A tipping point? "Foreclose me ... I'll save money"

A homeowner who can't sell his house tells the L.A.Times, "Foreclose me. ... I'll live in the house for free for 12 months, and I'll save my money and I'll move on."

Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise.  Wachovia, in a conference call yesterday, warned  investors that increasing numbers of homeowners are walking away from their homes by choice: "... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties..."

Calculated Risk notes this is "one of the greatest fears for lenders ... that it will become socially acceptable for upside down middle class Americans to walk away from their homes."

A commenter on L.A. Land this morning writes, "I am one of these people.  My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

"Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I'm not a 'hardship' case they'd apparently rather foreclose. I guess the only way I could qualify for loan mitigation is to get my boss to fire me, stop making payments, and wreck my credit.  In fact, my bank won't even talk to me until I miss a couple of payments. 

"I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.

"I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions. 

"I don't really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions, with access to more sophisticated information than any consumer could imagine, make mistakes affecting thousands of people worldwide, they are not excoriated and vilified with the same righteous zeal."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: AP

Comments

[Todd in WeHo]

Bravo! I applaud this person's enlightened self-interest when analyzing a real estate transaction as a "business decision" and for taking responsibility rather than pointing fingers at others.

[Joseph...The Real Estate Guy]

Irresponsible lending brought us to this point!

Otherwise we would have had a softer landing. Not the crash that we are witnessing right now.

Giving loans with "NO-MONEY DOWN" to people with bad credit was a "STUPID" idea.

I remember Loan Reps from "First Franklin" pushing these loans in 1996,1997. I didn't believe it then...but now I can see the mess they created.

Sub-prime became Prime...

[TakeFive]

Commenter wrote:

"Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I'm not a 'hardship' case they'd apparently rather foreclose. I guess the only way I could qualify ..."

To anybody in this situation, don’t “guess”, call. Then call again.

I am assisting a borrower with a loan modification. After a10 minute phone interview with the servicer, a loan mod application was promptly sent out. And this servicer had all kinds of negative comments blogged about how unfair, rude, and unyielding they were. Don’t assume the lenders are hot to foreclose – they’re not. They may be a little short with you on the phone, but don’t take it personally. They’re getting buried. And keep calling back.

Saw on the news the other night – the CEO of IndyMac saying they were calling borrowers and asking if they needed a loan modification!

Here’s a couple of resources:

List of numbers to loss mitigation departments that might get you around some of the screening:

http://forum.brokeroutpost.com/loans/forum
/2/171761.htm

Gov’t program:

http://www.hopenow.com/

[Ed]

Gawd, I hate deadbeats. I have a (former) friend who did this with his house, then his credit cards (but not before max'ing them out) and filed b.k. He then drove two leased (both wrecked, one twice) high-end cars back to the dealers and gave 'em the bird.

"Thanks, Buddy, my credit card interest just went up!" End of friendship.

"Bad deal" my a$$. Yes, you agreed to "the deal" when you bought the house. Show some integrity and honor your end of the bargain. You're not "writing down" anything--you're just showing what a loser a$$_ole you are.

[Ace]

Boy, talk about someone who didn't learn a lesson. You bought a condo that you couldn't afford with little or no money down and an adjustable rate mortgage. You are going to let it go to foreclosure and went out and bought another home?!?!?!

Sounds like a great plan. Good luck with that.

[Kat]

You're a freaking moron so it's okay to leave someone else holding the bag?

I have never in all my life read a bigger more bloated diatribe of rationalization than this.

This moron has a rational for everything - mean ole bank, dirty ole corporations, bad ole market - all made him do it. So he craps all over a bank -that he beleives is exempt from the standards of decency since they are a rotten, money grubbing institution in bed with socially unconcious corporate America - turns his back on his bad move and expects someone else to clean up his mess.

[Uncle Billy]

It's like the folks that scam insurance companies or other large companies... "big companies are bad guys and they're so big it doesn't hurt them anyway." Weeeeeell... the theory is, that when companies have to adjust for higher risk due to people behaving illegally or immorally, other individuals pay a higher price. With insurance, premiums go up.

