An interesting video was posted today about a home owner that wants to walk away from his mortgage.

No way:

1. The home owner took a interest only loan (at least for a portion of the mortgage) that was their own choice. If they do not like those terms then they should not have signed the contract.

2. The Home value fell - well join the club and it sounds like this person bought at the top of the market. Tough - honor your word/contract promise.

They should pay down the principal and refi (even a FHA loan so that the LTV is lower).

Just because things change does not mean that you can break your contract - where is the personal responsibility for the debt that this person took on by signing the contract? There was no if the home value falls clause... many in this country are financial idiots that do not think about the numbers.

The funny thing to me is that there's always the sense of responsibilty placed on the home owner.  Where is the responsibilty of the lenders in this mess? 

The media seems to be doing a good job shifting the majority of the blame in this mess towards the consumer.  

I'd love to see a substantial post from those who voted YES to walk away from this. Not sure what would justify walking away in this instance. If the guy is going to walk away he should quit claim the property to me and I'll work it out with the lender.

Sounds as though the lender is holding up their end of the bargain. Has the lender failed to perform?

Absolutely not.  The home is his dream home.  He can afford the payments.  It will eventually go back up.

To answer the poll question, absolutely not.  That's not to say I don't sympathize with the homeowner, I was in a neg. amortization loan myself for a short period of time, but I did so knowing full well that it was a possibility.  In my case, the loan allowed me to keep my payment low so I could have more money to start my 401k and Roth IRAs.  The benefit outweighed the risk, but I was AWARE of the risk. 

The fact of the matter is the house, among other things, is an investment.  Just because the investment isn't performing the way you hoped doesn't mean you get a do-over or get to leave someone else with your mess.  He can try to sell it like any other investment.  I'm not saying the lender may not have some fault here, but Buyer Beware.  There's no way I'm going to get myself involved in a transaction worth 100's of thousands of dollars without knowing what my liability is.

I have a huge problem with the fact that our nation does not have any kind of personal finance  requirement in our educational system.  Now we are reaping what we've sown - people taking out loans that they are not prepared for or educated about. I had a problem with "slow credit" early on and I vowed to be financially responsible ever since.  I have educated myself mostly with reading financial magazines and listen to people like Clark Howard and I wouldn't be where I am today without using that knowledge to my advantage. There are plenty of places to educate yourself on the good and the bad about various loans.  As such, without knowing more about this guy, I can't in good conscience recommend walking away; something has to be said for personal accountability  Stop passing the buck!

It does sound like he'd be a good candidate for the new program being rolled out though.

No way!  Where else would he move to anyways?  I'm sorry his equity is diminished, but join the club!  The best he could hope for is the lender agrees to "fix" his adjustable rate loan to the same rate he is currently paying.  I think the problem we are seeing is this guys next door neighbor that probably bought with only 10% down, owes $550k, and the place is worth $275k.  His payments are over $4k per month, and he could go rent the same home for $1500 per month.  Those are the people that are walking....not this guy. 

None of these people would think the lender was being fair if it wanted to change its terms when property appreciated. Why do they expect lenders to share in the risk when property values go down? You can't have it both ways. And even those being offered rescue by the Hope for Homeowners threw a fit about having to share future appreciation with lenders and taxpayers who were helping them out. People need to keep in mind that as long as they keep their homes any loss in value is only a paper loss. By letting the house go it becomes a real loss, in fact possibly a liability in the form of a deficiency judgment, and credit will cost them a lot of money for a very long time. It can even prevent them from getting insurance or jobs. And after all that they still have to find a place to live. Walking away when you can afford to stay? Nothing but stupid.

I don't know if I just had a long day, or if I am getting a little colder..... But this guy needs to suck it up and keep his contract... He walks he is screwed for his forseeable financial future... If he stays he eventually has his dream home owned free and clear.... Seems like a no-brainer... The domino effect caused by him walking away will end up hurting someone that is trying to make things works....

He is being too selfish!

