Monday, January 28, 2008

It ‘Makes No Sense’ To Continue Paying The Mortgage When The Value Of Your Home Stops Going Up.

60 Minutes On The New Logic Behind Foreclosures.

Okay, I'm kidding but Stephanie Valdez is not. Matt and Stephanie Valdez are a couple who can afford to continue paying their mortgage payments but see no point in making them. Is it really worth it to continue making payments on an underwater mortgage and at 11% [usury] interest rate? “There is a certain cold logic to just walking away”, says Steve Kroft.





But Matt and Stephanie Valdez say they knew exactly what they were doing when they bought a small two-bedroom for $355,000. They could afford the initial payments and planned to refinance the mortgage before the interest rate jumped to 11 percent. But they couldn't do it because the value of the house had fallen below what they owed on the mortgage. They say they can afford the higher payments, but see no point in making them.

"The house keeps going down, payments keep going up. Where's the logic in that? And how can we fix it? I mean, that's what this whole thing's about for us is how can we fix this? And if we can't fix it, then what do we do?" Matt Valdez asks.

"Why pay a $3,200 payment on a 1200-square-foot home? It makes no sense," Stephanie Valdez adds.

"That's what you agreed to do when you bought the house," Kroft points out.

"Fine. If the value is going up. But we're not going anywhere. The price or the value is going down. It makes no sense because we will never be able to refinance and get a lower payment. There's no way," Stephanie Valdez replies.

"You're saying, essentially, that you're going to stop making payments on it? You're just gonna let it go into foreclosure?" Kroft asks.

"You know, that's the only advice we've gotten so far is walk away from the home. We don't want to do that to our credit. Why can't our mortgage company work with us?" she says.



The full video does a nice job at explaining the whole ponzi scheme. Also from Mish's Global Economic Trend Analysis: Does 60 Minutes Legitimize Walking Away?

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45 comments:

Nozferatu said...

Wow....just wow....

I truly, wholeheartedly, hope and pray that these people lose every single dime they own.

They don't deserve to have a home...and I really hope that they never qualify for another loan, car or home, for the rest of their lives.

Harsh? Damn right I am. There are SO MANY good people - hard working, honest people - who deserve to have a home, who've been priced out and have been sitting on the sidelines because of opportunistic charlatans like these two.

What a pathetic couple of human beings. Now multiple these two bu a few million and you get the idea of why the housing market is what it is today.

Anonymous said...

I believe they are in the process of making a business decision that is in their economic interests. I don't blame them, the whole system is based on greed. Nozferatu - look at the other side of the coin, the lenders are not any better. Had there been any checks and balances from the higher end of the spectrum than we wouldn't be in this mess to begin with.

"There are SO MANY good people - hard working, honest people - who deserve to have a home, who've been priced out and have been sitting on the sidelines because of opportunistic charlatans like these two."

Yeah. On that aspect I agree with you 100% BUT I believe Americans need to be OUTRAGED at regulators for falling asleep at the wheel and for allowing Wall Street to rig the whole financial system into chaos.

Nozferatu said...

Anonymous:

I am by no means defending the lenders...they are even bigger scum for sure I agree 100% too. But this is blatant fraud in my opinion. People should NOT be allowed to do this when they KNEW full and well what they were doing. I am sure there are some people out there that either got tricked or duped..but this couple??? C'mon!

What next? "Oh I don't want to pay my car payment anymore because it's too high?" I think these douche bags are the norm...not the exception...that's what's scary.

I agree Americans should be outraged...they should be outraged at the outright fraudulent society they live in and have created. I don't believe for a moment regulators didn't know what was going on...if we knew and have blogs about it, you can be your life they knew to.

Anonymous said...

Yea, because it's the misinformed and mislead general population that was the cause of the real estate meltdown. Give me a break. Try the media, the brokers, the lenders and the government. (Did you also blame the employees of Enron for investing money in a "sure thing" like their company stock?) You don't even know these people or their situation. Stockton is as blue-collar as you get in Cali so they may very well be the "good, hard-working, honest people" that you mention. I didn't see anybody pointing a finger at them when the real estate market was supposedly the only thing keeping our economy out of a recession, post tech bubble metldown. Yea, they were making a mortgage payment then too, feeding the fat CEO's salaries. Oh, and I'm sure all the lenders were so worried about what was going to happen to our economy when they were handing out 100% option arms. You know damn well that the greedy CEOs were sitting there twiddling their thumbs as they KNEW the market was spinning out of control, waiting for the goverment to bail them out. And they did. They get to retroactively write down billions in losses... yes, retroactively. That's crap if you ask me. The problem was not whether or not these people took advantage of the situation - the problem was that the lenders/brokers/gov premeditatedly gave them the tools to do so. If you leave a $20 on the street, someone will eventually pick it up. And if you scatter thousands of $20s and then tell everyone about it...?

