its also very common.

[Jarid in Cedar]

This is actually very, very very very very (I can not emphasize this enough) illegal. Its called a buy and bail and its also very common.

At what point is a short sale not an option for these folks? What are the limitations?

[cougjunkie]

At what point is a short sale not an option for these folks? What are the limitations?

They can always try and short sale the problem is you need bank approval for that. If these people are making their payments on time and they are looking to "bail" on their current home after they buy a new home that means they are keeping their credit intact for the time being. So if you approach a bank and say I want to short sale my house the bank is going to be less willing to work with you because you have a clean credit history. Which is kind of ass backwards but thats how they do things.

Also this is why loan mods are so popular right now. The problem with loan mods is that most lenders will not modify your loan unless you are behind on your payments. I do not know how many clients I have had come in and tell me that they were looking to modify their loan but the lender would not help them unless they were behind on payments. So they went to one of these loan mod places who "advised" them that their chances of a loan mod are better if they are late on a few payments. People with perfect credit history are intentionally missing payments hoping they can get a loan mod. The bank then denies the loan mod, they are out 5k to the loan modification company (That makes you pay upfront) and they come to me as a last ditch hope to refinance well with mortgage lates you are done when it comes to refinancing. Its a sad situation that is happening so often.

Also regarding the Obama plan that has actually helped a lot of my clients. The DU Refi Plus program will allow you to refinance up to 125% of the equity in your home. The rates are in the low 5's. I have had borrowers come in that have rates in the high 6's and low 7's that have not been able to refi because they have no equity and their LTV is to high. I can put them in a rate in the low 5's save them 2-300 a month and its exactly what they need to get back ahead.

Two other quick points, for an FHA loan you can not buy after a foreclosure for at least three years and for conventional loan at least 4 years. Those are the guidelines that are currently out there. Two years ago we could do 1 day out of foreclosure and 1 day out of BK. Which is disgusting to think about, you can essentially file Chapter 7 get out from under all of your debts and as long as your credit score stayed above a 580 I could put you in to a new house with no money down the next day.

Finally regarding the buy and bail, most lenders now require you to have at least a 1 year history of rents showing on your tax returns for you to include a house as a rental property. Previously they just required a rental contract (which I am sure most people just made up). If you do not have a rental contract you have to qualify for both your old house payment, your new house payment, and have enough in reserves (liquid assets) to cover down payment on the new house and 6 months worth of payments on both the new and the old house.

So for something as little as leaving a 100k house to buy a 150k house. To make things easy if the 100k payment is 500 and the 150k payment is 750. You are doing a conventional loan with 10% down, you would need 15k for down payment, 3000k for reserves on the old house, and $4500 on the new house. In this economy not many people have 22,500 lying around and those are fairly inexpensive housing examples.

Ok rant over.

[Guest]

I'd be interested, if I could figure out where to collect the data, to see the age distribution of people walking away. I don't know how meaningful it would be because many older folks have lived in their homes longer, but I'd still like to see it.

I only have anecdotal evidence, but the anecdotal evidence I've heard (from the NorCal markets only) is the majority of the current wave are in their mid to late 30s, dual income (but now with one unemployed), homes purchased in 2004-2005, many with seconds pulled out in 06-07.

I say current wave, because it's my understanding there have been three waves of foreclosures/walk-aways; the first was speculators, the second was the subprimes mess, and the third and current wave is unemployment/recession related with underwater value (but prime loans).

But this info is just lunch time conversation with some bankruptcy firms where we were doing IT consulting. They seemed busy.

[Guest]

Not to threadjack too much, but to the point on the current recession related problems with primes, here are a few data points I read last week...

• Long term delinquencies are a serious problem. 90+ delinquency and foreclosure inventory are both at records.


• Long term delinquencies are heavily a prime fixed rate loan problem (since prime fixed rate loans are about 2/3 of all mortgages). These are difficult loans to modify, because it is not a payment change issue, but more related to unemployment and loss of income.


• Brinkmann says foreclosures will stay elevated for some time (several years). Brinkmann says we might see a gradual decline starting in the 2nd half of 2010.

http://www.calculatedriskblog.com/20...cy-survey.html

[Pheidippides]

Well, this isn't my field, so help me understand.

6/2007, buyer does an 80/20 1st & 2nd. House was worth $150k. You've got $30k in a loan to him. House is now worth $120k. How much of the $30k can you hope to recover based on your percentage of the value. If you sell the house for $100k at a fire sale, do you get 20%?

The answer to your question is no/0 dollars. The entire concept behind a 1st and 2nd is that the 2nd doesn't get a dime until the 1st is paid in full (bankruptcy can mess with that a little as a practical matter, but the principle is still the same).

[beelzebabette]

Thanks, 8BR.

[Solon]

They can always try and short sale the problem is you need bank approval for that. If these people are making their payments on time and they are looking to "bail" on their current home after they buy a new home that means they are keeping their credit intact for the time being. So if you approach a bank and say I want to short sale my house the bank is going to be less willing to work with you because you have a clean credit history. Which is kind of ass backwards but thats how they do things.

Also this is why loan mods are so popular right now. The problem with loan mods is that most lenders will not modify your loan unless you are behind on your payments. I do not know how many clients I have had come in and tell me that they were looking to modify their loan but the lender would not help them unless they were behind on payments. So they went to one of these loan mod places who "advised" them that their chances of a loan mod are better if they are late on a few payments. People with perfect credit history are intentionally missing payments hoping they can get a loan mod. The bank then denies the loan mod, they are out 5k to the loan modification company (That makes you pay upfront) and they come to me as a last ditch hope to refinance well with mortgage lates you are done when it comes to refinancing. Its a sad situation that is happening so often.

Also regarding the Obama plan that has actually helped a lot of my clients. The DU Refi Plus program will allow you to refinance up to 125% of the equity in your home. The rates are in the low 5's. I have had borrowers come in that have rates in the high 6's and low 7's that have not been able to refi because they have no equity and their LTV is to high. I can put them in a rate in the low 5's save them 2-300 a month and its exactly what they need to get back ahead.

Two other quick points, for an FHA loan you can not buy after a foreclosure for at least three years and for conventional loan at least 4 years. Those are the guidelines that are currently out there. Two years ago we could do 1 day out of foreclosure and 1 day out of BK. Which is disgusting to think about, you can essentially file Chapter 7 get out from under all of your debts and as long as your credit score stayed above a 580 I could put you in to a new house with no money down the next day.

Finally regarding the buy and bail, most lenders now require you to have at least a 1 year history of rents showing on your tax returns for you to include a house as a rental property. Previously they just required a rental contract (which I am sure most people just made up). If you do not have a rental contract you have to qualify for both your old house payment, your new house payment, and have enough in reserves (liquid assets) to cover down payment on the new house and 6 months worth of payments on both the new and the old house.

So for something as little as leaving a 100k house to buy a 150k house. To make things easy if the 100k payment is 500 and the 150k payment is 750. You are doing a conventional loan with 10% down, you would need 15k for down payment, 3000k for reserves on the old house, and $4500 on the new house. In this economy not many people have 22,500 lying around and those are fairly inexpensive housing examples.

Ok rant over.

Great post, cougjunkie. Thanks for the info.

[Clark Addison]

It isn't foolish, it is just a values judgment, and your values seem admirable. Your values also make you an ideal mark for all kinds of scams, but I guess that is the price of living a principled life.

I'm interested in why you think this. I think that someone who takes a conservative approach like this is much less likely to be involved in scams. The typical scam victim, in my limited experience, is someone who is willing to try anything, or who believes in the get rich quick philosophy.