Underwater mortgage? Walk away, law school prof says

[Newsjock]

Source: San Francisco Chronicle

Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.

That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume.

"Homeowners should be walking away in droves," according to White. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits." Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again - meaning above 660 - within two years after a foreclosure."

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/11/29/REG81AP4K1.DTL&tsp=1

[NightWatcher]

1. banks write off losses and companies ditch toxic assets all the time

refuse to accept the stigma of being a deadbeat and look out for yourself and family.

Save yourself, no one else will

[sojourner]

43. amen to that. the "stigma" of being a deadbeat is a social control mechanism

used to keep people from acting in self interest and it apparently works! even people who haven't gotten into the predicament are willing to label others as deadbeats if it appears they are trying to escape their "personal responsibility". Nevermind that the corporations have no such notion as "responsibility" except as a purely legal concept related to "liability" and their whole focus is on how to avoid it.

[CrispyQ]

99. Isn't is amazing the double standard most Americans have

in regards to individuals vs. corporations? A single mother, using food stamps to help feed her children is a deadbeat, but corporations who have millions in profit, & demand tax payer subsidies to build their new store, factory or whatever, are not.

We had a Walmart on the south end of town. Before they purchased land on the north end of town to build a new super Walmart, they basically demanded that the city pay for a couple of new access roads & a new traffic light. If the city didn't comply, Walmart threatened to take their store elsewhere. :grr:

I personally would like to have seen the city say 'fuck you' to Walmart & take their chances. Walmart has a five year restriction in place on who can lease/purchase their old site. Several stores & restaurants in that area are now out of business. The whole south end of town is dying. In another two years, when the restrictions expire, there won't be anything left on that side of town. :grr: :grr: :grr:

[BobTheSubgenius]

193. LUCKY is the town that has no Wal-Mart.

I absolutely DESPISE that corporation. They are as predatory as Monsanto, and have a much greater reach into the lives of average people.

[Deja Q]

104. At one point, I agree. When those at the top start to do it, then all constraints disintegrate.

[JDPriestly]

180. After all, AIG just may be the biggest example of a walk-away from debt.

To say nothing of a lot of other banks and huge companies. What about companies that sell out from under their employees in order to get rid of their contractual obligations to pay pensions?

I'm wondering, however, what the tax effects are when a homeowner walks away from debt? Also, the anti-deficiency laws in California do not protect all homeowners. There are lots of exceptions. Talk to a lawyer before walking away.

[BrklynLiberal]

183. Can any0ne count how many times Donald Trump has declared bankruptcy??

[TwilightGardener]

2. Yeah, because what we need is 15 million more vacant homes on the market--

from people who could AFFORD the monthly payments. That will really help housing values. What an ass.

[itsrobert]

4. Homes are over price still. Just because you overpayed for your home.

Doesn't give you the right to keep the homes artificially high.

I'm waiting for the home values to drop another 20 percent. Still a little high than they should be.

[TwilightGardener]

15. My house only cost around $90,000--and we've fixed it up nicely, has a big yard,

2000 sq ft, everything you'd want in an average house. So, no--I wouldn't call it "overpriced", unless I lived in Detroit.
edit to add: I actually do have to sell it, we're moving soon. And it breaks my heart. I love my house...:cry:

[noamnety]

7. I have mixed feelings about that.

High housing values help people who already own a house.

They also make housing unaffordable for everyone else. The housing bubble overinflated prices, and a correction is short term painful but maybe long term a good thing.

High housing prices seem like they would disproportionately benefit the wealthier people, and low housing prices would benefit those who can barely afford shelter. High cost of living, in other words, can benefit those whose concern is "investments." Low cost of living benefits those who are in survival mode.

[TwilightGardener]

25. What's considered a "high" housing value, though? I agree that in

places like CA, ordinary wage earners were squeezed out of the market. But in the midwest and plains, where I live, home prices were not really affected either way--no dramatic bubble, no implosion. Houses are very affordable here, even for the working class. Same as in places like Pittsburgh, where I grew up.

[noamnety]

58. I'm in a midwest suburb outside of Detroit.

Generally housing is considered affordable here. I had a house for about a 5 year period in the 90's, when I sold it the price had gone up significantly. It was a good deal for me as a member of the homeowner class.

But minimum wages didn't rise at nearly the same rate - not even close. The housing became less and less affordable. There's just no getting around that.

[laughingliberal]

100. True. It's always disturbed me that housing and vehicles are not figured into the rate of inflation

2 things most people need. It has allowed them to hide just how stagnant wages have been.

[noamnety]

105. college tuition, too.

that's a great additional myth, that people in poverty can just pull themselves up by their bootstraps, work, get a degree, and move up the ladder - but the bootstraps are getting further and further out of reach.

[laughingliberal]

110. Quite true. I got my degree just before Reagan cut funding for higher education

Managed to finish just before Pell grants went the way of dinosaurs. Really need some further training now that I can not nurse any longer but no money there for that.

[spooky3]

128. High housing values help only the current owners who plan to sell and

move to a cheaper part of the country. That's not a very big proportion of the population.

I don't see how they help anyone else. If you bought low and the house is now higher priced, you likely pay higher real estate taxes, and if you want to sell to move up to a better house in the same area, it's now much more expensive to do so, compared to what your situation would be had there not been a runup in values.

If you are renting and want to buy, the effects of high prices is obviously bad for you.

If you are renting and want to continue to rent, your rent probably is not going to go down and could go up, if people who wanted to buy but can't afford to are now competing with you for the available rentals.

[Rockholm]

189. Somewhat right, but a little off, to a degree.....

If you bought your home, say at the beginning of 2000 and your home appreciated quite a bit, you can sell your home for much more than you paid for it (using MA for an example). With prices coming down from their highs of 2005-2006, better houses in the same area have come down in price, so you can still move up and pay less for the bigger/better house, because their prices have come down.
I am one of those who sold high and bought high in 2005. The house I bought was a private, estate sale and the house needed everything. I should have no problem recouping what has been put into it (I hope).
The rest of your points are good.

[spooky3]

207. When you say prices are now coming down, you're changing the situation

I described how HIGH prices were not good for anyone except a select group.

The fact that they have been falling for some time is what creates the positive outcome for the person who still has some bubble gains. However, if the prices had never risen in the first place, that same owner would be able to get the new house much more cheaply than if the houses had never run up.

[katkat]

186. high housing values are a pain in the neck for people who already own a house.

Because they mean high property taxes. And you can't saw off part of the back porch to pay the taxes with,

For long term homeowners, high housing values can be a disaster, forcing them to sell and driving moderate and lower income people out of the community.

[spooky3]

208. yep, I said something similar above but not everyone gets this.

And if you want to sell and stay in your neighborhood, the costs of the new place are also higher.

For example:

You bought at $100000.
The bubble pushed your house value to $200000.
It also pushed the values of other houses in your neighborhood up:
-- A $150000 house was pushed to $300000.
-- A $50000 house was pushed to $100000.

If the bubble had not pushed prices up, you could stay in your own home, or you could have moved up for just $50000 more (vs. $300K-200K = $100K more). Or you could have moved down to the $50K house and saved $50K (I'm ignoring transaction costs, upgrades, etc., just to simplify).

But now the move-up house may be out of reach, and the cheaper house will cost you what you paid for your current house.

The only people that the high costs benefit are those who plan to sell and move to a cheaper community. So as the prices come down, this will help most people. The prices' coming down hurts people who bought at the peak. But almost everyone else benefits.

[Warren Stupidity]

50. So individuals should continue to pour their money into a bad investment

to protect your investment? What exactly does the upside down homeowner get in return for protecting your investment? That person gets nothing, which is the point. The economic self interest of most upside down mortgage holders is to fold and get out. Being able to afford the monthly payments is not relevant to the rational decision regarding making those payments (unless of course you cannot afford the payments, in which case there is no decision to make.) Your use of all caps "AFFORD" is exactly the point of the OP: we are brainwashed into thinking that there is a moral issue here when in fact businesses make these sorts of walk-away decisions all the time: when an investment has no prospects for a positive return, stop investing. There is no moral issue.

[TwilightGardener]

84. I don't consider it a moral issue. If one sees a home as purely an investment, then

walk away, and take the hit. But for many people, being "upside down" for the time being isn't a tragedy if the payments are affordable--because you have the benefit of living in a nice home, you keep your credit intact, and if home prices come up again in the future (which can only happen if foreclosures ease and inventory lessens--the opposite of what this guy is advocating), you're going to build equity. If one doesn't have to sell in this market, and one's income situation hasn't changed, what difference does it make if your paper value is low, in the near term? It's as foolish as the urge to invest in the bubble to begin with--compounded, in fact, because you've bought high and didn't even "sell low", you're walking away empty-handed.

[Fire1]

143. In many instances, even if you sell low, you're behind the eight

ball, if your sale didn't cover the balance owed the bank. Consequently, the best option in such a situation would be to bail, imo.

[TwilightGardener]

146. That's if you HAVE to sell. If you don't, and you can swing the payments,

it would probably be better for MOST people to keep on keeping on--the market value may improve, or you'll build equity and be able to break even when you HAVE to sell (while preserving your standard of living--as opposed to moving into a crappy apartment), your credit will stay good, and you won't lose what you've already invested in the house (payments, downpayment, improvements). Don't take a loss until you HAVE to take a loss, is what I'm saying--because it may turn out that you don't have to take one at all.