Nozferatu said...

The bottom line is I'm not going to have a bleeding heart for the stupid and greedy. And that goes for both sides of the camp.

Stupidity does not relieve people from their decisions. I'm sorry I can't accept that.

Buying a home is the largest purchase anyone makes in their lifetime. So who was putting a gun to these poor people's heads when the time came to sign the paperwork? Did they bother to read what they were signing? Or were they so giddy with greed and the only thing running through their minds was "Screw it....I'll turn around and sell this house in 6 months for a $100K more anyway so, so what if my payments go up.."

McDonald's makes some of the most unhealthy, crappiest food on the planet....so who are you going to blame...the fat-ass that keeps shoving Big Macs down his or her throat by choice? Or McDonald's for making that crap?

I'm not defending scumbags like Mozilo or any of the other hordes of scumbags working in the banking/mortgage industry...but please don't pretend that these "innocent" poor folk...blue collar or not, weren't sitting at the broker's table while signing paperwork knowing fully what they were getting themselves into. If they didn't read the paperwork...tough shit. They should have.

There are responsible people like myself, who never bought a house during this time because it just seemed all wrong and I saw the shenanigans these scumbag brokers and agents were playing...so we opted to stay out. Call us fools...since we didn't make a few hundred thousand in equity as did so many others....the lucky ones who now call themselves geniuses. If we were able to be responsible and careful, why can't others? Do I need to have my heart bleed for their stupidity and greed?

Screw that.

anon2 said...

Quote: "I didn't see anybody pointing a finger at them when the real estate market was supposedly the only thing keeping our economy out of a recession, post tech bubble metldown."

Then you clearly weren't reading any of the housing bubble blogs.

upthecreek said...

welcome to the real world ..people just don't care who they screw...

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Nozferatu said...

Man that was excellent...it really shows how fked up this country really is...

Anonymous said...

I almost puked in my own mouth when I saw that segment on 60 minutes. Disgusting. I bought a condo in the late 80s, and was underwater for 10 years before things turned around. Now, it's paying for itself as a rental. She reminded me of some kid threatening to take her toys out of the sandbox because she didn't like the rules. Here's a rule: prices go up and down. Duh.

AUA said...

I don't see any problem with her logic.

She should walk away from the house & the bank should collect its collateral.

She should be forced to declare bankruptcy, leading to the collection of all of her assets to satisfy her debts.

Then, she should get stuck with a big red smear across her credit record, thick and dark enough that she won't even be able to use a Target gift certificate until her hair turns gray and her knockers reach her knees.

bluto said...

I blamed the Enron employees (any financial book advisor or anything will tell you rule #1 of retirment is get your money out of your corporation's stock for just that reason). I agree she shouldn't get credit for a good long time now. Mortgage company made her lousy credit self an offer (11% adjustment means she had pretty bad credit--that's likely 6 pts over treasuries) to cover just this event and I hope they planned on this occuring.

Anonymous said...

These two geniuses bought into the conventional wisdom that a house is always a good investment. I rent an apartment and buy stocks. And, I'm loving this. It's particularly satisfying to make money betting against the housing market. I don't blame these two nitwits for walking away. It makes good economic sense for them. But, I hope this just absolutely ruins them financially for years to come.

Anonymous said...

I guess the Valdez's never heard of taking pride in paying their debts. When and where was there ever any type of an agreement that the only reason to pay on a mortgage is when the value goes up?

creditxp said...

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We use powerful laws like the Truth in Lending Act (TILA) and the Real Estate
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how this will affect your ability in the future.
Jackie

Anonymous said...

give it back to the bank. they will sell it for a loss. investors lose some money, happens everyday, get on with it.

houses 30-50% discount soon
2/18/2008

Scott@REM said...