Contrary to what the fellow above thinks, there's not a love for lenders lately, and this is probably why people find it so easy to walk away from their homes (that plus the penalties are minimal). Another vicious cycle: Guy above walks away, adding another foreclosure to the pile. Others who don't want to walk away, but need to move, can't sell, and they in turn walk away, adding more to the pile. The higher the pile, the worse it gets.

Our country has piles, and they hurt.
http://en.wikipedia.org/wiki/Hemorrhoid

Here's some more cheery news from Calculated Risk: Housing assets in the U.S. are estimated at about $21 Trillion. If, as some speculate, we have an overall reduction of 30% in housing value... that's about $6 Trillion that goes poof. Brother, can you spare a trillion?

On the bright side, we'll probably survive, just like we'll probably survive asteroid TU-24, a skyscraper size hunk of rock, which is expected to pass between us and the moon at the end of the month.

http://tinyurl.com/32xpun

[Cal]

That homeowner is very smart, although they are probably committing fraud buying a 2nd house and planning to foreclosure on the 1st. The person giving the loan on the 2nd house is going to ask about the first house and anything other than letting them know you are planning to let it go would be fraud.

That being said, there are many cases where walking away from the house is in the homeowners best interest, the government and bond holders are just hoping this group of homeowners dont figure that out.

[Kat]

For some reason my post was edited.

I noted that we responsible borrowers will be picking up the tab for creeps like this. I wanted to make that point.

California is a rabbit hole of a place. The rest of us live in homes we can afford. We spend reasonable amounts to buy a house. We don't pay hundreds of thousands of dollars to live in a slum just because it's in California. So, therefore, we aren't in the mess people like this are.

In fact, the vast majority of the people in this country live responsibly but places like New York and California make the news.

To all you fools in California, the rest of us grown ups will be looking forward to cleanin up after the likes of this jerk.

[Michael Snyder]

I was confronted with a similar although smaller dilemma years ago when I had eighteen horses in my backyard. When I did the numbers I realized for every dollar I spent on hay I spent another dollar to haul it away when the horse was done with it. So recycling became an obvious solution to the eight dumpsters of manure my boarders were producing every week. When my research was done I'd learned it would cost an additional $700 a month for me to recycle what looked to be an obvious resource. Needless to say, that manure continued to go to the landfill.
When confronted with a choice between the "greater good" and personal survival, survival will win every time. What's a bit scary is the number of people looking towards similar tactics right now and I can't honestly say I wouldn't join him in the same situation. Let's see, upside down, house poor and headed toward BK or...
Again, the people who sold these exploding loans had to see this coming. I find a bit of poetic justice in hustlers being hustled, but sadly the consequences of this debacle will touch us all before it's over.
Speaking of hustlers, am I the only one who's outraged at the President's $150 billion award for the businesses who've propagated this debacle?

[JonM]

excellent business decision. when it comes to money, it's all business. why pay into something that's gonna worth half what u paid for, not good for business. save the money for another rainy day.

[Marc]

While I do not agree with this persons actions, however I am in a similar bad situation. I bought a house with an arm, with the plan to refinance to afixed. Well, it seems my credit is not good enough to do that now even though I have never been late on a payment, and have put a bit extra to principal every month. Banks are greedy scum. Credit score, just like standarized testing does not define everyone ability. I will most likely have to sell my house, because I can not afford another rate increase. Logicc would say, wow, this guy never missed a payment in 3+ years, regardless of his credit, he knows that his mortgage with us matters most and always pay's it, let's give him a chance... No, they will bleed me dry untill forclosure...

[ProblemWithCaring]

Hernandez knows that an eviction is a lengthy process. "I'll live in the house for free for 12 months, and I'll save my money and I'll move on."

The banks fatal projected mistake: sheeple aren't acting as stupid as they were predicted to be....

[sfvrealestate]

I don't blame this person. The banks made very, very risky loans, they knew it, and somehow their investors knew it and okayed these bad risks. The financial institutions didn't only assumed the risk, they created the risk. 100%, no down loans? Why, that's practically inviting the borrowers of these wacky loans, who have no skin in the game, to walk away. In my mind, here's the bigger question: why are we so anti-government regulation of big business and financial institutions that we allowed these loans to be made in the first place?