[Fire1]

151. Waiting to build equity may work out in the long run but in

some parts of the country you're still going to lose when you sell. Example: You invest 79k in a property and the current market value in that area is now in the 7k range. Yes, you can build equity but you're still going to take a tremendous hit when you can finally sell. So, who should take the hit? The bank that appraised a distorted LTV or the consumer?

[TwilightGardener]

155. Depends on the worth of the property to you, and why you bought it.

Using my house as an example, we probably paid several thousand too much for it, as we bought in 2003 when housing prices were up--although the county assessor values it much higher than our purchase price, so it's hard to say what it's worth. We also HAD to buy relatively quickly, didn't have much time to make a decision as we were moving across the country, with pets, and kids who had to start school, and four of us living in a camper until the closing (ugh!). That said, it's more than an investment to me--there's a lot to the home besides its market value. Our kids can walk to school in under 5 minutes, we live in a safe and pleasant community, we have excellent neighbors who help us out, we've renovated the house to my tastes (I'd have to do it all over again somewhere else--$$$), and I have plenty of room here. If it was just a house-flipper thing, I might feel differently.

[Fire1]

158. Exactly. If it was my primary residence, I would definitely feel

differently.

[sendero]

181. I've been saying this for months...

... here. Banks and businesses of all stripes BAIL OUT when it is in their self interest. The typical mortgage contract says "make your payment of we will repossess your house".

Fine, take it.

IT IS LARGELY THE BANKS' FAULT THAT THE MESS WE ARE IN EXISTS ANYWAY. WHY IN THE WORLD ANYONE WOULD WORRY ABOUT THEM IS BEYOND ME. THE GOVERNMENT iS GIVING THEM WHOLESALE BAILOUTS AND GIVING US 8K TAX CREDITS. REAL EQUITABLE.

We are presently in a deflationary depression. It makes NO SENSE to throw good and hard to come by cash money after bad to pay for a house that likely will not be worth what many paid for them IN THEIR LIFETIMES.

If you are seriously underwater, YOU SHOULD BAIL OUT.

[we can do it]

175. +10 Lets Just Call the Only Investment Most Americans Have Worthless Cause Its Cool

[kenfrequed]

206. Your assuming

That he is directing this article directly at those who can afford it. Also how is rewarding bad behavoir on the part of banks and lending agencies a good thing?

[Robb]

3. Mrs. Robb and I were talking about this.

She calls it the "honor of the poor." Poor(er) people tend to make financial decisions based more upon relationships, and wealthy(er) people based upon investment strategy. It's no wonder that other study came out showing how many "strategic" foreclosures were people who weren't going to wind up on the street when it was finished.

It's the reason, for example, banks spend so much money promoting themselves as "the same home-town bank you grew up with" sort of thing, even when they're really now just one of 14 zillion Wells Fargos or Chases out there.

Anecdote: buddy of mine sold an old truck to one of his neighbors, a stone mason assistant (read: heavy lifter), for $500. Told him he'd take $20 payments every two weeks as long as he wanted to pay for it.

The guy, who has next to nothing and pays half his money to alcoholism and the other half in alimony, made every single payment on that old truck.

[SoCalDem]

5. Micro loans to poor women in the 3rd world are nearly 100% repaid

Poor people are often afraid of "what will happen" , and know they have no money for lawyers, so a lot of them keep making payments, no matter what..

The only problem with walkaways is this.. most rental places pull your credit report, so once you have walked away, you may be camping at friends' houses for a long time.

and if you are lucky enough to find a place to rent, it will often be sans pets..no garage, high rent, and your mobility to change rentals is impaired.

[Robb]

9. Yes and no.

A vacancy is a vacancy, and it's a renter's market in much of the country right now. A pulse and a deposit kind of stuff.

[SoCalDem]

12. You would think so, but everyone I know (here at least) who has had a foreclosure

has had an awful time finding a place to rent.. It took my friend 2 months to find her place (overpriced at that), and now that she's trying to move, it's just as hard..even with "for rent" signs all over the place.. The minute she tells them they had a foreclosure, that's the end of it..

[gorfle]

176. Rent before you walk.

The only problem with walkaways is this.. most rental places pull your credit report, so once you have walked away, you may be camping at friends' houses for a long time.

That's easy. Before you walk away from your house, go ahead and rent a place while your credit is still good. Then walk.

[Chemisse]

194. My daughter is in this exact situation!

Afraid she can't get a rental if she lets go of her money pit of a home. Your suggestion makes good sense.

[dkf]

197. If you walk away from a house, walking away from a lease contract is even easier.

Best not to let the landlord know this beforehand.

[BeatleBoot]

74. I would agree with you. It's called

being a stand up guy, where I come from.

[Robb]

81. Good way to put it!

:hi:

The problem begins when the banks figure out ways to exploit that sentiment.

[SoCalDem]

129. Part of the problem is that people talk , and most houses are in developments

where they are all just alike..or almost alike

so if a couple/person bought in 2006 and has a $2K house payment, and half the block now is paying $1000 a month (bought foreclosed), for the SAME house, it's not hard to see how many people might just want to walk away..especially if they are having to try and sell that house for enough to cover their inflated mortgage..prospective buyers will not be willing to cover their loss.

Upside down mortgages are not uncommon, and do not matter much if you are planning to stay put, and the drop is not a lot..ours fell when the base closed, but rose again once things stabilized. If we had had to sell during the down-time, we would have lost money, but we rode out the downtime.. Equity is not "real" money until you sell, and unfortunately, lots of people forgot that, and borrowed money that was never real..

[dysfunctional press]

124. alimony?

how does someone with 'next to nothing' end up with alimony payments? there is no alimony in the vast majority of divorces, and it's usually only in cases where people are pretty well off.

[Robb]

174. You're correct, I misspoke(wrote).

It's child support $$, not alimony. I don't know why I used the word alimony.

[slackmaster]

6. What if you can afford the payments and want to keep the house?

:shrug:

[Warren Stupidity]

53. Then you are making an emotional decision and not a rational investment decision

which is fine, but you should realize why you are doing what you are doing, and understand that the money you put in is unlikely to be returned to your or your heirs in any reasonable time frame.

[slackmaster]

71. There are degrees of being "underwater", it's not always black or white

A decision on whether to stay in a home vs. walking away from it should take many factors into consideration, including the hassle of moving, effects of a default on one's credit score, impact on children of moving away from their friends or putting them into a different school, etc.

...understand that the money you put in is unlikely to be returned to your or your heirs in any reasonable time frame.

I have always thought of my home as a safe, stable, secure place in which to live, not as a financial investment. I bought at age 36 and do not ever expect to cash out.

[Warren Stupidity]

77. of course. No argument from me.

I feel the same way about my house - I don't really care much what its investment value is. Then again I am not upside down on it, I could probably sell it for a reasonable return if I wanted to, and I am financially secure independent of the value of my home. Change some of those variables and it is a whole different story.

[harun]

177. Then continue to do what you signed a contract to do, pay.

I'm sure the property I am in wouldn't go for what I bought it for at this moment but the hassle of walking away, packing, finding a new place, getting hit with tons of fees for the default, etc. is not worth the bit of money I might save in the long long term.

[Bryn]

8. My sister and her husband walked away, but IRS

billed them $12,000. I thought it was wrong since they did not have the house.

It was a very nice doublewide mobile home on 5 acre lot. They got out because of bad load by sub-prime mortgage by Greentree and her husband lost his job, Greentree was very nasty, wouldnt leave them alone so a lawyer advised them to walk away, but didn't warn them of that $12,000 by IRS.

[TwilightGardener]

17. This lawyer guy is being irresponsible, telling ordinary people that they won't

suffer any real punishment. Did he stiff his own mortgage creditor? I'll bet not.

[Robb]

73. If their doublewide was their home, Congress protected them in 2007.

The Mortgage Forgiveness Debt Relief Act of 2007 should've allowed them to dodge the tax obligation, at least on federal taxes.

[kirby]

134. A 'reverse-sale' is considered a taxable gift...

Gotta love the logic.

[Xithras]

165. They need to have their taxes rechecked. They may be eligible for a refund

Congress passed a law in 2007 that temporarily eliminated the taxability of "forgiven" or charged off mortgage debt. I believe the law is scheduled to sunset in 2010 or 2012.

A lot of tax preparers were initially unaware of the law change, and some people paid the taxes even though they weren't technically owed. If your sister was one of these people, they can file an amended return and get their money back.

[safeinOhio]

10. Banks go after the money in court that is

the difference in what the property sold for at auction, including at least 20k in cost. This is what a Mi. lawyer has told my girlfriend. Also she is on SS and has a pension that the banks can't go after. However, both are paid only in direct deposit. Once payment hits bank account it is no longer pension or SS money and the bank can take it all. Best check state laws.

[icee2]

11. Should every car buyer do likewise? After all, your car is...

worth 20% less than you paid for it almost as soon as you drive it off the lot.

[AllentownJake]

19. Did the person who sold you the car tout it as an investment or a tool?

[icee2]

27. Not in writing. But realtors won't put it in writing either. n/t

[laughingliberal]

56. If any car dealer implied in any way a car was an investment that would appreciate over time...

that would be the height of dishonesty. Anyone who would believe it would be unbelievable stupid. Homes have always been pushed as an investment and, until this debacle, they usually were a good bet.

[FarCenter]

86. Homes haven't always been a good investment

There have been previous housing bubbles in CA and TX.

[laughingliberal]

95. Yes, there have but, for the most part, it was generally considered a good idea

to buy a home. Building equity and getting a tax break made good economic sense most of the time for most people. And it has been pushed as the "American Dream" for a long, long time.

