Interesting - Why do so many Chapter 7 filers want to keep an UPSIDE DOWN home loan?

[tobee43]

To me I look at it like this -

I am basically renting from Wells Fargo and I'm ok with that. I don't have to deal with a landlord, I don't have to move, I can keep my kids in the same school district and the location is great for work.

If I ever find a dream home to rent that is much cheaper than my mortgage then I would probably just walk away from this house.

yes freddy, that is certainly one way to view it....with the taxes and mortgage interest as tax deductions.

for some it works. for others like me...who were homeowners for over 40 years...i'm so done.

[Freddy03]

To me I look at it like this -

I am basically renting from Wells Fargo and I'm ok with that. I don't have to deal with a landlord, I don't have to move, I can keep my kids in the same school district and the location is great for work.

If I ever find a dream home to rent that is much cheaper than my mortgage then I would probably just walk away from this house.

[tobee43]

For those who disagree with my perspective on future home prices, that's fine....we all have our views.

But one thing that strikes me is the number of people who think that if they do a "stay and pay" and their real estate value actually does go up in the future and therefore they get to keep the "profit" - I have a simple question to ask:

Do you really think that if prices come back up - the lender is going to sit still and let YOU keep the profits?

Did you know: Most mortgage or vehicle finance installment notes contain a default provision that includes bankruptcy as a default trigger. In theory, at least, once your bankruptcy is closed (and the automatic stay of bankruptcy terminated), your lender could declare your loan in default and take action under State law to recover the collateral. This can happen at any time.

Did you know: That there is such a thing as "constructive reaffirmation" meaning that by making payments you might be in effect re-obligating yourself. Are you creating a contractual obligation by your actions? What is the law in your state? Remember, this will all be post-BK so you will have nowhere to hide.

Look - I am not a lawyer...but before I would go down a path of "stay and pay" - I'd likely ask a few of them in my state what my risks were.

your correct.

no one will ever really own their home. we will never see in our life times...and i know this is just a personal opinion, but the values and equities will never be what they were once were....and no surprise since they were so inflated by the banks and their backers.

even if prices do begin to rise again...it will never be at the rates we saw in the past. no one will ever get RICH on owning their homes.


the old way and it was a good way....buy your house...build up enough equity, clear your mortgage, sell your home at a huge profit and sail into the sunset....don't think so...not anymore...anyway.

[IBroke]

I used to be in the mortgage industry - so bear with me...

So - logically - you are OK because your payment is lower. I logically understand that.

However you are still financing - from what I can tell - $560k of debt against an asset worth $350k today [and as I've posted before - an asset that all things being equal is likely to fall in value for the forseeable future.]

I really hope to God you did not reaffirm the debt, because if you did you are likely LOCKED INTO THAT HOME FOR 20+ YEARS.

I saw the exact kind of logic when the mortgage business was pushing the PAY OPTION ARM loans. Everyone got suckered by the payment and neglected to focus on the fact that those loans were DESIGNED to drive people into under water situations.

What would you do if something happened and you had to move in 2 years, 4 years, heck 8 years? Where are you going to come up with the cash at closing to escape the property by paying the upside down portion?

A lower payment can (and often does) mask another bigger problem. I fear in your case it is masking the huge amount of debt you just saddled yourself with...debt that you cannot escape post-BK.

Absolutely right.

Now just to clear things up: That loan is in my mother's name ONLY and she hasn't filed for BK yet and if she is going to file, it'll be CH13 (BTW, there is still a second mortgage in the amount of $150K which would be stripped).

I DIDN'T claim that it is a good idea to reaffirm an underwater mortgage. Quite the opposite is what I would do.

I'm only having a problem with the GENERAL ASSUMPTION that "Owning a home almost ALWAYS costs more than renting when you factor in ALL the costs of ownership." If that rule was valid in the past, the meltodwn certainly effected this part as well. I'm simply holding the opinion that general assumptions don't work very well when talking about mortgages an real estate.

Anyway, looking at the title of this thread, "keeping" can either be a ride-through or a reaffirmation - so I focused on the economic part only - just as HHM's line I quoted.

[gman]

Good thing you added "almost" to your statement because if you didn't, our property would be a great example showing that you are dead wrong...