[ray]

The lending institutions didn't see this coming.

We should all feel sorry for them. Oh, the humanity.

[David]

I'm sure that the same people railing against the "deadbeats" are perfectly fine with electing people that indebt those that aren't even born yet with a war that they don't want to pay for through taxes. These same people believe the "market" will fix everything. No need for the goverment to regulate. This was all so preventable. But wait, this is just the beginning. We will see if worshipping the market will save you. By the way Ed, intrest rates go up when the goverment competes with the private sector for capital, not from the deadbeats who don't pay. As long as this administration continues to borrow, interest rates will have to go up evntually. Right now we are on the Titanic ingnoring the iceberg warnings.

[vultur]

The ability to access credit for 7 years is a far greater punishment than the harm he is causing on the bank by walking away. He is probably going to have to pay 300+ basis points more in mortgage interest alone!

For 7 years this individual will be unable to get a mortgage anywhere near prime, a credit card, a car loan/lease, and probably won't be able to get his toddler into pre-school.

Personally the prospect of that occurring is enough to stop me from doing what he proposes to do.

[kat]

It used to be banks would only loan money to someone who could pay it back. What happened? When did they decide it was a good idea to put people in homes they couldn't afford? Loaning money is not profitable if you don't get it back.

The fact is, no matter how unlikeable this featured blogger is, he should not have been in that house in the first place. He can't afford to pay the loan, he's of low or absent character, his credit was probably shakey, his income was probably not enough to carry the loan, the house was overpriced,
yet the bank gave him the money. Now they are paying. I'm not sure who's scummier in this deal - the bank or the borrower. I'd say it's a race for last place.

[arroyogrande]

"I bought a house with an arm...Banks are greedy scum"

Weren't fixed rate loans at *historic* lows when you bought? Why did you get an ARM instead of a historically low fixed rate loan? Oh, ARM rates were lower than fixed rates then, so you took a chance (aka "gambled") in order to get a lower payment, or in order to 'afford' a larger house?

What were we talking about again? Oh yeah, greed...

- arroyogrande

[Paul]

Boo hoo, poor you, Mark. Why do you think you had such cheap payments in those early years with the ARM? That is the choice you made and the risk you took. You wanted cheap payments. The bank gave it to you. You think that was for free? No. It was for you taking the risk that rates would climb in the future and you'd have to pay them more. Many of us are still renting, or buying with fixed rate loans for this reason. Why do people like you think that financing hundreds of thousands of dollars is a right, or some kind of game? You took the loan with risky terms by doing an ARM.

[kay]

David,

Are you just basically a whiner who believes someone else should take responsibility for you or are you from sub-saharan Africa?

In the real world you take responsibility for yourself and if you screw up you lose. In the real world, poor people can't afford a $500,000 homes nor can people making $100,000 a year. It's simple math really. So when a dumb a*s who makes $75,000 a year, or a non-English speaking person who works at McDonalds has a house payment of $3,000 they will soon discover they can't afford the house and they will lose it. And you know why they lose the house? Because they couldn't afford it in the first place!

I'm not sure where you live but that's how it works here.

Go suck your thumb.

[Marc]

arroyogrande and Paul,
The ARM was my only option, I could not get a fixed rate at the time my credit was rather bad, and just made the cut to get any type of loan. So, I was not trying to be greedy, I was only trying to own a home.
I have been working for over three years to get my credit cleared up, and have not missed a single payment, but still do not qualify for a refinance. You shouldn't jump to conclusions unless you know the whole story. My point was that someone who never missed a payment in over three years can not get a refinance just because of a credit score... Forget the perfect mortgage and car payment history, a bank would rather jack up my arem and have me foreclose than be human about people's situations. Like I said earlier: Credit scores, just like standarized testing do not paint a clear picture.

[LA-renter]

Can't argue with the man... other than the fraudulent purchase of a second home (as Cal pointed out).