[TwixVoy]

96. Who gives a f***?

Seriously - SO WHAT if a home was sold as an investment?

Since when is an INVESTMENT guaranteed not to lose value? If you had ever done much investing you would know EVERY investment has the warning "Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, yield, and return will vary and you may have a gain or loss when you sell your shares. "

Just because someone bought a home as an "investment" doesn't mean it will never lose value.

I have ZERO sympathy for people who drove this market up turning homes in to "investments" and thought they could flip those "investments" for profit every month.

[laughingliberal]

102. I believe I was referring to the average American who bought a home

and expected, over time, it would increase in value. Not much reason to buy as opposed to renting if you didn't think you would build equity in it, I wouldn't think. I was not talking about flippers but about the average working famiies who are losing their asses in this recession.

[HughMoran]

13. I was underwater in the early 90's and nobody gave a crap

I just kept on paying my mortgage and living in my house. This is pretty radical advice and takes "responsibility" to a new low.

[AllentownJake]

16. Responsibility went out the window with TARP

When you create heads we win tales you lose situation, people catch on to it.

[HughMoran]

21. Don't link TARP to people buying homes to live in

It's not equivalent and makes you look desperate.

Just because the government is corrupt, doesn't mean I should be.

or...

Just because my neighbor is morally bankrupt, doesn't mean I should follow his lead.

[AllentownJake]

31. That is silly

So the bank that issued the loan is corrupt, has bought members of congress to make the rules to benefit them the most and you the least and lobbied to prevent any reform in the system. Because of their shenanigans in the market you are working 30 hours a week instead of 40 hours, have a loan of 300,000 on a piece of property worth 150,000 and there will be no appreciation for years. The banks have rules that allow them to write such properties down and pay less taxes on their actual income.

You are worried about personal responsibility at a time like this

:rofl:

[HughMoran]

35. Now you're saying that all the banks that issue loans are corrupt?

OK, you're making a point, but it's a political one. The point is that most people can afford to pay their loans and shouldn't bail just because of a "loss on paper".


Have fun - carry on...

[AllentownJake]

40. I look at this as civil disobedience

So to me it is a political statement.

[HughMoran]

44. That's cool

I would assume that anybody who can afford to make such a "political statement" can also afford to pay their mortgage, so I am think it's a fine ploy in that case. For people who are close to the edge monetarily, however, this may not be the best advice.

[AllentownJake]

51. People should make their decisions on a cost-benefit analysis

The system is falling apart. Once the bailouts happened without pre-conditions and re-regulation it was something that would be set into motion. We are reaching a point where the snowball is turning into a boulder the size of a man with the American People. It would be wise for the leaders to do something that stops it there before it becomes an Avalanche.

Things don't happen in a vacuum, the same person probably just got a letter from another bank a week before Christmas shopping season saying that their credit line was cut and their interest rates are going to be 30% from now on, after paying on time for years.

[Deja Q]

106. Like I said a moment ago, when those at the top break the rules they put on everyone else,

it gets harder to retain credibility.

[HughMoran]

109. If your leaders commit a crime...?

The suggestion is fine in a protest sense, which is fine with me, but I don't think that you really believe that this is a good idea.

[girl gone mad]

140. But you're asking people to live by a moral code that no corporation follows.

You believe that people should jeopardize their financial future in the name of responsibility. No business operates that way. The banks that loaned the underwater homeowners money would walk away from non-performing investments without a second thought. Most of these same banks have been bailed out of losses that resulted from the fraudulent derivatives activity they were engaging in (and profiting handsomely from) for years. Why should a home buyer keep making a monthly payment that is several times higher than what it should be on a house that is rapidly losing value? What obligation does the borrower actually have to the bank? Many home loans in the US are non-recourse. The contract is written in a manner that allows homeowners to walk away, free and clear. The banks know this when they ask the borrower to sign, but they count on people making irresponsible decisions in the name of following a fake honor code that only the "little people" live by.

[MattBaggins]

150. This is business not personal

Those are the famous words we hear every time someone loses a job. That's the advice we get when ever some company declares bankruptcy in order "to realign".

It's fine for them and only a matter of sound business decisions. This sense of "responsibility" is of no use to folks who are looking to the future and realize they will be still be in the hole when it comes time to retire.

We have heard "it's business not personal" daily for decades. Feeling you are obligated to keep losing money is for chumps.

[HughMoran]

153. House is worth 2x what I paid for it now

In most places, home prices will recover. Blanket statements regarding this make no sense really. If you're underwater AND you can't pay (due to no job, adjustable loan etc.), then it may be advantageous to get out from under it. If you're 25 years old and are happy in your home but upside-down WRT your house's value, the downside to bailing may outweigh the upside. For me it was better to wait it out even though I was unemployed during part of the time I was under water. I'm glad I stuck with it.

[girl gone mad]

154. It could be decades before prices recover to bubble levels..

in some areas. We are talking about people who may have lost several hundred thousand dollars in equity, 50% or 60% of the value of their mortgage, and prices are still expected to fall another 11% on average this year. If someone has the option of walking away from an excessive mortgage payment, and the means to improve their credit score within a few years, it could well be the best thing for them to do. A family with children to put through college or high medical expenses should definitely consider it. No one should take the option off of the table simply because of some dumb societal stigma about personal responsibility.

[MattBaggins]

160. I said that as well

It would be silly to bail out if you can recover. if you really can't; it would not be sound business to throw good money after bad.

That is the question. Is this about personal responsibility or sound business decisions?

[HughMoran]

164. Each individual has to make thier own choice

Making blanket statements as many are wont to do here is not helpful. Suggesting that bailing out is an option is good advice, suggesting that EVERYBODY who is upside-down should bail is absolutely irresponsible advice.

[AllentownJake]

14. The Moral Hazard is coming home to roost.

When the President and Congress do everything they can to protect corporate entities and little to protect average day Americans, people are going to find unique ways to rebel against a system they have learned is rigged against them.

Oh and that bankruptcy bill you signed into law in 2005 guys at the behest of your corporate donors, isn't doing anything to stop people from giving you the proverbial middle finger.

[hatrack]

113. Exactly! This is what "moral hazard" means, at bottom . . .

If flouting laws, ethics and moral responsibility is OK for those at the top - those raking in literally tens of billions of dollars for shoving as much MBS crap and derivatives as possible through the algorithmic sausage mill for astronomical payoffs - then who's to say that waling away from a mortgage flouts laws, ethics or moral responsibility?

[laughingliberal]

137. That bankruptcy law has backfired on them to a large extent

The law still allows people with incomes below the median in their area to fully discharge their debt. What they are seeing is most people declaring bankruptcy since then qualify for Chapter 7. In fact, the number of those taking Chapter 7 hasn't changed much. What this proves, to me, is the big sell on the idea of people just spending senselessly and declaring bankruptcy with impunity was, for the most part a load of crap. The same load of crap as Ronnie's welfare queens. When the working class figures out these propaganda campaigns designed to keep us angry at "those lazy, shiftless, irresponsible whoevers" is just a ploy to keep us from organizing against those at the top and electing officials to represent us it will be game over for them.

I don't see much hope for average Americans waking up to it, though. As long as things aren't 'that bad' for them yet they will still attempt to point to their superior decision making and responsible behavior that allowed them to avoid disaster while those awful 'others' brought it on themselves.

[NNN0LHI]

18. I admit that I am no professor or anything but ...

... I thought when I closed on my the two homes I have financed during my life that I signed something to the effect that if I were to default on the mortgage that I would be responsible for any balance due plus any loss the bank had accrued on my unpaid note?

For instance say I purchased a home and the bank loaned me $100,000.00 and I paid only $5,000.00 on the principal before I defaulted. Then the bank could begin assessing extra interest and penalties while trying to sell the home. And then if they sold the home for $80,000.00 I would then be responsible for the balance. And I thought the only way I wouldn't be responsible for the balance was if I filed bankruptcy.

Isn't it that way any more?

Don

[AllentownJake]

22. Sure and Chapter 7 erases that debt

[safeinOhio]

26. depends on your income.

[NNN0LHI]

28. The author doesn't mention anything about Chapter 7

Is that what he is implying?

Don

[FarCenter]

82. Purchase mortgages in CA, AZ, NV and FL are only secured by the property

The borrower is not personally responsible for the balance. These are "non-recourse" mortgage states, because the lenders have no recourse to attack the personal assets of the borrowers.

Note that these states are the ones with the worst bubble.

Whonder what Carlton Sheets is doing these days?

[marketcrazy1]

91. loan modifications make these loans full recourse...... N/T

[FarCenter]

94. I think that is true in most non-recourse states

But maybe not in CA, which seems to have weird mortgage law. Mortgages seem more like a contract for deed in CA.

But yes, once there has been a modification, it is like a refinance and no longer an original purchase mortgage.

Which is why people need to see a lawyer for their state laws and their specific situation before doing anything. IANAL.

[laughingliberal]

188. True, I live in NV. Not sure about other states

Thank goodness they can not attack our personal assets. We have the 2nd highest foreclosure rates and are #1 in negative equity in the country.

[LWolf]

20. Walk away to...where? nt

[icee2]

24. Miami Beach. Some folks like to get away, take a Holiday...

or just take a walk on the wild side, baby.

[LWolf]

62. Sounds good.

If I can't afford my mortgage, I'm sure I can afford a vacation.

I'm still trying to figure out where I, and my dependents, will sleep and shower when the vacation is over.