As a broker who has handled bank owned foreclosures for the last 15 years, I’ve been privy to both sides of the argument and the effects up close and personal. There have been some great points made on both sides of the issue in this string. I’ve talked to the owner who decided on a whim that they would buy the new SUV instead of making their house payment - as well as the one who was terminally ill. One thing I know is that the lending industry is resilient and will figure out how to make money. They always do. The real victim of this type of attitude is the “deserving” buyer who lost the loan that would have allowed them the dream of home ownership. Due to folks like these, Washington Mutual increased their down payment last week on purchase loans by 5%. Their 5% down payment loans are now 10% down. A legitimate buyer somewhere just lost their chance at a loan.

In addition, the home owner who had a legitimate job loss, illness or other unforeseen detrimental condition must now stand in line behind folks like this. In speaking to one major lender recently, they were processing hardship/work out packages from November. (It’s almost March).

My emotions fire up when I see irresponsibility on all sides. However, I have to back up a few steps and ask if I’m seeing the whole picture. I can have a “correct” perspective backed by facts. But I must question whether my perspective is complete? I appreciate opportunities like this to make my perspective more complete.

Nozferatu said...

Wamu's loans shouldn't be 10%,....they should be 25%.

Perhaps then we won't see douchebags walking away.

Dimitris said...

Lending standards should have never been loosened to begin with. Lenders knew these loans weren't going to get paid back but didn't care because Wall STreet was buying the crap and selling it to some pension fund out in Norway somewhere who didn't even know what subprime meant.

Anonymous said...

Can you acually be serious? There is a such thing as PMI. Im sure the folks that bought into a home they couldnt afford that are now in deafult and it wasnt an 80/20, PMI is included in the payment for this exact default. I can see the numbers on defaults but do the lenders tell you the number of paid PMI claims for the exact defaults. Just sounds like to me a good reason for lenders to make waves for higher intrest payments for quailfied buyers to HINT try to recoup lossed proifts. BS if you ask me

Florida Real Estate Broker

Anonymous said...

Walk away from your mortgage... After it goes to forclosure, and gets sold, you will be responsible for the difference if it is sold for less than what you owe. Plus your credit will be shot. You will never get another loan until you pay the existing lien from this forclosure. New BK laws make you repay debt.
If you borrow money from someone, anyone, even a bank, you agree to pay the money back on certain terms. No one gives 2 shits about your story, just pay it back. Boo hoo your house lost value, its only short term, it will rebound eventually, due to a certain thing called inflation. So be thankful you got the loan in the first place, otherwise you'd still be renting making people like me richer.
Housing bubble was created by appraisers, and high demand for housing, due to the ease of obtaining a mortgage with extremely friendly programs.

This is what happens when LIFE renters were given a chance to buy a house. They lose it and go back to renting.

Only people that should be in foreclosure right now are people that lost a job due to NAFTA, and are unable to secure something in the interim.

And that is the truth.

Gary Anderson said...

Nozferatur, no they did not know full well what they were doing. They were told by the realtors that the price would go up and that they could refinance. They were conned and they are escaping the con. If you think that greedy lenders should be rewarded by these people continuing to pay based on bad investment advice you are crazy. This walking away may teach lenders a much needed lesson. And remember the fed was behind all this loose money. They wanted petrodollars from Iraq and they funded the Iraq War on bad mortgages.

Nozferatu said...

Gary Anderson:

Ahhhh...I see...so you're saying they signed a piece of paper that put in them in a few hundred thousand dollars worth of debt without reading it, understanding it, checking it, reviewing it, scrutinizing it, make sure the I's & T's are dotted, and all is good?

You want me to believe that? You think that stupidity should be rewarded? You think I should sorry for dumbasses like that?

Whatever the reasons, these people knew what they were doing. If they didn't understand, then they should have hired someone for a few hundred dollars who could have made them understand.

Their greed, their drooling for money, their want for power justified their utter stupidity. How come others like myself, who can put 2 and 2 together did not fall for it? Or didn't do it?

What's next? Walk away from your car payment because it's worth 50% in 5 years? Then what??? The poor car salesman who's job it is screw you did so? You had no knowledge of it?

Give me a break...go cry me a river. These greedy bastards are as much to blame as the greedy bastards sitting in the white house and anywhere else. I shed no tear for either party. I hope they both get fked.

Jessica said...

well, there are lenders who do sit with the borrowers and make them explore work out options to being them current on the loan. After all, a foreclosure tarnishes your credit like anything! So, one can still give a thought to choosing any of the 17 and more foreclosure prevention ways shared at:

http://www.mortgagefit.com/foreclosure/17ways-avoid.html
http://www.afscanhelp.com/how-to-avoid-foreclosure.cfm

Regards,

Jessica

aaron said...