Charles P.:

The funny thing to me is that there's always the sense of responsibilty placed on the home owner.  Where is the responsibilty of the lenders in this mess? 

 

The media seems to be doing a good job shifting the majority of the blame in this mess towards the consumer.  

You are kidding, right Charles?  I mean, you never buy anything on credit that goes down in value, right?  Your car, your furniture, your TV, your home improvements; you paid cash for all of it.  If you buy something on credit, you should be guaranteed that it will never lose its value; is that it? 

Shifting blame, come on... the bank said, "If you want $300,000, here is how you have to pay it back."  It was all there in black and white.  Of course, the customer shouldn't have to actually read all of those documents.  I mean, it is up to the lender to make sure every conversation between the customer and the originator should be monitored and evaluated to ensure everything was told to the customer. 

I don't know where you are getting you news, but I have seen and heard a ton of criticism toward lenders in the media. 

Think about what you are saying.  Please give me several hundred thousand dollars, don't make me read anything, and make sure I can't lose anything.  It is your responsibility as the lender to protect me.  Isn't this is why they say, "Buyer beware?"  Buyer's have a responsibility to understand what they are agreeing to. 

I admit, lenders loosened the guidelines far too much, but who forced them to open up the guidelines and start lending to unqualified people?  The government did.  Trust me, there is plenty of blame to go around.  Customers wanted homes, lenders wanted loans, Wall Street wanted securities; everyone looked away from the risk and now we are all paying for it. 

While your home can be a great investment vehicle over a lifetime, it doesn't come with an equity guarantee.  The borrower in the story was able to pay less than the interest that was accruing on his loan for the past several years.  He has had a dream home to live in and saved an incredible amount of money that could have gone toward the mortgage.  If he chose to live the good life with those funds, he now has to pay the piper.  It isn't like he had a major life changing event that took away his income.  He didn't get cancer, he didn't get hurt in a car accident or in Iraq, he didn't even get a divorce and lose the income of his spouse.  Walking away after investing over $300,000 of his own cash is absolutely the worst thing he could do in his situation. 

Here is the reality.  This homebuyer knows that when his interst only ARM fully amortizes at the indexed rate he won't be able to afford the payment.  That happens in 2010, right around the corner. He's trying to justify his decision now.

Kudos to the show for trying to get him to stay put and reminding him of his obligation, however, he should have been proactive when he first purchased the home and should have been making some type of principle payment three years ago.

Oh and heaven forbid that he make some sacrifices such as cutting cable and internet to help him meet his obligations.

Charles P.:

The funny thing to me is that there's always the sense of responsibilty placed on the home owner.  Where is the responsibilty of the lenders in this mess? 

 

The media seems to be doing a good job shifting the majority of the blame in this mess towards the consumer.  

Kent beat me to it, but Charles the general media has beaten up lenders with a baseball bat every single day since this mess became a top 5 news story. President Obama blames them during his speeches... you are getting your anti-personal responsibility media coverage that you seem to want.

Honestly - I do not think that lenders have ANY responsibility for these problems. Look, you as the borrower are provided with facts, figures and no one FORCES anyone to purchase a house and obtain a loan. This is a choice that should have been carefully considered financially and otherwise before taking someone else's money that you do not have and making a promise to pay interest on that money.

I am a normal consumer, so I have no agenda - this is pure and simple common sense - if you do not wish to take on a loan, then do not purchase somethig that you do not have the money for. This is what is 100% wrong with America - we want everything and think that there are no consequences (paying out money, debt, spending sacrifices) for our actions.

I second the comments are about making real life finance classes mandatory in late High School - see if a school replaced calculus with an in-depth personal finance course that teaches how different mortgages are calculated, savings, interest, stocks, CDs, money markets, car loans etc... 98% of the kids would be far better off learning about real life finances than learning a harder math subject which only aides those 2% of kids who are actively involved in a field of work that requires that sort of knowledge. See Charles, people with a lack of personal responsibility are very much responsible for this 'mess' that we are in - whether it be credit card debt, not saving a decent portion of your money etc... That is the problem and that is where the majority of the blame needs to be placed - the government will always mess things up - it's what it does - control what you can and that is what you as an individual do.