[harun]

178. Exactly, where you suppose to go? a campground?

[JanMichael]

23. Actually they can do what's called Cash for Keys.

It's cheaper for a mortgage lender to pay someone $2-3k than get into an ugly eviction. Plus you'd tell them that you will leave the property in good shape v. the typical trashed place.

[safeinOhio]

30. Does not work with Chase

or BOA and other BIG banks. Only smaller local banks now do "keys in lieu".

[JanMichael]

33. I hadn't heard that. The big ones in Florida may still do it.

I'll have to check that with a relative in Florida who told me about the keys deal a few weeks ago.

It's a crazy world.

[safeinOhio]

45. If you recall the recent Judge that gave the house to the people.

That was because the bank would not do a "deed in lieu".

http://www.law.com/jsp/article.jsp?id=1202435781738&Judge_Blasts_Banks_Foreclosure_Conduct_and_Cancels_Mortgage

[bobshin]

182. An eviction can be delayed for up to a couple of years, at least in NY...

that's what I was told by a government-funded mortgage default consultant. They said that the worst thing you can do, if you cannot afford payments, is to leave the property. In the end you will most likely lose your home- unless a miracle occurs- but you have a more reasonable time frame in which to plan what your next move will be. I was prepared to go this route until someone made a very reasonable offer on my home- even though I wasn't planning to sell- and ended up with a short sale and no mortgage. If I was upside down on my mortgage, I still couldn't afford the payments (and the quadrupled taxes) because I was unemployed. $2-3k wouldn't have gone far enough. I still would have stuck it out.

So, yes, I can see a lender making such an offer, but I really don't believe they care much about the condition of the building when you leave. Banks are not property managers and they get to write off such loss of value. I also had an experience with this in the last market crash in the late 80's. I was renting, the landlords bailed and filed for bankruptcy, and I decided to stay. If I hadn't the house would have been trashed. Six years later when they decided to finally get to the foreclosure, it was my decision that saved that building. I was long gone but handed the apartment to friends who took care of the property while they lived there.

[MadHound]

29. Let's see, people are foolish enough to buy overpriced housing,

Then they compound that foolishness by using an ARM.

Now some yahoo is advising them to simply walk away from it all.

So much for personal responsibility in this country. Go out, buy it all, however you can buy it, and if it all falls through, simply walk away.

This is a hugely bad idea that will had negative impacts for our economy, and for the people who actually kept their heads and were responsible during this madness. But that's OK, right?:eyes:

[AllentownJake]

32. Amazing how many Democrats piss on the average American

and side with the financial elite.

Ronald Reagan truly one in 1980.

[icee2]

38. As Gore Vidal said many years ago...

there's only one party: The Property Party. It has two wings.

I remember hearing him say that in a radio interview way back in 1987, on Pacifica Radio.

[sojourner]

49. it's the devil who won by getting people to believe that MORE MONEY and POWER are true values

and so people envy and hate those who have more, but aspire to get some for themselves, and look down upon the "losers" --- edited to add: I don't really believe in the devil. But if I did, this is what he would have tried to achieve because in the end it leads to dehumanization and a predator society.

[MadHound]

54. Sorry if you don't like it

But the reality of the matter is that millions of people bought homes that were horribly overvalued, and they knew that fact going in. Not a good move, you either wait until the bubble bursts, or you buy somewhere else where the bubble isn't inflated. For instance when I was shopping for my second house, I knew that I wanted something out in the country, for a number of reasons. I could have bought my place in the county that also included a major urban center. But the houses were really overpriced, as was the land. I decided to move one county over, where my money went a lot further and my house has retained its value while places that I was looking at six years ago have lost it.

People further compound this problem by getting ARMs. Yes, I realize that lenders were doing some slick talking to sell these things, all sorts of incentives. But the fact of the matter is that you have the responsibility to find out for yourself. A house is the largest investment that most people make, and you don't treat it like picking up a new TV. You do your research, you read the contract, you get advise from disinterested third parties (lawyers and such). You don't buy in the heat of greed, you consider things calmly and rationally. And you go buy the old maxim of "If it's looking too good to be true, then it probably is." Really now, c'mon, wouldn't some sort of alarm bells being going off in your head if you were looking at buying a $500,000 home on a $50,000 income and the bank rep was cheering this on?

And now people are being urged to walk away from these mistakes. That means a larger glut of houses on the market, meaning a further drop in home values. It means that these banks will make up these losses on the backs of their customers who haven't walked away. And it means sending this fragile economy into another tailspin, screwing us all. Not to mention that I really don't want eyesores of abandoned houses on my block, magnets for criminals and such.

Yes, I realize fully the role that banks and lending institutions played in this mess. But frankly, it takes to tango and the people who, out of sheer greed and stupidity, got themselves into this mess, need to own up to their own responsibility. I also recognize that many people got into financial trouble through no fault of their own, medical problems, divorce, loss of job, etc. But the vast majority who got in this crunch did so of their own volition, with eyes wide open, but lacking any sort of common sense. They were blinded by greed and stupified by the "want it now" mentality that pervades our society.

[sojourner]

59. some people are really in a hurry to judge others, as though they have the right.

the only reason for that is to lift oneself up while putting the other person down. you 'realize fully the role that banks and lending institutions played in this mess' and you propose what? that we follow your lead and focus on the INDIVIDUALS who acted selfishly? why? because one won't feel an ounce better about oneself if the banks are taken to the woodshed, but one WILL feel pretty marvelous when those bad bad people suffer because one will be able to say "I was smarter than them".

[AllentownJake]

63. Probably is involved in the industry

It was amazing how I myself could rationalize things previous employers were doing because they paid my paycheck.

[MadHound]

69. Actually no, I'm not involved in the industry at all

My previous employment was in the scientific/medical field and now I'm currently completing a degree to become a teacher.

One of the core lessons that we teach district wide in the school district where I just completed student teaching was "Be Responsible". Perhaps we need to re-teach that to the entire country:shrug:

[AllentownJake]

78. Do me a favor

Start in Wall Street and D.C.

Than make your tour in the rest of the country.

Society generally rots from the top down.

[MadHound]

64. Since this was a conversation about individual owners, that is the POV I was addressing

Personally, I didn't think that we should have bailed out the banks either, but hey, here we are. I also think that we need to re-regulate financial institutions much as they were forty years ago.

This isn't a matter of making myself feel better, you may operate in the way you state, but I don't. I'm simply tired of seeing people around here completely ditch the entire notion of personal responsibility, both in this matter and in our society at large. Sorry, but a large part of how our society operates is based on that quaint notion, and the further we erode it away, the greater damage we do overall to our society in general.

[AllentownJake]

61. I'm sure the billions spent in marketing and a Sales Force

trained in how to manipulate people psychologically had nothing to do with this. Nor the billions invested in buying members in congress in both political parties on key committees and administration positions do anything to facilitate what just happened.

Of course like a dutiful idiot you will harp on the homeowners when in fact the situation was created by people at the top, knowing full well that they could cause a disaster, but hoping they would just cash out before the disaster struck.

You know I might agree with you, if psychologist weren't being employed by the banks to teach them the best way to manipulate people into making bad decisions.

Go on with your badself?

As for the banks, some recently just got burned because they suddenly realized that financing the building of man made Islands in the U.A.E wasn't the soundest business decision. Spare me the idea that the banks are rational in any way.

[MadHound]

76. So people aren't responsbile for their decisions concerning smoking, drinking, overeating,

Or the myriad of other issues that involve exercising personal responsibility? Just because various industries throw billions of dollars into advertising, we now can aborgate our need to exercise personal responsibility in all areas of life, including buying a house?

Cool, I'm going to go out, smoke a carton a day, drink a twelve pack a day, and go on a five thousand calories a day diet, and when the attendant health problems arise, I'll loudly demand that these respective industries pay for my health care because I was enticed by their billions in advertising:eyes:

Oh, and I never said banks were rational, I just said that we can't abandon the concept of personal responsibility in this country like the article in the OP advocates.

[AllentownJake]

83. It is amazing you bring that up!

Because there is an entire arm of the federal government that inspects those products to make sure they aren't dangerous and controls their advertising efforts.

In fact, the last time I checked cigarettes can't advertise..anywhere and have plain language warnings on every pack that say this will kill you. Same thing with drinking products and what is actually in the food you eat is put in plain simple language right on the wrapper.

Oh and if something is really bad for societies health, guess what they do, they remove it from the market!

Of course 30 years ago none of these products existed because usury laws existed because Americans weren't stupid enough to believe that the banks ever had societies interest at heart. I guess living through a bank induced depression will do that to a generation.

[safeinOhio]

34. Every one needs to only pay cash for homes?

If you have to borrow, you can't afford it. Don't forget that you may loose your job. The only responsible ones are those that don't loose their jobs?

[MadHound]

57. Not true, and you know that

But irresponsible borrowing, and irresponsible buying, that's the problem.

But hey, nice attempt at snark.

[laughingliberal]

48. I'm over this "buying overpriced housing" "using ARM" crap

We built a modestly priced (for this area) home in 2005 on a conventional mortgage (proof of income every month for the 7 months we were in escrow). Our FICO score had been over 800 for years (a jaw dropping credit rating for those who don't know). My husband has operated his business since 1982. The bulk of his income came from new construction and remodels of muti-million dollar homes. In 2006 that market tanked and his business along with it. In 2007 I lost my job and he was diagnosed with cancer. A lot of people who bought homes they COULD afford have lost jobs or had businesses go under during this recession. The PR crowd can bite me. The guys at the top brought this economy down on top of us and they have not suffered at all. Being a working stiff does not mean I get held to a higher standard of responsibility than those who set the whole house of cards up.