All of this animosity is really silly. The deed of trust is a bilatteral agreement. Both sides agree to perform on certain provisions and they agree on the consequences in the case of default. In this case, should these people decide to walk away, they will have their credit ruined and be on the hook for a deficiency judgement that will attach itself to all of their other assets and possibly result in garnishing of their wages. If the bank had truly wanted to make sure no one had the financial incentive to walk away, they would have required more money down. However, as people on here have already pointed out, that's why the bank requires an insurance policy (which you can be damn sure they will collect on, should the buyers walk). And you shouldn't feel bad for them because banks arange this sort of this out of their own greed - more possible mortgages = more profits.

There's no need to get all bent out of shape over this. These are ALL adults and everyone knew what they were getting into. If the bank wants to keep these people in the house bad enough, they may offer some sort of incentive (a reduction in the principle balance, perhaps?)... but they will do so only on THEIR terms. It's wrong to blame anyone for using whatever leverage they have to affect the status of their business arragements. Corporations do exactly this (threaten unnecessary default) EVERY DAY on their multi-million dollar syndicated loans. They do so to get better loan terms. Why would we expect small-time homeowners to live up to a higher standard of loan "ethics?"

Carrie said...

I think there should be a punishment for people who just walk away from their homes. Like re-instating 1099s or something similar. The just walk away crowd is damaging our economy further and ruining neighborhoods by adding vacant buildings.

The people that are attempting to do the right thing-- even if it means asking the bank to forgive debt-- should be rewarded with the 1099 forgiveness.

Ogden said...

How ridiculous. And with people like this, you wonder why we are having a nationwide financial crisis. The logic is incredible.

Anonymous said...

There's nothing immoral about getting out of a bad investment before it turns into a worse investment. If the house is "underwater" -- e.g. if it's worth less than the total mortgage debt -- you can sell short and pay the difference. It might be wiser to sell short now, than to wait a few years while the house's value drops some more (if you're in a falling market). Walking away is really just selling short -- only the lender does the selling for you. They're not bad people for making that choice -- they just will have to pay the shortfall, and if they're wise they'll make arrangements to pay it rather than waiting to go into collection.

Carrie Newhouse said...

Such a sad statement on personal responsibilty. You took the loan and agreed to pay, the bank never promised appreciation! I think there should be a penalty for people who simply walk away.. at the very least their 1099's should not be forgiven.

Anonymous said...

There is a company that offers free help and assistance to homeowners in foreclosure: Foreclosure Solutions (http://www.foreclosuresolutionshelp.org/) this company was created to help homeowners facing foreclosure obtain the best workout solution with their lender and get the best outcome possible out of their current situation AT NO COST TO THEM. A few of their services include free consultations as well as assistance communicating with lenders or loss mitigators to work out a solution on behalf of the homeowner and it all is completely free.

Prolefeed said...

Irresponsible on both sides, but lack of regulation is criminal. Brokers closing loans for borrowers they KNOW can't make the payments after the teaser period is over...but then the loan is owned by the next sucker in the chain. Neg am? Stated income? Who's in charge here?

Palm Beach Foreclosure said...

From the title of the post itself, there's no use to continue paying if the value of your home was like an inflation.

Palm Beach Foreclosure said...

From the title of the post itself, there's no use to continue paying if the value of your home was like an inflation.

Howard said...

I'm a commodity broker and my clients are middle to upper middle class, most of them younger (under 40). I knew a lot of them who jumped all over the 2% rate intending to refi when the price of the house went up BUT PLANNED TO WALK AWAY if the price of the home fell. They don't care about credit. They were spec buyers. THEY PLANNED to walk away.

I hope all of you read the post on The Big Picture wherein he REPORTED about the slimy way the banks were loaning money, unmistakably telling lenders to falsify data and indicating that brokers falsified documents themselves. The instructions were in writing. It made me realize that there really was a swindle conducted by the banks. There's a hell of a case for supporting those mortgages.

Nozferatu said...

The shocking part of all this is that people out there in general ACTUALLY THINK that people in the banking/money making/etc business are actually making money legitimately.

This whole thing is a scam...the biggest of all. People simply do not become THAT rich in this country without screwing others. PERIOD. And no...it ain't called capitalism and ain't part of "doing" business.