If the house did not equal the value of the loan, the lender should have asked for more collateral.

If lenders had been more careful, maybe houses would have reasonable prices.

[original thinker]

I would expect that the consequence of such a mass action
by upside-down homeowers (who just want to clean the slate
in enlightened self-interest) could and would damage the U.S. economy
beyond any hope of repair. Before that happens, expect Congress
to pass de facto law requiring that non-recourse become recourse, if
any ability to continue paying is established. Remember, all
government action here is ultimately about helping bankers and
the conditions of worldwide credit markets, not homeowners. If
homeowers decide to put a gun to their lender's head then
bankers have a right to chain them to their land obligations
like indentured sharecroppers. Of course, such changes in
morgage law will make homeownership a very risky venture
for any buyer, regardless of their initial downpayment amount.
It will ultimate supressed the RE recovery even further but it will
be necessary to prevent chaos. And please don't tell me de facto
law is unconstitutional if national interest is in the balance.

[Nancy]

"So, I was not trying to be greedy, I was only trying to own a home. "

LOL. You all were being greedy so you can own a home.

And for the record, your credit score paints a very clear picture about what a deadbeat you are.

[David]

Dear Go suck your thumb,
I completely agree with taking responsability for ones choices and the consequences that go along with that. My point was otherwise. Morality among many is selective and I was pointing out the hypocrasy of it. It is obvious in my comments that I believe in goverment regulations that would have prevented this whole situation and pointing out the non-sense of a regulating market. There will always be people that are immoral and /or stupid. They have contributed to this situation on both sides and will suffer the consequences. But there consequences don't just affect them in a global economy. I want the goverment to isolate me from other peoples consequences as much as possible through regulations.

[arroyogrande]

"I could not get a fixed rate at the time my credit was rather bad, and just made the cut to get any type of loan. So, I was not trying to be greedy, I was only trying to own a home."

Marc, we are not really trying to be hard on you, but look at it from our point of view. Isn't buying a house *before* clearing your credit score just a bit greedy. As in "I want to own a house today, I'll get an ARM and worry about cleaning up my credit score tomorrow." Congratulations on paying on time; however, if you would have waited ("delayed gratification") until your ducks were all in a row, and locked in a historically low (and I can't emphasis 'historically low' enough) fixed interest rate, you would have been in the catbird seat.

In other words, "greed" can also mean "wanting and getting it now, even when you don't have a good fall back for when things go bad". 0% down? Cash back at closing? Stated income/liar loans? I/O ARMs with teaser rates? Option-ARMs/Neg-Am loans where you don't even have to pay the full interest for the first few years, and your loan value goes up? All these are (were?) ways for us to have it now, have it our way, we deserve it, so give it to me now. I don't want to have to document my income. I don't want to have to save up a down payment. I don't want to pay down the principle. I don't want to pay higher fixed rates. I don't want to wait until I get my finances in order. Just let me buy my d@mn house.

Do you see?

- arroyogrande

[TakeFive]

vultur wrote:

"For 7 years this individual will be unable to get a mortgage anywhere near prime, a credit card, a car loan/lease, and probably won't be able to get his toddler into pre-school."

Nonsense. I've seen credit reports with pages (pages!) of charge-offs, delinquents, settled accounts, etc. These people didn’t open all these accounts at once – they were able to open them, one after another, even with a lousy report.

I’ve even seen someone with a fresh BK pick up a new truck and a handful of credit cards. Next time you’re in a department store and being hustled to sign up for their charge card, tell them you just got foreclosed on. Bet you still get the card.

[sunsetbeachguy]

Marc:

You aren't doing yourself any favors.

Fix your credit, then buy a house is the prudent action.

You wanted a shortcut, the banks obliged and now you are returning the favor.

I hope the banks go after your for a deficiency judgment and fraud charges and you should spend some time in prison!

[mark g]

It seems to me Marc needs to see the loan doc... he needs a shot in the ARM so we can be relieved of the pain in our collective A$$...

