Friday, October 31, 2008

Stop paying your mortgage?

It looks like George and Hank are trying to spread the wealth around to the average Joe's. They, along with the FDIC, are trying to bailout troubled homeowners by strong arming the banks they bailed out with our tax dollars.

Why should any pay their mortgage now? Why not just ask your lender for a reduction in the balance due or threaten them to walk away? What if ten million home-debtors did it, then what are they going to do? Why should only the most reckless financially among us get a bailout? Why should a home-debtor who refinanced every six months and pissed away the money on junk get to wipe the slate clean?

Below are a few of the latest stories:

Treasury plan irks many:

As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge: not making the plan too tempting to people like Todd Lawrence.

An airline pilot who lives outside Norwich, Conn., Mr. Lawrence has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.

If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.

“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

“If the lunch truly is free, the demand for free lunches will be large,” said Paul McCulley, a managing director with the investment firm Pimco

“This is not about trying to create fairness,” said Michael H. Krimminger, special adviser for policy at the Federal Deposit Insurance Corporation, which is working with Treasury on the latest plan. “The goal is to keep people in their houses.”

Still, he acknowledged, “a lot of people are angry because they feel some people are getting something they don’t deserve.”

Peter Schiff, the president of Euro Pacific Capital in Darien, Conn., who prophesied doom before it became fashionable, says he thinks just about everyone who is underwater and has few other assets should stop paying.

“If the government says, ‘Prove that you can’t afford your house and we’ll redo your mortgage,’ then people are going to try to qualify,” Mr. Schiff said.

FDIC trying to give free ponies to homedebtors:
The Federal Deposit Insurance Corp.'s program to lower loan payments for truggling borrowers with mortgages from IndyMac Bank has been lauded by consumer advocates and government leaders as a model of foreclosure prevention.

But when the FDIC, which is running IndyMac, mailed out 35,000 letters offering homeowners a chance to rework the terms of their mortgages, more than half the borrowers were apparently so discouraged, scared or stressed out that they didn't bother to respond.

The intent wasn't charity, the FDIC's Bair said; instead, she reasoned, it would be easier to find a buyer for the thrift if more borrowers were current on their loans.

Stop paying your mortgage?:


Assuming your home is worth equal or less on the market today than your outstanding mortgage balance, of course.

You deserve to live free for a year, and you deserve to have your home price come way down so you can buy it back in a few years for much less.

You've already been taxed to the tune of $700 billion for a bailout for the bankers, even though you told Congress "no".

Now the FDIC and Treasury are "working on a plan to curb foreclosures."

In return I recommend that every American with a mortgage immediately stop paying.


Whether you can afford it or not.

Consult with an attorney and CPA, in the same room before you act to make sure your specific mortgage (and the state in which you live) is a "non-recourse" loan and to understand exactly what impact this will have on you (it will come with a significant impact, most specifically to your credit rating!

Hear me out - you may find that this course of action makes perfectly good sense.)
See, in many states purchase-money first mortgages are "non-recourse", meaning that all they can do is ruin your credit and foreclose on your house.

That's it.

They cannot force you into bankruptcy, they cannot garnish your wages. And from the time you stop paying until the time you get evicted, you get to live there for free.

Finally, after you have been foreclosed upon, your house (and lots like it if your friends and neighbors do likewise) will drop dramatically in price. Presto! In a year or two you will be able to buy it back at half what you paid for it in 2004 or 2005.

Now that's a bargain.

So give the government and the banks back what they're trying to give to you - a royal screw job.

After all, they intend to give your neighbor who behaved imprudently a bailout, and if you were prudent, unless you suddenly become imprudent, you're going to get screwed in the form of being taxed to buy his home for him:

"The program, which might help several million homeowners refinance into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said. "


John M said...

Hi Crispy,

You must recall that Jim Cramer was saying the exact same thing well over a year ago. The Street suppressed the videos, but fortunately our Admin managed to grab them. They were even suppressed by YouTube, but we've still got them available for your viewing pleasure (they really are extraordinary, and as fresh as in the summer before last).

The first video was "Cramer: Underwater on your house? Walk away ... oh, and plow under the Inland Empire" (July 30, 2007), which put everyone in shock. Just in case people didn't believe him the first time, he did this followup: "Cramer: That’s Right - If Your House Is Down, Dump It" (July 31, 2007). Both are must-see.

Bakersfield Bubble said...

Thanks for the videos John!

John M said...

The embeds are a bit tricky. I've reposted them over at Doom in a new post "Upside-Down on your Mortgage? Just Dump the House! (classic video)"

Rob Dawg said...

Kinda scary how many are coming over to my wacky ideas.