[MadHound]

60. Sorry for your problems, and I wish you the best

However while you personally did the right thing, played by the rules, and got screwed by circumstances outside your control, millions and millions of people put their ass in a sling due to their own greed and stupidity.

For every story such as yours, there are ten where somebody with $50,000 income decides that they can afford a half million dollar house by using an ARM, then their whole house of cards collapse when the rate jacks up a couple of years later. These are the people that burn me, and they are the largest segment making up the current default mess. These are the people that I'm speaking to, not those like yourself who did the right thing, played by the rules and got screwed by life. Sorry if I didn't make that clear.

[Hansel]

136. Your world view is just a titch distorted.

You make some assumptions that are not supported by facts but seem only to be supported by a wishful thinking on your part in order for you to find some comfort that most individual people in crisis are their because of their own actions alone.

You conveniently leave out the real estate agent, mortgage consultants and financial institutions who profit from the consumer. They do not spend billions of dollars in advertising for window dressing. They target consumers who are not the experts on what is affordable. These consumers are continuously pushed and manipulated into believing they can afford a home that they cannot. And the government sat on its thumbs only standing up long enough to encourage this disaster in waiting.

For the past 40 years home prices have continued to rise. Now you are chastising the average home buyer for not looking into a crystal ball to alert them that the houses that they were buying were overpriced and to predict a collapse of the market.

Is it possible that some were just buying because they saw the prices rising and interest rates low, and were afraid a home would never be in their reach if they waited?

You have also conveniently left out the fact unemployment is at an all time high along with the prices of fuel and health insurance, and most every other necessity.

I think your assumption that most of the people defaulting on mortgages are at sole fault and not incrementally more like the poster you are addressing is just a little too simplistic and not supported by the facts. It is an authoritarian fairy tale that conservatives find solace in. That blaming the victim means that it can never happen to them. Most Americans are just a pink slip and illness away from devastation thanks to 40 years of corporatist leaning policies.

We are in the worst economy since the great depression. We are emerging from the destruction cause by some of the greatest corporate and investors greed exhibited in decades and your focus is on the people with little financial background who were targeted and manipulated into their situations only to have to awaken tragically from their American dream.

Look up, not down. The problem is much MUCH higher up than at the home buyer level.

[sabrina 1]

148. You have bought into the

Fox/Limbaugh lie that the majority of homeowners were greedy and caused the collapse of the economy by not being able to pay their debts.

The truth is that a majority of those now in default, are responsible borrowers, I believe the numbers are something like 80%, who were affected by the corruption that was the cause of where we are today. A vast majority fit the category of the commenter above.

The other approx. 20% in default, if that, is normal and would have no real affect on the economy at all.

The Government and Wall St. are the culprits. They ran to the tax payers to bail them out when their ponzi scheme fell apart and their bought-and-paid-for members of Congress bailed them out.

We now live in a country where 'responsibility' has a whole new meaning. The Government has changed the rules regarding what responsibility means. As soon as they rewarded the greedy, irresponsible and criminal architects of this disaster against the wishes of the American people, they made new rules.

One in four homeowners is now 'underwater' on their loans. This was not caused by 'greed'. They bought homes that were priced according to the market they were buying in. They did not set the prices. That was done by 'the market' or so we were told at the time. Now, the market has failed and these people are victims of what everyone now knows was a supremely bad, unregulated system.

Already, hundreds of thousands of those 'underwater' homeowners HAVE defaulted for various reasons.

But the moral dilemma now facing those who actually do have morals is, 'do they just wait until they lose everything they've worked for, or go with the reality that our society as a whole considers 'moral' to equal the 'free market' which means making as much money as you can while you can?

Since the public let their feelings be known regarding bailing out corrupt banks and Wall St. Ceos and the government ignored them, what did the public learn from that?

We learned that everything we thought this country was about, 'responsibility' etc was not the case at all. Responsibility has a new meaning now, it is the survival of the fittest, the free market philosophy.

You are asking people to continue to ascribe to a system that doesn't exist in this country anymore. That is what the bailouts said loud and clear. The people are on their own, they are not represented in Washington. A person's first obligation is to the survival of their family.

And many formerly 'responsible' Americans are now looking at their options under the reality of the actual system they live under and they are following the Government's example regarding what 'responsiblity' actually means in a Capitalistic society. Many looking at their options, are bailing themselves out by walking away from the results of the corruption which they did not cause. Since the government refuses to prosecute those actually responsible, it is up to the people to do so wherever they can.

How do you straighten out a corrupt system when elections are bought and the government is responsible only to Big Business? Revolution is out, but hitting them where it hurts most, is still within the power of the people. They can no longer depend on the 'goodness and responsibility' of the citizens they ignore and profit from. We too have learned the game.

This will be the revolution of our times. People will and are walking away from the debt these crooks got them into in one way or another, as a way to hold them accountable in the only way we can. Make THEM lose money.

Do you consider it irresponsible NOT to pay a debt to a thief who conned you into something that wasn 't what it seemed? I think it would be irresponsible NOT to use these means to finally wake up this government to the fact that if you allow and reward corruption at the highest levels, there WILL be consequences whether they demand them or not. The people will do so and that is what is happening now.

But you couldn't be more wrong when you claim that 'millions and millions' of ordinary home-owners were responsible for their own losses. They were not. You need to do some research to find out why approx. one in nine homes in the US is now empty. Do you really think people did this to themselves? And if so why didn't they do it before these thieves took over the economy?

[MattBaggins]

159. Being a working stiff does not mean I get held to a higher standard of responsibility

A-Fracking-men

[phone]

Best damned line in this thread.

[TwilightGardener]

162. That's true--and yet...

do lenders and other businesses pay the same penalty for being irresponsible, in comparison to the working stiff? I would argue that the working stiff faces a proportionally harsher penalty, in terms of credit and future options. And then if you have entire neighborhoods blighted by vacant houses and a depressed tax base from people who walked away (irresponsibly or not), who suffers the most? The working stiffs who still live in those communities, and their children. What works for business doesn't always work for regular people--the rules and rewards and punishments aren't equal.

[MattBaggins]

157. It's not about peronal responsibility

It is about making a business decision. You do not throw good money after bad. It's not personal it's business.

They have no qualms about defaulting on pensions or health care. When they need to re-align they layoff employees or declare bankruptcy. The big wigs protect their assets when they do so and put the employees and share holders on the chopping block instead.

It's about sound business decisions and nothing else. If you are actually under water and will continue to lose money even into your retirement years; then one would be a chump to continue to throw good money after bad.

[notadmblnd]

192. Well isn't it wonderful that life is all fucking rosy for you

Is that what you think? That I bought an over priced house and took out an ARM? Let me explain this to you... I was married, I had a job, my husband had a job. Together we made over 100k a year and we paid every single mortgage payment we had. Then my husband died, I lost my job. My income was cut in 1/2. Still I made every payment for the next 6 years until once again I lost another 1/2 of my income. Try going from 100k+ per year down to 24k and then tell me what kind of decisions you will have to make.

I'm not spending my life savings trying to keep up payments only to lose the house anyway when the money is gone. I'm walking away.
Shit happens, it's called life and I have to make the best decision possible for our son who is not quite grown.

Just fuck you and anybody that looks like you if you think I'm doing this happily.

[jeff47]

200. Because no seller ever commits fraud

And no bank ever commits predatory lending.

[AllentownJake]

36. I see the Reagan Democrat Personal Responsibility crowd is jumping in here

Poorly regulated industry, lots of fraud by banks, and a bought congress, yet the personal responsibility crowd is worried about the Moral Hazard of home owners.

:rofl:

[TwilightGardener]

41. Here's the problem, ROFL-guy. We all have to live somewhere.

And for those of us with children and pets, renting isn't always a feasible option. Fucking up your own credit isn't going to do you any favors. Making your mortgage payment, no matter your home's value, is a better idea for a lot of people.

[AllentownJake]

46. Make your own personal decision

Obviously in any activity one takes a cost-benefit should be done before making a decision.

However, don't get mad when some people have decided a course of action that they have determined benefits them, because it is going to cost you, when you aren't as vocal about the individuals at the top who caused this type of situation to exist.

Oh yeah, and the President is re-appointing Bernake, the guy who slept through the crisis till it was DO SOMETHING OR THERE WILL BE MARTIAL LAW!!##!@#$%

[laughingliberal]

52. ++++10

[TwilightGardener]

101. It's not going to cost just me, if millions more people dump their homes

because of current paper value (and frankly, I think very few would heed this guy's advice). It's going to cost everybody EXCEPT the banks, who will always find a way to come out on top. Homeowners, communities, schools (dependent on those property taxes, don'tcha know), local businesses--who wants to live in blighted communities full of vacant houses and not enough tax base?

[AllentownJake]

172. To quote Thomas Jefferson when his best friend in France died during the Revolution

Oh well. People should have been more compassionate to their fellow man when this crisis erupted and the thought of helping home owners was brought up.

The good Lord judges in mysterious ways.

[bobshin]

184. The loss of value and the tax base is going to cause the second and third wave

of people losing their homes. When even foreclosed properties are sold, their values have plummeted. Assessments will go way down and thus taxes will go up, way up, on those who have kept up with their payments, upping their payments beyond affordability. Luckily this is not so regional as it is national/global. Most of us- even the responsible ones ;)- are all in the same boat regarding property taxes- except, I would guess, in states that base property taxes on income. But actually, with so many people losing their jobs, the same effect will occur in those states. The next few years are going to be one hell of a ride...

