Question by PicassoInAction: Housing bubble. Need advice.?
I bought the house at 400 k in 2006. (Interests only to start)
As of today the house is worth 245K. Let’s mathematically look at the next 10 years. With given history of crash in 80s, just to pick up the level that we paid “400K” will take at least another 6-10 years. With reality facing banks and the economy, even if economy will go up in a year or 2, banks won’t be in the rush to make same mistake of lending anytime soon. From 80’s it took them almost 20 years before lending was relaxed. So the stress the point… For the next 6-10+ years I won’t even reach the level I paid for the house. With given public information such as :
And please don’t throw the stones at me. It’s just a thought.
According to some public data we have “Over one million U.S. homeowners have already lost their homes due to foreclosures since the mortgage crisis began last summer (as of 2007). Another one million homeowners are 90 days past due on their mortgages (foreclosure notices usually go out after 90 days) and two million more are 30 days past due, so three million more households may face foreclosure in the months ahead. It is estimated that up to five million homeowners would lose their homes due to foreclosure over the next few years. “
Ok. So let’s try to break it down.
Around 4-5 million home owners are lost/losing their houses – which simply points, that in the next 4-5 years they are out of market. (Short sale I believe give’s u 2-3 years before you can buy according to Fannie)
So, in the next step we will need to replace 4-5 million homeowners by another 4-5 million home owners (who can get approved by the banks) just to clear the oversupply created by this crisis.
Mean while we are continue to build houses and condos by thousands, while current prices are keeping falling – which translates in extending the recovery by few more extra years.
Since houses right now are upside down on mortgages , and many of the houses lost their equity, just to level the price of the house to the current mortgage (owned) we will need another 4-6 years at least.
And here comes the Question. Does it even make any common sense to continue to pay the mortgage on the house that at least worth 40-50% less than mortgage owned?
Let’s say hypothetically, homeowner leaves the house and goes into foreclosure or short sale. There is a good chance that before real-estate market will level its self (6-10 years), there will be sufficient amount of time to rebuild the credit and save some money. We are losing today by the day and may be (while it does sound horrible) it’s time to cut the losses?
Now, on the moral issue. I still can afford to pay for the house. And I do my part of the contract but the banks who gave mortgages away to people who could not afford fail to protect the investments. In other words they intentionally or unintentionally drove the market down. My credit score was lowered artificially in the last 2 month from 720+ to 601. I had a high limits credit cards and about 30% used. In the last month they cut my credit cards which now brought the ratio to almost 90% which drove my score down and put me out of reach to refinance or anything. And I don’t have a single late payment.
To summarize the issue. If I will drop the payments down my credit score will go bad. But with given an idea that’s for next 6-10 years I will be able to restore the credit and even buy the same house at the lower price that I owe right now on the mortgage. Any thoughts on this?
To make it clear, I am not really looking into short sale or foreclosure. I want to keep the house and i want bank negotiate with me. At the moment they don’t want even talk to me since all payments are current. It seems it’s ok for banks to cut their losses but when people trying to do it- it seems a bad thing. Since my credit fallen due to artificial lowering credit cards limit , it seems like they all creatively leaving people out of all the options. When I applied for credit I agree to the contract, but banks decide to change their part of the contract and that leaves me with limited options. If it’s fair for them than I would say cut my losses should be a fair game.
Someone wrote”Now, more than ever, you have a patriotic duty to pay your mortgage.”
While patriotism sounds cool, if i lose my job anytime before the housing market will level off- it simply means that i will still lose all i have plus all the money that i could save.
Not an easy decision.
Best answer:
Answer by Antonio M
non ci capisco niente,purtroppo io sono italy
Give your answer to this question below!
Well in the 80s that’s what a lot of people did. Packed their bags and walked out. I owned a condo and sold just before the market went way up because my husband died and I couldn’t afford it. All you can go by for sure is the present and you are in a tough place. I don’t know what I’d do. Good luck.
First, unless you have a hardship, you won’t get a short sale approved. A hardship is something like loss of a job or you got transferred to another location. And, “I owe more on the property than what it’s worth” is not a hardship.
So, that leaves you with either hanging onto the property until it comes back up in value to what you owe on it (7 – 10 years) or go into foreclosure (big-time credit hit for 7 years).
If you walk away, you will be saving more money each month, as you will be living in a rental, which is sure to be less expensive than your mortgage payments. But, you may be limited as to who will rent to you with a foreclosure on your credit history. And, what if you need a new car? No one will loan you any money. Prospective employers look at credit reports sometimes. You wouldn’t even be able to get a cell phone.
Also, with a foreclosure, the bank can go after your other assets (bank accounts), and place liens on any real or valuable personal property.
Besides, what if prices come back in just 5 years? Now you have to wait 2 more years to be able to get back in the market and you could miss out again.
So, when looking at the alternatives and the consequences of each course of action, you have to consider all of the aspects of your life that could be affected by the decision to just walk away from a home and let it go into foreclosure. And, I would recommend against it, as long as you can afford the payments.
You need to find out if you have a recourse loan or a non recourse loan. Most primary mortgages are non recourse . . . which means that once the bank forecloses they can NOT go after your personal assets (contrary to the above poster). Recourse loans are literal . . . the banks can go after your personal assets . . . recourse loans are typically associated with secondary liens (again, not primary).
Second, under the new Housing Bill (it passed about three months ago) the banks can NOT 1099 for you the amount of the short sale. The difference will NOT be treated as taxable income but will become a loss for the bank.
And as far as the moral implications to what you are considering . . . you are in between a rock and a hard place. The Federal government via the Treasury and the Fed have literally put the United States solvency on the line. So should you walk away from a loan you can afford to pay, you will be contributing to the economic downfall of your country.
Now, more than ever, you have a patriotic duty to pay your mortgage.