Bakersfield Bubble said...

Rob you kick ass!

I wonder if I should lever up my house, piss away the money and then stop paying?

civil-ized said...

Is everybody going on the assumption that so many people are "doing it" that the lenders will have to eventually ignore blemishes on credit ratings and lend to people even if they have a foreclosure in their recent past? Or does misery just love company? Why would anyone advise someone to trash their credit score on purpose - if you have the ability to pay back what you owe?

I get it that it is unfair and people "get to" walk away from a house they lived in for free for many months. But are they really going to be able to buy it back in a year or 2 for half what they originally paid? Where is the guarantee of that? I know the values are half what they were, but it won't be the family with 9 months of missed payments in the last 36 months that will be buying it.

Am I missing something here? People with trashed credit are not going to be buying anything with credit anytime soon. Cars, houses, jewelry, insurance - everything they do will be a risk - from now on for years. Who is going to be the first to loan to them? Will it be the bank they "screwed?"

If you happened to be a young person with so-so credit in the first place and you screwed the pooch and lost your house, you are just going from being a bad credit risk to a worse credit risk and will have to build back up to a decent rating. But for an airline pilot to walk away, trash his credit and advise others to try it too, well, I guess only the stupid would follow that advice. Rich people do not care about their credit scores because they can float things with cash and flash. Real people living paycheck to paycheck will have a rude awakening when they stop making payments and then go look for a rental after a few months of skipped payments. "What? you are not going to rent to me? But why not? I am just punishing the banks." Yeah. Would you rent to someone with 6~10 months of missed payments in the recent past? Where is the guarantee that they are going to pay you?

Look - we are at the point now that if the banks decide on their own or the government forces them to right down people's debts to keep them in their homes, it is better than one more foreclosure on the street. People like us that did the right thing and bought what we could afford are at the point where we just want our values to stop dropping. Whatever it takes to level out, do it - get it over with. Write their debts down, put them on a 50 year payment plan, whatever, just do it so the foreclosures stop. Hopefully we will be rewarded in the sense that our credit ratings will look stellar compared to others who failed.

Isn't it like school? Those who worked hard had good grades. Those who make careful choices have good credit - in general. There were not that many 4.0 students in school. There are not that many people left with great credit - as it should be.

Anonymous said...

Oh my goodness, civil-ized, you're so sweet, so naive... Yes, you're missing something here. You're missing the steaming mound of sarcasm. The point is that us responsible people are stuck. STUCK. We were prudent, we didn't go into debt, we saved, we put aside money for kids' college and retirement---we missed out on the party. But now the party is over and who gets to pay for it? Yep, us; nobody else has any money, though the value of our assets has deflated and evaporated.

A childhood friend of mine who lives high on the hog down south, often looking down her nose at me for my goodwill shopping, eat-at-home tightwaddery, recently filed for bankruptcy. She and her chronically underemployed husband had taken out multiple mortgages and re-financed repeatedly during the boom, while they totally redid their upscale home in marble, terrazzo and imported woods--oh, don't get me started on that! She paid a seamstress $50 to make a pillow she could have whipped out on the sewing machine for 50cents! Fine restaurants every night, cruises, special tutors and pony riding lessons for the princess---and just to top it off, the purchase of a beach duplex for extra income. At one point she bragged that their monthly outgo was $8,000 (peanuts to some, a third of a year of income to me). Meanwhile they forgot to pay their taxes; when the assessor started rumbling about it they fed him one of those checks you get from the credit card their whole operation fell apart they made sure to get outfitted with new cars (fuel-efficient ones!) and whatever else they could charge, and then the spigot was turned off with the bankruptcy. They hadn't been paying the mortgage on that beach property for months but they continued collecting the rent--that was a profitable investment!--and meanwhile now they are enjoying their remodeled luxurious home, toys and cars. They had to "give up" the rental unit with all the stress of paying a management company. So what if their credit rating will stink for awhile, they're "cutting back" and getting plenty of sympathy in poor beleagured soCal. No one duped them into the various re-fi schemes; it was their own choice to claim 14 exemptions apiece on their withholding forms, so I don't understand why the big tax bill was a "shock." It was their own choice to state income based on fantasy, like the fantasy that her husband would get off the couch and get a job.

You ask, "Isn't it like school?" Yes, dear, it is, but grades have nothing to do with it. Nobody likes a grind. Our current education system consists of a few bright stars and is otherwise a jobs program for the incompetent. So it's entirely appropriate that our President bragged that he's an inspiration to all the C students. His housing bailout will be a No Irresponsible Homebuyer Left Behind boondoggle which will prolong the agony, deepen the bitterness and provide plenty of "moral hazard" for the clueless and criminal. What I'M "missing" is how petty thieves get profiled on "Dumb Crooks" shows when they get caught; bankers and AIG executives and Congressmen do the same thing with trillions and it's called "saving the economy."