[sojourner]

55. you do what you see as in your best interest. but you can at least let others do likewise.

[TwilightGardener]

67. I'm not "letting" anything. People will do what they will. I think this guy

is giving bad advice, though, by encouraging the investment view above all else and convincing people that they're suckers for being upside down on their home values. If you simply walk away, where do you go? Into a better house? Who is going to lend you that money? And if they do, are you going to get a good interest rate, or a punitive one? A rental? That might be OK for singles and couples, but not terribly great for families--and then your money goes to paying into someone else's equity instead of your own. A few years of renting doesn't help you down the road more than having made your mortgage payment in that same timeframe. In theory, this man's advice might work for a few who are really upside down, but the rest of us are still at the mercy of FICO and lenders, and still want a decent standard of living for our families.

[sojourner]

70. if you're really upside down then you are making a huge mortgage payment

and because of falling values can probably do better renting and putting the balance of payment in the bank toward purchasing a home down the road. values will NEVER recover for these people because they bought during a bubble.

[TwilightGardener]

93. You'd have to have been making a really big mortgage payment, though, for

the difference to be great enough to save measurably by renting. In my experience, mortgage and rent sort of keep pace with each other in any given community. Rent really isn't all that cheap for a decent apartment or home, if you want to live in a low-crime, nice community. Given that, it's hard to see how most people would benefit (in terms of quality of life) by just stiffing the bank.

[FarCenter]

97. With a "pick-a-pay" mortgage, the mortgage payment can be really small

The whole genre of creative mortgages was based on making the first few years of payments really small.

However, these balloon suddenly after the initial period or when certain trigger conditions are met.

[sojourner]

122. thing is, "hard to see" doesn't mean it might not be there. "Stiffing the bank" --- again, there's

that "deadbeat" mindset that the corporations have cultivated so well amongst the populace. Sheep for the shearing, but don't dare complain or you're a whiner. Don't try to escape or you're a deadbeat or a loser. Stand still and let us have your *fill in the blank*. Fuck the banks. They are outright thieves. Made legal with the blessing of the Congress they've bought and paid for.

edited for clarity

[TwilightGardener]

127. Well, when a party walks out on a contract, what else would you call it?

As for the other stuff--I guess I don't feel like a total victim, I feel I have at least some control over my life and my decisions--don't feel like a sheep or a loser for having bought a house--I'd rather buy my own then pay a landlord to get rich off of me. And no matter how the big guys screw us little people over, I take a little pride in not being that way myself. I'm curious, do you own a home?

[sojourner]

141. did. sold it. invested in a business (my own) and lost it. paying myself out of debt

counting myself grateful for the chance to learn an expensive lesson and move on. have considered bankruptcy -- why not, corporations do it everyday (walk out on contracts) -- but decided it was MY gamble and MY lesson and I've been gulping it down for past 3.5 years. saving a downpayment for the home i'll build on property i bought a while back.

don't feel like a victim but i have a master's degree in psychology and consider myself smarter than the average bear - so it's ok for me to "take it in the shorts" for the mistakes i made. kids all on their own before i sold house, btw and they didn't bail me out. i didn't ask them too either. i believe in taking responsibility for me, but i also believe in caring about the plight of those less fortunate than me.

i don't feel the same way about people without a college degree and without family that could help them get a start in the "game" -- they are playing a game where the deck is stacked against them, and they think that if they try hard enough they can achieve the american dream. it's a hoax, and you can buy into it if you like. business and government alike walk on contracts every day, with no hazard whatever thanks to the laws that protect them. don't think so, check your insurance policy when you get an uninsurable "event" or try telling the company that's letting you go that they have to honor that contract that said you were hired for x number of years....do that without a phalanx of attorneys and let me know how it turns out.

edited to add clarifying remarks about nature of business and personal circumstances.

[TwilightGardener]

142. But we're not talking about people who are necessarily disadvantaged, here--

the OP is talking about people who can afford to stay in their houses but are upside down on the loan. That's not a permanent condition, the loan amount hasn't changed, faithful payments will pay off the house just the same as the day they signed the contract--it only matters if they have to sell in the near term. That sucks, but it's not the dark portrait you paint of poor/uneducated people getting suckered and not being able to achieve the American dream. The author even recommends buying a new car and a new house before ditching--that doesn't sound like he's addressing the struggling working class, who probably bought at the lower end of the market (150,000 and under) where housing values don't fall as dramatically. Sounds like he's addressing the flippers and the Mcmansioners who have the resources to cope with bad credit for a while.

[sojourner]

144. you are making huge assumptions that cannot be supported.

upside down means you purchased when values were at their peak and they have now fallen. a lot of people on the edge got into those homes that cost over 150,000 and that's the tragedy of the mortgage 'crisis'. they were told how to qualify (and how were they to know that everything would crash so soon?) and they 'got in' and celebrated their good fortune, only to now face losing it all.

there is a percentage of people in the category you address. but again, when the industry sets up conditions and then wants everyone else to 'eat it' while they move on to bigger and better things, who are you and i to judge the financial decisions of individuals? one more time - it's the effects of giving those with power a pass, while holding the individuals responsible. or at least, more responsible.

i don't believe there's a good answer unless we, the people, demand that business and government begin to operate with at least the level of honesty and integrity that they expect of us. until then, when we sign up for their 'deals' we are in essence presenting ourselves to be sheared.

[TwilightGardener]

149. But they're NOT FACING "losing it all". They can afford their house.

That's the whole point of this article. It's still the same damn house they purchased--they'd be happy as pigs in shit with the house if its value spiraled ever upward, but since it went down they're pissed. Nothing has changed except its current market value. What's arguable is whether it's worth dumping the house because of that current value.

[sojourner]

156. ok, given the parameters you state, but iit's still a personal decision that i don't feel

compelled to judge. i'd need lots more information for that.

[Warren Stupidity]

171. If nothing has changed then somebody should be happy to pick up

this mortgage and pay it off. Obviously something has changed. The current value of the house is now far less than the principle owed. Worse, the future value of the house is unlikely, over the lifetime of the current mortgagee, return to its former value. That is the problem. It is a negative return investment. Would you advise somebody to invest in such an investment? Of course not. Then why should anyone stay in such an investment? Their money would do better in a mattress with only inflation eating at it.

[MattBaggins]

163. That's a good moral decision you made

but why not say it's business not personal responsibility and declare bankruptcy. That is how corporations justify chopping pensions and retirement obligations. What would be the soundest monetary decision? No "I am obligated to these debts" self incrimination's; you simply make the best business choice.

[AllentownJake]

75. We live in interesting times

Thank these guys, there are more but I gotta go bowling so I'll just highlight a few criminals.






http://3.bp.blogspot.com/_--ooVsa3FGg/RhkEZEiz0XI/AAAAAAAAAGc/ecb4OPnAolY/s320/Evan+Bayh.jpg

http://2.bp.blogspot.com/_NE-72ZXux-g/STu0EhZCI_I/AAAAAAAAG_Y/n-f7JIoTrwU/s400/0+Pr4262ls-treasury-rubin.jpg
http://2.bp.blogspot.com/_NE-72ZXux-g/STu0EhZCI_I/AAAAAAAAG_Y/n-f7JIoTrwU/s400/0+Pr4262ls-treasury-rubin.jpg

[MattBaggins]

161. Are you sure about that?

If your fancy silicon valley job is gone; and your house is worthless, yet you have 2000 dollar a month payments, it would be better to declare bankruptcy, rent an apartment for 1500 and put 500 away for 7 years.

I have children and pets and lost my job this year. I purchased a house well within my means (hell my house was one years salary); but I would not continue to pay on it if it would take 15 years of payments going down the drain, when a bankruptcy is at worst 7 years.

[TwilightGardener]

166. What you're stating is extreme--most people don't own "worthless" homes

and there's no telling how much your house will be worth in 7 years--but walking away locks in your losses forever, while you go and pay someone else's mortgage (and that's all that renters really are doing) for those seven years. I'm betting that for MOST people, it's still a better decision to ride it out and hope the market rebounds while you chip away at the loan. Not all, but most--and region does have a lot to do with it. I know that for me, personally, I could not stand living in a rental ever again, under someone else's rules and whims--and renting is a sure money loser in the long term.

[sojourner]

65. i am having a real rough time not flaming some of these folks --

names i recognize from another post! i wish i could laugh at them instead of being so damn pissed. AAAARRRRGGGG

[treestar]

120. Not every mortgage is a fraud

Paying it back is the borrower's end of the bargain. Not sure what's so evil about that.

Most people buy their house taking the risk they'll lose their job. It's not a big risk, or the mortgage company wouldn't extend the mortgage. In general. Not saying there are no bad loans or loans the mortgage company shouldn't have made, and they take that risk too. If the person does walk away, the mortgage company has lost that bet.

But if you take out the mortgage, part of the risk is yours too. It's an investment, so there is going to be a risk. Land is a good investment. Much better than betting on horses. That's why so many people risk it.

[treestar]

37. The value of the property could recover though

Just like how you should not sell when the stock market goes down. When it goes back up, you'd miss out on the gain.

Land is always going to increase in value in the long haul.

[AllentownJake]

42. Nope not true, actually not true at all

If I purchased a house in Detroit in 1960 it is not what it is worth in 2009 unless you completely take inflation out of the equation.