We are owing about $560K on our first mortgage and the value is about $350K. In 2006, it was appraised for $600K so we are not talking about a ruin here. Currently, we are well underwater. However, it makes perfect sense to keep the house. We recently received a HAMP-modification, cutting our monthly payment from $3,800 to $1,300 (INCL. tax and insurances). There is NO WAY to find a rental in that class for such a monthly payment. In addition, there is the tax-advantage and our monthly P&I for that loan is $515/month - FIXED for 27 years. $480K of our mortgage are interest-free - also for 27 years. We are planning on keeping this house and I bet that there will be a time when we will have equity again in the next 27 years...

So we should rent just because we are upside down? I don't think so...

I'm always advising NOT to make general assumptions when it comes to mortgages and real estate. EVERY case is different - as you can see..

I used to be in the mortgage industry - so bear with me...

So - logically - you are OK because your payment is lower. I logically understand that.

However you are still financing - from what I can tell - $560k of debt against an asset worth $350k today [and as I've posted before - an asset that all things being equal is likely to fall in value for the forseeable future.]

I really hope to God you did not reaffirm the debt, because if you did you are likely LOCKED INTO THAT HOME FOR 20+ YEARS.

I saw the exact kind of logic when the mortgage business was pushing the PAY OPTION ARM loans. Everyone got suckered by the payment and neglected to focus on the fact that those loans were DESIGNED to drive people into under water situations.

What would you do if something happened and you had to move in 2 years, 4 years, heck 8 years? Where are you going to come up with the cash at closing to escape the property by paying the upside down portion?

A lower payment can (and often does) mask another bigger problem. I fear in your case it is masking the huge amount of debt you just saddled yourself with...debt that you cannot escape post-BK.

[researchnerd]

Interesting conversation. I am in a similar situation to yours - we are somewhere around $100k underwater, modification was attempted but not happening, and we finally decided to walk away. It became a bad investment - there is no way we'd get that amount of equity back for at least a decade, and that would be just breaking even. We found a nice rental house in the same school district for less than half our mortgage payment, and moved in six months ago. Foreclosure was stalled by filing BK, but they have now obtained relief from the stay and it should be happening any time.

I think the answers to your questions depend on a lot of things, and location is a big one. Here in GA, I am convinced we made the right decision. Some parts of the country are in a worse situation than we are here, but other places it's not so bad. My parents live in the Boston area and have seen almost no housing crash. Homes in their neighborhood routinely sell for more than asking price within a week, and rents are high. So in markets like those, for people who are just slightly underwater and for whom renting would cost about the same as the mortgage, I can see why people stay & pay.

As HHM mentioned, I think a lot of the reluctance to let go is based on fear, combined with a sense of failure. BK is a long, hard road and adding a home loss to the equation can be overwhelming. Also, people get really attached to their homes. I think that getting past that is mostly a matter of separating logic from emotion. I am mostly OK with our decision, but to this day I still catch myself trying to think of ways to keep our beloved house. Hopefully that will stop once the foreclosure actually happens and the house is no longer legally ours.

[tobee43]

Good thing you added "almost" to your statement because if you didn't, our property would be a great example showing that you are dead wrong...

We are owing about $560K on our first mortgage and the value is about $350K. In 2006, it was appraised for $600K so we are not talking about a ruin here. Currently, we are well underwater. However, it makes perfect sense to keep the house. We recently received a HAMP-modification, cutting our monthly payment from $3,800 to $1,300 (INCL. tax and insurances). There is NO WAY to find a rental in that class for such a monthly payment. In addition, there is the tax-advantage and our monthly P&I for that loan is $515/month - FIXED for 27 years. $480K of our mortgage are interest-free - also for 27 years. We are planning on keeping this house and I bet that there will be a time when we will have equity again in the next 27 years...

So we should rent just because we are upside down? I don't think so...

I'm always advising NOT to make general assumptions when it comes to mortgages and real estate. EVERY case is different - as you can see..

another truisum...i have a cousin that is a graduate of the school of economics of london...he was chief economics's officer for i can't tell you in public but we all know the name.