[Hula Girl]

I asked this on another thread of this blog: What's the difference between walking away and getting foreclosed on in terms of credit/financial repercussions? Why would someone choose one option over the other?

Be nice if this is a stupid question - not my area of expertise.

[markl]

"Bad deal" my a$$. Yes, you agreed to "the deal" when you bought the house. Show some integrity and honor your end of the bargain. "

Business is not about honor or integrity its about the bottom line.Survival of the fittest,take no prisoners etc...As long as what these people are doing is allowed then why wouldnt you walk away?Honor doesnt feed or keep you sheltered.Big business knows this all too well.
It was the banks and their financial wizards that set up this ponzi scheme.These loans were flawed from the get-go but since we no longer have any regulations or oversight in govt these kind of schemes are accepted(remember it is banks that have lobbied hard for less regulation and lax rules)
Looks like the ponzi scheme is about to bite the banks in the backside big-time.And seeing the little guy walk away from a fraudulent loan (on a worthless investment) from a sophisticated institution is priceless.
This may be poetic justice the banks foolhardedly never fathomed but it really looks like a possibility they they will reap what they have sown.

[CD]

Why buy a house, you could have rented a house, why take on such a burden, buying a house is not Nirvana, so much extra expenses are attached to it. Unless one wanted to use it as an ATM.??? I think commitment is a word no longer in the dictionary. By the way, Today was a fake rally on wall street, don't let yourself get fooled. We are going down...

[Victor the Predictor]

My prediction last year that homes would lose 50% in value is not looking too silly any more. I did predict that the sun would rise the next day, but I could have easily been wrong.

Anyone else curious about why Warren Buffett just bought a major portion of a Swiss Reinsurance company? (SwissRE.com) Berkshire Hathaway is more and more like Clark Kent in the phonebooth.

[Laker]

Uncle Billy: "Housing assets in the U.S. are estimated at about $21 Trillion" That is the problem Billy. This figure is inflated beyond proportions!
The true value of housing assets in the US is about $11Trillion. Now do your math! The extra 10 are not lost, or about to be lost. THEY NEVER EXISTED. They were only on paper...

arroyogrande, "Why did you get an ARM instead of a historically low fixed rate loan?" Easy answer. Fixed 30yr payment was 1.5 times the ARM payment and sometimes even more. That is why he and all others took the ARMS. With fixed 30yr (even at historically lows) they could only afford 250K homes not 700K !!
The problem is that the incomes of people wasn't and is not today at historically high levels! Only Income pays the mortgage, not interest or type of a loan...

[Keith]

"For 7 years this individual will be unable to get a mortgage anywhere near prime, a credit card, a car loan/lease, and probably won't be able to get his toddler into pre-school."

Nah, see this is where the banks cut their own throat. Credit card offers will start coming in a few months, can go to a car lot immediately and finance a car. Potential personal negative effects of a foreclosure are really pretty inconsequential. Keep up on your credit card payments, nobody's going to take them away. A strict cash flow analysis might prove this person correct in their assumptions. Credit used to be hard to come by & was guarded carefully, now it flows freely and is therefore less valuable. BTW, other peoples defaults have very little if any effect on your credit card rate, instead the CC companies try to price "competitively" for a given credit score and history, ie they try and get as much out of you as they think they can. The actual rate of defaults is extremely low.

[CaptHowdy]

Just so you're fully aware of what you've done, people like you who had no business buying with toxic loans, helped run up prices to the point where responsible, hard working families no longer have a chance to buy a home. Until prices fall, these families will be stuck renting, throwing away money that should be going towards building equity that can later be used to move up into bigger houses, and ulitmately used for retirement.

And don't worry, I blame the scum who lent you the money too. I agree with kat - both you and your lender are scum. As a society, we'll be feeling the effects of what people like you and your lender did for decades to come. Good day.

[xtine]

Marc -

I am sorry, but if you could not afford fixed rate, what made you think you'd be able to afford the readjusted rate when it came due?

I appreciate you sharing on this blog. It's a tough crowd. Mostly we are people who saved money and chose not to buy because we knew we could not afford the inflated prices. Yet, people kept buying at inflated prices so savers were shut out of homes.