"Of course, the customer shouldn't have to actually read all of those documents.  I mean, it is up to the lender to make sure every conversation between the customer and the originator should be monitored and evaluated to ensure everything was told to the customer. "

I have to disagree with this statement. If we are on the subject of responsability, then this is part of it as well.  Watch your own back and read what you are signing. We shouldn't have to be reduced to babysitting every American homeowner. As a lender it is my responsability to disclose but it's the homeowners responsability to make sure they clearly understand what they are signing.

"Oh and heaven forbid that he make some sacrifices such as cutting cable and internet to help him meet his obligations."

Well said - it is very much like the 'poor people' that are interviewed. When asked if they have 1 or more tv's in their house, cable, internet, electricity, heat, running water, cell phones etc... they say yes... but they consider themselves to be poor and need welfare. People cannot seem to do basic math or be willing to sacrifice something unnecessary to pay for what is necessary (and a commitment that they made).

Reichert:

"Of course, the customer shouldn't have to actually read all of those documents.  I mean, it is up to the lender to make sure every conversation between the customer and the originator should be monitored and evaluated to ensure everything was told to the customer. "

 

I have to disagree with this statement.

I took that part of Kent's post as a sarcastic comment.  I could be wrong.

So why is it that the only people actually commenting here are the 70% (currently) that don't think the homeowner should walk away.  What about the 13 people so far who have voted Yes?  I am genuinely interested in the arguments one would use to support the conclusion that walking away is warranted.

You all make good points.  But my arguement would be that the GREED of these big financial firms and politicians in this country is what's brought us to our knees.  It's a bad situation in this country and only going to get worse. 

I'm anti-big financial firms and their ridiculous bonuses.  I'm angry at the results of their decisions and actions, and NOTHING will change my mind on that.  Why shouldn't this home owner be as greedy as these financial firms and just walk away? 

It takes a willing borrower to sign a loan. You cannot lay the entire fault on the doorstep of the lender.

Politicians pushing banks to loan to lower income/minority groups is certainly a large part of this mess and hardly brushed with the commentary by the media but again... who in their right mind take out a loan that they do not ever expect to be able to repay ( much less so if something unexpected occurs - temporary job loss, health problems etc...)

Being angry is justified, but be angry at both willing parties then - the lender and the borrower. This situation would not exist without both of them abandoning common sense.

Mike G.:

I took that part of Kent's post as a sarcastic comment.  I could be wrong.

Mike you were right on... sarcasm was dripping from that comment.  I do believe that the originator has a huge responsibility to disclose everything to the consumer, but it would be virtually impossible for a lender to ensure that every conversation was entirely accurate.  That is the reason that we have written contracts in the first place.

Why should a homeowner not be greedy as well?  My mama taught me that 2 wrongs don't make a right.

I think the big problem here is that the consumer in this phone call is "asking" someone else what to do!  Why doesn't he know himself?  Because society has trained him to NOT think for himself, and that everything will be just fine.  Someone will take care of you.  You don't hear people asking if they should walk away from their Suburban payment when gas hit $4-5 bucks a gallon did you?  NO, there was no mass media telling everyone in america, "Everyone else is doing it!"  That's part of the problem, all these freakin "talking heads" telling people what to do, are they financial advisers? No.  CPA's?  No. Attorney's?  No.  Loan Officers?  No.

This customer probably "bought up" after his prior home tripled in value, and he was able to buy his dream home, and put $300k down.  So what is he really "out"?  The fake $300k in appreciation from his prior home?  Is someone also walking away from that house?  It appeared the customer may have been in an Option Arm, and was paying less than the minimum interest due.  Is he Greedy for doing that?

Bottom line is that he can walk away if he wants to, but I'm not sure he comes out ahead.  I think this would be a much more interesting scenario if he had bought the home with little to no money down, as I mentioned previously.