Tyrone said...

The iTulip compilation of Cramer flip-flopping on his opinions is a classic must-see...

Jim Cramer Flip Flops on Housing

BTW, what freakin' language are Farnoosh and Jim speaking. Morons. LOL

Hankmeister said...

It seems to me that prices will have to reflate at least moderately at some point(three +? years from now). I can't see the Fed not staunching whats is the main source deflation in the current economy.
I didn't borrow against the home I purchased in 2002 and now I would like to leave Bakersfield but I doubt I could sell the house at any price. Not with 4 repos within 2 blocks of me anyway.

civil-ized said...

I feel your pain annon. I smelled the sarcasm. But to throw in the towel and join them is not a good idea. Now that your friend is bankrupt, and getting sympathy from fellow Epic Fails, how will her life look in 3 years when her BMW has expired and smells like 2 week old milk? Will she be able to trade it in for a new one? You say she traded her cars for efficient ones - I am assuming she went from the Escalade to the small-engined Bimmer - no way someone like that would dare drive anything less.

My missed point was that it is always the right thing to do - to do the right thing. Even though the bad ones look to be prospering, they are on slippery ground. Their history of bad decisions and paying no consequenses will catch up. Call it Karma, call it justice, call it whatever. Time will tell. Even with the Gov'ment spitting out phrases like "bailout for homeowners", they have yet to do something about it to help ANYONE. It is smoke and mirrors. The last remaining bad loans given out in 2006 will soon expire and there is no bailout on the table to save them yet. IF the Gov'ment does something, it will be too late to help the majority. The damage is already done. Us "A" students are already screwed. There has been no help for Bushes "C" student Epic Fails, so we will see what happens to all those who tried to screw the banks and cheat the system.

Anonymous said...

Stockton Man Gets 15 Months For Mortgage Fraud
STOCKTON (AP) ― A Stockton man has been sentenced to 15 months in federal prison for his part in a mortgage fraud scheme during the height of the housing boom.

Prosecutors say 45-year-old Jose Serrano recruited fake buyers for homes in the Stockton area between 2003 and 2005.

He pleaded guilty to helping 37-year-old Iftikhar Ahmad of Stockton sell 10 homes to fraudulently obtain more than $1.5 million in loans. Two mortgage brokers and two former employees of Long Beach Mortgage, a subsidiary of Washington Mutual Bank, were among others charged in the case. All but one have pleaded guilty and are awaiting sentencing.

Serrano was ordered to pay more than $219,000 in restitution to the bank as part of his sentence Monday.

DAve said...

This is so very wrong.
You're encouraging people to steal and defraud because they won't get caught or punished.
You're not raising your kids like that are you?
I resent these bailouts too. But I do not believe that the answer is to abandon your morality just because you see others acting immorally first.

DAve said...

...and actually whoever does such a thing (intentionally defaulting or refusing to honor contracts they freely chose to enter into) is just putting the burden of righting the economy on ME and others like me who despite the inconvenience of the situation still have the character to fulfill our obligations. How am I supposed to feel about THAT???

Anonymous said...

This is a remarkably slippery slope. I think the government should stay out of the bailout industry and let things land where they may. My home price is already trashed but since I bought a home I could reasonably afford (imagine that!) I have funds on the sideline. Let home prices continue to slide to levels they should be at and I'll move in and buy a home closer to work. By bailing out the moronic homeowners who over extended you're directly robbing people who stayed on the sidelines of the ability to purchase something at a reasonable price. As for those losing their homes they can always go rent somewhere. All things like equilibrium...they lived beyond their means for several years and so equilibrium means they should live below their means for a while.

Joe T said...

In regards to being concerned over you credit score dropping, let me offer this approach: In a few months from now after credit payments of every kind stop flowing due to many legit reasons a great percentge of the working class will watch their credit scores drop due to late payments, missed payments etc. The old credit score of 580 (poor) will become the new 680 (good)! Lenders will demand a reassessment of the credit rating system in order to accomodate the majority of their customers having a "poor" unqualifying score. So, copying the policy of the public school grading system, we'll lower the scores to accomodate the masses! So watching your credit score drop a from let's say 680 to maybe 550 really won't matter once the current credit scoring/rating system is revamped and those who hold "poor" ratings will magically be reassessed to having a rating of "good" or better! I'm telling you, watch this unfold....... Thanks!

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Modify Loans said...

John M thanks for the video.
I honestly learn something here.
it's rally unbelievable..

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