HE ....30 years ago told me owning a house was a waste of money. i told him...i don't even care much that a president of THESE united states of america finds your opinion worth respecting...you are STILL the little kid who was hard to potty train....and peed on my mom's new couch....take that to the bank... well HE did...and we sure didn't.

.. he was absolutely correct and predicted this years ago. by the way he now only owns a home because my aunt and uncle die and left it to him...

[IBroke]

Owning a home almost ALWAYS costs more than renting when you factor in ALL the costs of ownership.

Good thing you added "almost" to your statement because if you didn't, our property would be a great example showing that you are dead wrong...

We are owing about $560K on our first mortgage and the value is about $350K. In 2006, it was appraised for $600K so we are not talking about a ruin here. Currently, we are well underwater. However, it makes perfect sense to keep the house. We recently received a HAMP-modification, cutting our monthly payment from $3,800 to $1,300 (INCL. tax and insurances). There is NO WAY to find a rental in that class for such a monthly payment. In addition, there is the tax-advantage and our monthly P&I for that loan is $515/month - FIXED for 27 years. $480K of our mortgage are interest-free - also for 27 years. We are planning on keeping this house and I bet that there will be a time when we will have equity again in the next 27 years...

So we should rent just because we are upside down? I don't think so...

I'm always advising NOT to make general assumptions when it comes to mortgages and real estate. EVERY case is different - as you can see..

[tobee43]

douple posted ....YIKES

[Panacea]

I've only been in my home for 4 years, and sometimes now, I look at it lovingly, and think "Oh no....I love this house".......No, I really don't, I just hate failing. If I could've sold it, I would've, and not thought twice about the memories!

[tobee43]

well....although we were upside-down at the time of surrendering the house 2 years ago...not quite to the extent it is today...how's this for being in the hole(-350,000 presently), we were not thinking straight when we attempted loan modification and jumped through hoops in attempt to save the black mold, the flooding, the cracked foundation, the new septic the house needed, the new roof the house needed, the new 10k fence it needed....i can go ON and ON and ON until tomorrow....i'm certain you get the point.


i was devastated....the home i had raised my children in....never late in 33 years....we were in loan mod...patiently awaiting the answer....

we finally had to sit down and look at this situation in black and white, what to do in the BEST interest for ourselves? a new concept.......and as we were doing exactly that we got hit with with NOT the answer to our loan mod application....but a knock on the front door and a man there with a NICE summons of foreclosure. (TRUE story!)

once again...we had to sit...PUT THE (or my) EMOTIONS aside...(rather difficult many times for a woman as we many times; and as much as i really HATE to admit it, are someone impulsive and have a tendency not always; but on occasion; to let our emotions, oh this REALLY hurts, get the best of us and let them interfere with some of our decision making) I DID NOT JUST WRITE THAT?? did i?

the logically and best financial decision we ever made, was to have left that house and it's terrible troubles behind.

gman is so correct...who needs it? we had so much upkeep we were killing ourselves and not getting any younger. and things were just getting more and more expensive.

we actually did move out on our own terms....we just made a financial decision and stuck to it.



now....fast forward to 2.10 years later...i spoke to chase AGAIN this morning offering them a warranty deed and general release or to PLEASE foreclosure and put the property up for sheriff's sale so we can remove our names off the deed....once again they didn't even know what that was.

but i had to crack up because we have this watchdog government "task" force team trying to supposedly help us get this done and they called this morning...saying oh...yes, chase is willing to do a quit claim deed...blah blah blah...i said really....well why would they do THAT....it will not help them clear the title...call back when you have some REAL info...although...tell chase i'll sign it, if they send it!!


final JOKE...chase ask me this morning, and, although the house was surrendered .....and has been vacate for 2 years...if we would consider another loan mod...ARE YOU NUTs....they said they'd get back to me!

[gman]

For those who disagree with my perspective on future home prices, that's fine....we all have our views.

But one thing that strikes me is the number of people who think that if they do a "stay and pay" and their real estate value actually does go up in the future and therefore they get to keep the "profit" - I have a simple question to ask:

Do you really think that if prices come back up - the lender is going to sit still and let YOU keep the profits?