[treestar]

66. It depends on the area, then

[Robb]

79. Location, location, and... what't the third thing?

:D

[AllentownJake]

85. In 1960 Detroit was the area we took foreign visitors to show the strength

of the American economy, that and Disneyland.

Who new 49 years later it would resemble a third world country.

[FarCenter]

89. By '67 there were tanks in the streets -- Detroit never recovered from that

[AllentownJake]

92. Nope and North Philadelphia and Center City Allentown

never recovered from their housing heights. It's funny when people say that to me when I can drive through areas where there was obvious money at one time (poor people don't build widow walks or ornate wood carvings on their houses) and see the same housing and property is now in total disrepair and litter all over the street.

Nothing like seeing a house with very ornate trim boarded up in a Center City to make you realize property values do not always go up.

[FarCenter]

103. The South and Southwest have been living a Energy and Military Industrial dream that is ending

The Northeast and MidWest have not been enjoying the same boom.

[treestar]

118. In general they will go up though

There is a finite amount of land. It can't hurt to own it, even in a desert.

But that doesn't help people caught up in today's problems.

[AllentownJake]

170. Depends where you live

If you live in an area where there is land to expand, farm land or uncultivated property will be sold and new housing erected. If you live in an area like Manhattan there is a limited supply of land on an island and as long as the island retains it's status property values will increase during the next expansion.

I can add Fort Wayne, Indiana and Hartford, CT to places where I have seen housing and property that obviously contained money at one point in time, that is now desolate.

So for the majority of the country, your belief is not necessarily true.

[treestar]

116. Detroit's problem is lack of diversifying

Never depend on one industry.

I can say that, coming from a state where one large company employed many for years and then the credit card industry, causing us and our senators and representative to support the credit card companies in all things.

[HughMoran]

112. In NH, my house is worth 3x what it was at it's lowest

2x what I paid for it, even in these down times.

I know you were responding to an "always" argument, but you seem to lack nuance in most of your arguments today - did you wake up in a bad mood?

[Deja Q]

107. So far, it hasn't. And if rules at the top are already being broken by the top,

people need convincing that values will increase isn't the latest fiction scribbled from those at the top.

[treestar]

119. Still wouldn't walk away though

Not unless I just could not afford the monthly payment. If I could, I'd hang on. The value is bound to recover someday.

[harun]

179. Especially with how high inflation is right now (real inflation not the BS inflation)

[laughingliberal]

39. That whole "moral imperative" thing just doesn't work for me. I agree with Mr. White

I've been willing to walk away from our mortgage for over a year. We haven't because my husband has an emotional attachment to owning the home and, frankly, in our area we won't save that much monthly by renting.

We have spent huge amounts of money making sure the guys at the top stay on top and diddly (comparatively) trying to help individuals caught in this crisis whose lives are going down the drain. When millions more mortgages are down the drain, I believe we will see more than "voluntary" programs for mortgage holders to modify the loans.

Depending on property values where you live, the threat of walking away can motivate the lender. In my area, home values have lost huge value and most are not worth what is owed. We are managing to get the mortgage paid in time to forestall any foreclosure procedures so far. I called once when there were 2 payments due and told them I could make 1 payment. I got some really nasty collector on the phone who said they sent me a demand letter and they needed the full 2 payments that day to prevent foreclosure. I said they could send anything they wanted but I still had only one payment and, if they're taking the house anyway, I wouldn't be making that one, either. She tried to get snotty again and I ended the call. It was not 10 minutes til a very nice young lady called me and apologized all over herself about the "misunderstanding." I told her that I knew they could not start foreclosure procedures unless we go 90 days past and these aggressive collection techniques almost cost them the payment I was making that day, that I was more than willing to hold that payment 3 more weeks if they f'd with me and that if I heard from them ever again without my initiating the call I would drop the keys off at the nearest office and let them have the damn house. No more phone calls from them and, when I call, you couldn't ask for a nicer bunch of people. My concern is for those out there in dire circumstances, as we are, who don't know. They prey on these people and I can see some poor woman facing the same dishonest collector I had that day driving herself crazy trying to scrape another payment.

[TwilightGardener]

47. If you can't afford the payments due to job loss or whatever, that's different--

this guy is telling people who can afford to stay in their homes to just walk away, as if there will be no repercussions either personally or community-wide.

[laughingliberal]

68. Fine. But the MSM and even the PR crowd here keep attributing this whole housing crisis

to people who knew they couldn't afford the houses they built and took out "liars loans." I'm sick of it. With unemployment and underemployment where it is right now it should be clear that a lot of people bought houses they could afford and then the economy tanked. That's my issue. And I can't say I disagree with this guy. If people are paying mortgages on homes worth a lot less than they owe on them and rents in their area are more reasonable, it may be the best decision for their family. These next years are not going to be easy for a lot of people and it may be a wise decision to dump the house and conserve resources.

[FarCenter]

72. It depends on state law, whether you have a HELOC, and whether you have other assets

In some states, such as AZ, a purchase mortgage is only secured by the property. So you can walk away in those states. As a result, lenders in CA, AZ, NV and FL are requireing 30% down for bank-held mortgages (i.e. ones not backed by Fannie Mae, Freddie MAC or other guarntees by the federal government).

In other states, the lender can sue the borrower for the difference between the foreclosure sale and the balance of the mortgage. Therefore, the lender can attack other income, other assets such as a vacation home or rental, and force the borrower into personal bankruptcy. This has a bigger impact on the borrowers credit than just walking away from an underwater mortgage in a non-recourse state like AZ.

The above is further complicated by whether the first mortgage is a re-fi, whether there is a second mortgage or HELOC on the property, etc. Consult your lawyer for the details of your situation in your state.

[Solly Mack]

80. K&R

[hunter]

87. Heck, if a health insurance company can walk away from an expensive customer, why not?

Catastrophic medical expenses taught me not to give a shit about "personal responsibility" as it relates to credit. Big corporations will shed their "responsibilities" any way they can, legally and even illegally if they think they can get away with it. And the laws are written in their favor.

My wife and I bought a house, got a mortgage, and then overwhelming medical expenses destroyed our credit. We ran out a COBRA too. But we've kept the house. This happened before the housing bubble so we never got a chance to borrow against the house and be upside down.

It's in no way "immoral" to walk away from the gaming table when the game is rigged against you by the big money players. Anybody who thinks it is their "personal responsibility" not to walk away from an upside down mortgage is a sheep waiting in a pen to be fleeced.

There are plenty of reasons to stay in an upside down mortgage -- maybe you like the house and can afford the payments -- in which case the house is worth to you what you are paying for it, but "personal responsibility" has nothing to do with it.

[AllentownJake]

90. +1000

Societies that develop two different sets of rules, never seem to last that long without terrorizing the population that the stricter rules were written for.

[laughingliberal]

98. Very well put!

America: a country with bailouts for the wealthy and 'personal responsibility' for the poor.

[sojourner]

125. + 1000

[seeinfweggos]

168. i'd like to associate myself with these comments, indeed

"It's in no way "immoral" to walk away from the gaming table when the game is rigged against you by the big money players. Anybody who thinks it is their "personal responsibility" not to walk away from an upside down mortgage is a sheep waiting in a pen to be fleeced."

and you are right that being underwater doesn't necessarily mean you should walk. yes, two sets of rules, or at least expectations depending on your economic/social class.

[Gormy Cuss]

88. What about personal responsibility?

:sarcasm:

The truth of the matter is that a business would cut losses and walk away in a similar situation, but when an individual does it he or she is met with scorn. Most people should try to stay and weather out the financial storm but for others walking away may be the best solution.

[Deja Q]

108. Corporate personhood. It's time to treat people like corporations.

[HCE SuiGeneris]

111. Here is a good resource to gather information on Real Estate and Mortgages

The Mike Stoffer Show aired from Ohio. Lots of stats and fairly intelligent discourse in these recorded programs... http://mikestoffershow.com/?page_id=10

[ecstatic]

114. Thanks for sharing. I know someone in that predicament

Hell, I might be in it too. I'm afraid to request an appraisal. I've thought about it though, and despite this turning out to be a horrible investment, I like my home. So if I walked away I wouldn't be walking towards anything as nice as this. So I'm holding off for a while.

On the other hand, my friend is actually living in a separate state from her home. She's paying for two places right now!

[Nye Bevan]

115. Absolutely correct

If you live in a non-recourse state then by all means walk away if it is in your economic interests.

Morality is irrelevant here. It's just business. Which is exactly what the banks say when they evict widows and cancer patients who can't keep up with their mortgages.

[proteus_lives]

117. What nonsense.

Personal responsibility takes another shot.

[mike_c]

123. I think you have a distorted view of "personal responsibility...."

It's not irresponsible to walk away from a screwing that's not your fault-- it's just good sense. If someone walks away and then tries to pretend they didn't-- that's not taking responsibility.

[Dreamer Tatum]

121. What an increasingly stupid world we live in

when law school professors are writing stupid shit like this.

It is FAR from clear that real estate prices will not come back, especially since we've seen the bottom of the market in a lot of locales. The calculus that homeowners should make is to weigh the benefits of making house payments (which include OWNING A HOME) over the period over which prices may be thought to improve vs. the harm done to their creditworthiness should they simply walk away. Some people will walk away, but I think most people who can afford their payments will stay around.

There are very few markets (if any) for which prices have permanently adjusted downward.

[RB TexLa]

126. If you think giving your word means nothing. If that's the kind of human being you are

then I guess you'd have no problem following his advice. Nothing the banks or government have done have any effect on my personal responsibility to uphold a contract I signed.