Rob Lawrence said...

The thing about foreclosures is that somebody wins and somebody loses. And guess who's left holding the bag at the end of the dance...WE ALL ARE. Wake up people and realize that it's all of us taxpayers cleaning up this mess.
Regards,
Rob Lawrence
http://www.battlecall.com

Noah said...

Finger-pointing will do little to resolve our current situation; and I say "our current situation" as foreclosures and bankruptcies effect everyone - the person losing the home, the banks, the neighbors, the school system, the kids... everyone. Despite half-hearted efforts by Washington to do anything to help, the only way for this situation to resolve itself is for everyone who is in a mortgage that they cannot afford to lose their homes (If you cheer for this, you need some serious counseling). It is an aweful thing to happen, and it causes a great deal of pain and guilt and grief; but it needs to happen. Homeowners who find themselves in this situation should realize that they need to make a decision and move on. Move into a rental unit or to cheaper housing or in with family or friends. Let the house go if you cannot pay for it. Take a hit against your credit. Take the lawsuits; but do not let it keep you from going on with your life. In time (a long time probably), we will all look back on this as a short period in time (like the Great Depression). Life will have gone on. Don't let it leave you behind.

Noah at http://www.ShortOnChange.com

Phil holbrook said...

If you are behind on your mortgage or about to get behind we can help.Do you have a ARM mortage that is about to ajust their is a way to lower your interest rate without refinancing the mortgage.

Anonymous said...

I have to say that we are actually in the situation that everyone here is blogging about. We own a home and Countrywide is our mortgage company. Our home was devastated by Hurricane Wilma in 2005 and Countrywide agreed to suspend our payments for the period of rebuilding our home. They placed us in their "workout program." We lived in a FEMA trailer while construction was taking place on our home. Two months before completion, my husband was recalled to active duty military and shipped to Iraq. When I finally moved back into our home, I contacted Countrywide to start making payments again. I was told to wait for a negotiator to be assigned to our case. Long story short, three years post-hurricane, several rate increases, accrued fees, etc. and still no repayment plan established(I was told that a requirement of the workout program was to agree to a repayment plan.) Our house appraises for under our initial mortgage and well below what Countrywide says is past due. I requested to be considered under the Servicemembers Relief Act to at least temporarily limit the interest rate and save foreclosure while my husband was away serving our Country and they declined. I have since contracted with a real estate attorney to work with Countrywide for a short sale. So call it fraud if you want. I feel we were mislead and have been denied proper resolution.

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Foreclosure Doctor Online said...

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Realtor said...

Its not surprising, I have met with a lot of clients who are in this situation. its hard to tell them there is nothing we can do, and work down the numbers with them.

Anonymous said...

Realtor - not surprising at all is right. There is something they can do though ... and that's to WALK AWAY !!!!

Anonymous said...

Very interesting blog...I find myself in a very similar situation as these people. The only difference is that we really cannot afford the payments. We have our primary residence with a Home Equity Line secured against 4 investment condos we were convinced to buy during the condo boom. Basically we invested the equity of our home for the down payments of these condos. We qualified on option arm loans which will begin to adjust now. The units in the buildings were these condos are located are mostly in foreclosure selling for 100K for what we bought them for. Guess what, these forclosures are being sold for 60K and the real hot shot investors are buying them and they are now renting them under what they normally rent for. Example: Our units normally rent for 950 and now these forclosures are at a competitive rent of 750. Who the hell wants to rent mine for 950 right! Shoot I would move immediately! Anyway, my point is that there are many different sitautions. The 950 I rent mine for doesn't even cover most of the mortgage, maintenence and not to mention the property taxes that just went up an wooping 30%. That leaves us in a situation were we run out of choices. Called the lenders and they wont help because we have not defaulted. Proving we have over 31% in debt to income they won't help because we haven't defaulted. Why haven't we defaulted? Because we are using our excellent credit to pay our 5 mortgages. Now what happens when Discover, Amex, MBNA cuts off my credit limit? It's hard to understand right but every has a different problem and aspect. Now let me tell you all the bank has to do. Lower my interest to a 4% and make it an amortizing loan, that's it...... Oh yeah, my debt has remained the same for 4 years on all 4 condos because it's an interest only loan. It's greed and abusive for honest, hardworking people.

Anonymous said...

These people are scum. But I guess they will have to live with the bad credit, bankruptcy, etc. They'll get what they deserve.

Anonymous said...

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