Did you know: Most mortgage or vehicle finance installment notes contain a default provision that includes bankruptcy as a default trigger. In theory, at least, once your bankruptcy is closed (and the automatic stay of bankruptcy terminated), your lender could declare your loan in default and take action under State law to recover the collateral. This can happen at any time.

Did you know: That there is such a thing as "constructive reaffirmation" meaning that by making payments you might be in effect re-obligating yourself. Are you creating a contractual obligation by your actions? What is the law in your state? Remember, this will all be post-BK so you will have nowhere to hide.

Look - I am not a lawyer...but before I would go down a path of "stay and pay" - I'd likely ask a few of them in my state what my risks were.

[gman]

“Those who fail to learn from history are doomed to repeat it.” Sir Winston Churchill

I'd strongly encourage anyone that thinks that home prices are (a) no longer in a bubble and (b) are destined to come back even in the next 15 years to take a look at these 2 graphs:

The 1st one is the well-known Case-Schiller Index. It tracks relative home prices to a "normal" index value of 100. Note we had the largest "bubble" in US history when the index shot to over 200. We are on an historical basis way above the normal mark of 100 - currently resting around 145.

History repeats itself. In every real estate bubble in history, prices actually went BELOW the normal before climbing back to 100. In the Great Depression - the Index dropped into the 70s. We have a long way to go down to even reach the normal of 100.

For those who think your home prices will gain 2-3% per year, you are really saying you think the bubble will slowly grow back into the 140-160 range.

GRAPH #1: http://www.ritholtz.com/blog/wp-cont...er-UPDATED.png

Ask yourself a logical (not emotional) question: What makes you believe that housing demand is going to rebound with (a) Boomers entering retirement in the millions, (b) interest rates at all time lows - with nowhere to go but up - which always drives real estate prices lower, (c) high unemployment, (d) yesteryears liar loans disappearing - effectively driving millions out of the market because they never should have qualified in the 1st place, and so on.

By the way: "Because housing prices always go up is not a logical or factual answer. See The Great Depression (graph #1) and see Japan from the 80s until now (graph #2.)

GRAPH 2: http://www.generationaldynamics.com/ww2010/g070219b.gif

In Japan - millions of people believed that their real estate values would bounce back - and year after year the prices kept tumbling down. Note that they have some very similar problems that we do, with the top one being a huge Boomer generation retiring which will continue to lead to the need for less/smaller housing.

[Panacea]

Mostly fear...

Fear of the unknown. BK was hard enough, but giving up a house on top of that is too much for some people to handle.

Thats me! I have to remind myself daily thats its the smartest thing to do (give up the house). Everyday, I wake up and think I can find a way to keep it. To make this work. Then, my reality sets in. My house is what started the downfall of my finances. Keeping an underwater home, with an interest only mortgage, will only be disaster down the road. The worst flaw in my personality, is my inability to look ahead a few years. Filing BK and getting rid of my house NOW, is me finally looking down that road. In 3 years, the child support ends...in 5 years, the IO loan goes nuclear!!!!!!!!

I honestly am scared to death of all the unknown, scared of losing the house, scared of BK. Sometimes I want to stop everything and go back to being in debt and worrying how I'm gonna pay my bills. Atleast that was a familiar fear............but I won't.....I know this will soon be over, and it will truly be a fresh start. I don't want to feel like this, or like I was when I was struggling for the last few years ever again.

Might as well hunker down and take all the hits now, instead of just putting a bandaid on something that needs MAJOR SURGERY!!!

[Freddy03]

Mostly fear...

Fear of the unknown. BK was hard enough, but giving up a house on top of that is too much for some people to handle.

Also, the "rent is the same or more" argument is pretty weak. Owning a home almost ALWAYS costs more than renting when you factor in ALL the costs of ownership.

As for home prices...if you are marginally upside down (must people are more upside down than they really think), then staying in the home if you plan on living there for 15+ years does make sense, but if you are really $100K upside down, you are just buying into fear and using whatever excuse you can find to not fact reality.

I maybe buying into fear but if I don't reaffirm the mortgage then I look at it like a win win for my situation. And I understand the cost of ownership but for a couple of hundred dollars a month I can rest easy that if something happens I can move out on my own terms not someone else.