[divideandconquer]

131. Yes there is because almost no homeowners knew they had CDS against them

American bank customers used to think they were all in the same boat with the bankers, now we know the banks were betting the mortgages would fail and actually help grease the wheels. The banks pretended they were nice businessmen but in fact were more like loan sharks.

[RB TexLa]

135. CDS aren't a hidden thing, I've invested in CDS on mortgage backed securities.

[Warren Stupidity]

139. businesses and investors walk away from bad investments all the time

why is it good for them but bad for us?

The point of the OP is that if it makes financial sense to walk away from an upside down house you should do so. You do not have a moral obligation to a bank, you have a contractual obligation with financial penalties for default. If those penalties are far less than the loss you are taking by continuing to pay for a pre-crash valued mortgage, you are financially stupid to continue to pay the mortgage.

[girl gone mad]

152. The contracts allow for walking away.

There's a good reason we don't have debtor's prisons in this country.

It's interesting that so many TARP apologists in this thread are upset about the prospects of home debtors making a fiscally responsible choice to walk away from a deeply underwater mortgage.

[AllentownJake]

173. Useful idiot

When government and business willfully write the rules to benefit a few and you follow said rules.

[hfojvt]

130. I don't think that advice is very sound on a personal level

First of all, because you have to live somewhere. There are costs involved in finding a new place and then, since you probably won't be able to buy after having defaulted, you are gonna be renting and building up no equity. The same is not true of your own home. Will you still be underwater in ten years? Or will you be moving bfore those ten years are up? A move within two years assumes an economic recovery, which also would include a housing recovery.

I think in ten years that the underwater hoemowners, the vast majority of them, will see a return of their equity. Whereas with his advice just takes a current loss and makes it permanent. He sees somebody who bought stock for $10 a share that is now selling at $2 a share and he advises them to dump it whereas I would say to hang on an probably get your money back within five years.

Plus, I hate living in apartments.

[lynne]

132. If adopted on a widespread scale, what will this do to new home loans -

- if we think money is tight now, just wait for the fallout if people adopt this strategy on a widespread basis. The housing market is always unpredictable, although buying a home has been considered a sound investment in the long run. No lender can guarantee what the market will be like in 3 - 5 - 10, etc. years but there are very few situations where property does not appreciate during the course of a home loan.

Seems like everyone wants to make a profit and "flip" within 3 - 5 years and that's not happening in today's market. Should people just ditch their homes today based on the market of the moment in lieu of a long-term investment strategy, what will be the incentive for banks to continue to loan money for homes?

Answer = None

[JVS]

133. I wouldn't be so confident about being able to recover the credit scores again after this.

I suspect that the banks are going to make sure that people who do this get well and truly fucked in the credit department. In fact, I wouldn't be surprised if banks start inventing new ways of dealing with mortgages so that such a situation cannot arise again in the future.

[laughingliberal]

138. Not sure how it's going past 1 year

but I have friends who did Chapter 7 bankruptcies a year and a half ago and, pretty much, had banks waiting on the courthouse steps for them throwing credit cards at them. They have used a little, paid off the balances each month or 2 and have a very decent rating now. Why wouldn't the banks extend credit? They have no debt and can not bankrupt again for 10 years.

[JVS]

169. I don't think bankruptcies and mortgage defaults are the same thing.

You can default on a mortgage without any worries about them taking anything other than your house. The thing is, the bank could retaliate by telling all the other banks what happened, and since those banks don't want to get burned you could find that the lenders become very strict about how much and to whom they'll lend money.

[laughingliberal]

187. Not the same thing. Bankruptcy is generally a more serious hit on the credit and lasts longer

My point being I am seeing people recover from that much sooner than one would think. So, thinking the mortgage default thing is survivable. It's not a question if the bank would retaliate by telling other banks. Pretty sure it would go on your credit report for all to see.

[Arctic Dave]

145. Agree 100%

If we are going to see a correction in real estate prices we might as well get it over with.

[nini]

147. you have to do what is best for your future..

do you continue to throw money away and into the pockets of big business? Or do you cut your losses and start over?

I had a friend who had to do this in the Denver area in the 80s. She lost 75% value of her home and she had to walk away.

That being said I do think people should make this decision wisely and I'm sure most do.

Also, when banks lend money they also assume risk of those loans not being able to be paid back for a variety of reasons - they are protected and write off losses - they've got all the loopholes in their favor.

[sojourner]

167. he doesn't say ALL mortgage holders ought to do so. and he stresses the impediments to

clear thinking in a crisis like this: too many people, according to prof., are held back by shame and guilt. implication is that to act in self interest is immoral (a message pounded by our entire society). nevermind that the banks and mortgage holders themselves created this mess. i'm not getting over this, or the fact that most of american society buys the bullshit. poor poor bankrobbers, er bankers.

one of the CEOs says, what would happen if the whole idea that borrowers agree to pay were to fail? well - lemme see: what resulted when the idea that lenders would act responsibly and lawfully themselves? the real point is: it's okay if WE do it (bankers, etc.) but not if YOU do it!

[ooglymoogly]

185. The questions here are...How upside down are you?

What is the diff you will be paying in rent for what you need as essential, including all moving costs, new gas mileages and simple comfort. Is there a self contained area of your present home that could be made into a small in-law apt rental or for that matter just renting a room to an old friend or family member. Be creative, destroying your credit for minimal advantage is not advised...If your home is seriously less valuable than your mortgage then talk to the bank and try to walk away with your credit intact and without declaring bankruptcy; And if you can't, walk away anyway...and learn how to build your credit again. Bankruptcies live on your credit report for 10 years, if you make a note on that report, bankruptcy due to catastrophic illness or the like the bankruptcy caries less weight. If within a couple of years you prove your stability after bankruptcy creditors are willing to look at the circumstances and grant credit. So it is all relative. Generally if you love your home as something more than an investment and can make the payments, forget about it's value and just enjoy your home; plant a few hollyhocks, roses and morning glories and hope for a sunnier day. My guess is the dollar is about to become devalued even more than it is already and hard assets are going to rule.

[Dangerously Amused]

190. You are the CEO of your own life.

Do what the bank CEO would do; consider carefully what is best for YOU, and then do it.

[notadmblnd]

191. Think of it as a business decison

not a moral quandary.

[McCamy Taylor]

195. Waiting for Congress to declare that we can not walk away as they did with credit cards.

[Gman]

196. Excellent advice

Business is business. Emotions should have nothing to do with it. When they're the one's about to get stiffed, the banks want us to think moral. Morals never cross their minds otherwise.

[dkf]

198. In that case, why pay your credit cards?

I bet that TV you purchased has lost way more value after 5 years than your house.

[GodlessBiker]

199. If you contracted with the credit card company to surrender the TV in exchange for not paying ...

your credit card balance, that would be fine.

The people who walk away from a mortgage are simply doing what the terms of the contract (their mortgage) permit them to do.

[dkf]

201. Not really.

Regular credit cards simply have no collateral put on it, and mortgages do. It doesn't mean the contract says they WANT or ENCOURAGE you to give up that house to them.

In fact, if your credit is awful, a bank may only give you a credit card if you put up collateral. Not having to put up collateral means they trust you more because you have a history of either paying or not defaulting.

If you look at bonds, some have assets backing them and some don't. That is the difference between secured and unsecured debt. But it doesn't mean that one type is ok to default on and the other isn't.

[GodlessBiker]

202. What lenders "want" or "encourage" homeowners to do is irrelevant.

Just like it is irrelevant that a prospective homeowner might want a lender to lend more money than the lender is willing to lend.

The terms of the contract (mortgage) calls for surrender of the property upon non-payment of the underlying note.

I don't know what you mean by it being ok or not ok. The contract governs. A homeowner is exercising a right (i.e., it's not illegal) under the contract to walk away. The consequences of that action are governed by the contract.

[dkf]

203. Umm, that would make defaulting on credit cards and defaulting on a mortgage the same.

Ergo, if everyone should walk away from their mortgage, they should walk away from their credit cards too. What is the difference after all?

[Turbineguy]

204. Good advice

the rest of us don't mind making up the difference.

[Warpy]

205. Blanket advice like this is never good advice

First, what are rents doing? Are they rising or falling? What percentage of your PITI would you have to spend in rent? If rents are 75% of your PITI and rising, you're going to want to hang onto that place.

Second, what are you likely to need to borrow for in the next 7 years? Is your old car going to hang together that long?

Third, how secure is your job? Remember, a hit on your credit report can make you appear less job worthy. Eventually those stupid numbers will be tossed out since they only reflect debt you're paying off and not your ability to stay out of trouble, but that hasn't happened yet. If your company is having a tough time, you might want to appear as stable as possible.

Fourth, how underwater are you? If you're in a formerly hot area and bought at the peak of the market with no down payment and are now 40% underwater, walking away might be in your best interest. If you put down a small down payment and that's the only thing that has evaporated, it won't be.

Fifth, how interested is your bank in working with you to refinance at a rock bottom interest rate? That low rate might be the difference between building equity eventually and throwing your money away building a landlord's equity.

There are so many things to consider that just walking away on a law professor's sayso, especially since he's in one of those formerly hot markets and obviously doesn't know what's going on elsewhere is a very, very bad idea. It's a drastic step. Consider it very carefully.

However, the more people who walk away in those formerly overheated markets, the sooner the banks will stop being jerks about it and start being a little more reasonable in finding ways for them to stay in their homes.