I don't understand.........

[RdRdrFan]

A little bit of background. I'm no longer in the banking industry but I was for a little over a decade as a lender.

Today I received a phone call from one of my dad's friends who also happens to be my personal accountant. This guy is the most straight up, walk the line, black and white guy I know. He called for my advice today because his son (who lives in Colorado) is thinking about turning his house back to the mortgage company and he wanted me to tell him how to do it with the least damage to his son. The son is definitely upside down on the home but is making the payments with no problem. He just sees that the value in his home has deteriorated significantly since he purchased it and wants to walk away and let the mortgage company take the hit. According to what I was told the guy has an 800+ credit score today and is making good money. It isn't that he "can't" make the payment. He just made a bad investment and wants to walk away.

First, I can't believe that the dad even called me and didn't tell his son to man up and own his bad investment.

Second, what is wrong with the world when people have the ability to pay for their debts but choose not to because they just don't want to take the loss???

[systemnt]

agree with you... plus...Whatever the hit he will take for it being upside down with pale in comparision to what defaulting on a bank mortgage loan will do his credit....

[Dale Moser]

I know of quite a few people who have maxed out every credit card they could get ahold of, with no intent to pay them off, then filed bankruptcy........and they don't see anything at all wrong with it.


Don't worry, you and I are paying for it, along with those stealing money from un-employment, and the welfare grubbing dregs who never have wanted to work......

[FISHUNTER]

There are several celebreties that are also doing this same exact thing to there multi million dollar homes right now.

[buzzbait]

Which celebrities?

[jerp]

I'm with you. When you read the stats on foreclosures - especially in formerly highly inflated markets like Arizona, Calif and Nevada - it's shocking how many people let their house go back to the bank even when they have the means to keep paying. In the industry they call it "Jingle Mail" - just put the keys in an envelope and send them to the lender. I've had this conversation with what I consider to be good people who just have a blindspot on this issue and don't see anything wrong with it. I always ask "Isn't a contract you sign a moral as well as a legal obligation? As long as the counterparty to the contract holds up their end, arent you morally obligated to do the same even if you made a bad decision?" When I ask that I usually get blank stares.

[M-2]

I don't understand it, either.
It's wrong and nothing short of stealing, IMO.
It wasn't long ago that 60 Minutes did a segment on this very topic and I remember the discussion my husband and I had about it - we were angry about it.
I've known only two people personally who filed personal bankruptcy. Both bought over their heads (house, cars, etc.) and were able to keep the house and cars with not much penalty that I could see, under the Texas Homestead regulations, I think. It seemed to us that they should have had to sell the expensive homes and cars before being allowed to be free of other debt (this was during the boom real estate years, too....)

[jerp]

Of course a common response is "It's those greedy, money grubbing lenders who are at fault - they shouldnt have lent me all that money in the first place!"

[bdog14]

Plenty of blame to go to the banks too for their bad investment as well. Not saying it's right, just saying...

[Grayson]

I'm with you. When you read the stats on foreclosures - especially in formerly highly inflated markets like Arizona, Calif and Nevada - it's shocking how many people let their house go back to the bank even when they have the means to keep paying. In the industry they call it "Jingle Mail" - just put the keys in an envelope and send them to the lender. I've had this conversation with what I consider to be good people who just have a blindspot on this issue and don't see anything wrong with it. I always ask "Isn't a contract you sign a moral as well as a legal obligation? As long as the counterparty to the contract holds up their end, arent you morally obligated to do the same even if you made a bad decision?" When I ask that I usually get blank stares.

Another thing is, as I saw on the news a few weeks ago, sometimes it takes a bank 2-3 years to finalize foreclosure on the houses because there's such a backlog right now. So not only do they give the house back, but they live in it essentially rent-free for 2-3 years before they actually have to leave.

[M-2]

Of course a common response is "It's those greedy, money grubbing lenders who are at fault - they shouldnt have lent me all that money in the first place!"

But that scenario doesn't fit the situation RdRdrFan describes. Apparently, this person could easily qualify, there was no "overlending" to an under-qualified person (and that most certainly did occur to many), and the guy can still easily make the payments apparently with no particular hardship. He seems to want to cut his losses and buy again really cheap, thinking he will come out ahead in the long run.

But I wonder how a person who walks away like this COULD buy again? Surely there is some significant hit to his credit standing.

[curtintex]

Integrity is a quality seen less and less these days. Sadly, many see corporations as inanimate objects where nobody but the inanimate company gets hurts. That's not true. Those companies have share holders that foot the bill for those losses. The bottom line is if you agree to pay a debt, you pay it even if you have to sell every other thing you own to do so. Honor is something that you can't replace.

[Oneway]

Another thing is, as I saw on the news a few weeks ago, sometimes it takes a bank 2-3 years to finalize foreclosure on the houses because there's such a backlog right now. So not only do they give the house back, but they live in it essentially rent-free for 2-3 years before they actually have to leave.

Yes then before they leave they yank out everything that can be sold "because they are mad" , saw this last week in a foreclosed house we looked at in a huge upscale neighborhood

[jerp]

No question that stupid lending practices were part of the problem. I remember being shocked at how big of a mortgage I "qualified" for in those years - made my stomach hurt just thinking about borrowing that much. But apparently many people said "Well heck, it sounds like alot but if they'll lend it to me I guess I must be able to afford it!" Another point - a big chunk of foreclosures were not on primary residences - they were investments where people bought with little or nothing down intending to flip them in just a few months or years, because home values only go up, right?

[ZenDaddy]

It's not hard to understand. It's competition at its finest. Why not walk away from a bad investment, or even a house you no longer like? There's approximately a thousand other lenders ready to lend you the money the very next day. Good job? Good credit score? The lendee walks away from a house he no longer favors, the new lender is ready to bet the guy with a good credit score and good job will make good on his next loan.

Don't like that many banks? Don't like their lending practices? Your going to need bigger government to oversee banking .... and big government is possibly the only thing less popular than Casey Anthony on this site.

Who suffers - the banking industry? Hey, that could be the one entity less popular than Casey Anthony. Ain't no one going to feel for them.

Until someone draws a straighter line from walking away from mortgages and the imploding national debt. I don't blame anyone from walking away - and this from a guy who has never missed a payment in his life. (The good Lord willling and the creeks don't rise - or dry up.)