So we're angry at people like you, and you come onto this blog, looking for sympathy and get none. That's a drag, but next time SAVE YOUR MONEY. You do not need to own a home. You are not entitled to a home. You do not need to twist yourself like a pretzel to own a home.

I know the fact that the bank will "only" look at your credit score bugs you, but maybe it's about time they did that. Maybe it's about time they realized you cannot afford the house you are in. Maybe you really can't afford that refi any more than you can afford the mortgage you already have and it's time to chalk it up to experience.

Good luck.

[anon]

Awesome!

Lenders paid-off congress to create rapacious new bankruptcy standards.

They were in collusion with entire RE industry to sell loans, risky loans, no matter what the consequences.

And the whole time the Cheney admin turned it's back on all oversight while draining the treasury for a trumped up war.

The system is rigged from the top down.
We all know it now.

We are exhorted to be prudent and pay off our bills while the government and the corporations do whatever it takes to suck every last nickel out of our pockets with whatever chicanery is needed.

The banks tried to scam the system and it turned on them.
They made a bad bet.
Borrowers have every legal and MORAL right to take any legal recourse the desire...the banks sure will.

I hope every single ARM holder does this.

The revolution will not be televised...but it seems it will be blogged.

[Uncle Billy]

Weird story in Wall Street Journal: A virtual bank run that has real financial consequences.

Second Life, the virtual world that allows buying virtual money with real money (I guess that makes their virtual money real money) had a bank run. Online institutions had promised high returns, and when they couldn't perform... boom... the depositors revolted.

I downloaded Second Life last year to check it out, but it was slow on my relatively fast computer, so haven't touched it since then. I saw then that people buy real estate, rent it, sell it, give it away, etc. Anyone very familiar with it? Have their been any virtual foreclosures? The economists have their goofy computer models, but this virtual world could very well be the best tool of all for learning how we behave in all possible situations -- since it's driven by real people. Maybe in the near future we will be able to model virtual recessions, use virtual stimulus packages, and see how they play out. (though they might have to add a lot of real world features... I don't remember seeing any "leaders" or government in that world.)

[Tombstone Realty]

Keith is right....

Banks are so desperate for customers that they'd even give a dead man a loan. This will never change. Short term profit trumps long term strategy any day.

Instead of letting the market run its course, we rip the dollar down another .75 bps.

I had a low credit score because I didn't have an auto loan, or much in the way of credit card history. Paid off my debt, including what I owed on my credit card - and you wouldn't *believe* how many offers I got - my own bank keeps sending me checks - HEY! SPEND! We'll give you 1.9% rate if you use these checks (+the fineprintcharges). They upped my balance, they've polished my score to 736!

And I still won't spend beyond my income. I must drive them crazy. But goes to show the banks are desperate, and will continue to be desperate. Look at the short term CD rates - they *need* money, and they are happy to loan to anyone so that their quarterly results look good to the investor.

This kind of nonsense will keep happening. Especially with the government claiming that "spending is patriotic" rebate checks. I'd rather pass on the $800 and use that money so that schools are funded for the next ten years.

Wholescale, top-to-bottom abandonment of responsibility. That's what this is. If we hold Joe Schmo accountable, we have to hold Mozilla the Tan just as well.

[Ed]

David - Nobody was talking about how interest rates go up or government regulations. You made a gigantic leap to Bush and the I-Wreck/Afgangsterland wars from a scenario of an ignoramus bankrupt of personal integrity.

Quite a jump, my friend, but it doesn't alter the facts. The whole system was screwed up--no argument--but who held a gun to that moron's head when he signed those loan papers?

I rest my case. Your witness, Counselor.

[Inland Empire]

Since he thinks evictions take a long time and he will save money, has he considered that most landlords will run a UD check on him? And most who find something like that won't rent to him. Then what?

[Timing It Right]

What no one is bringing up is that the banks will 1099 these dopes out fo sheer revenge -- so that the unpaid debt becomes taxable. Then, when the dopes don't report the capital gains...guess who comes knocking...the IRS -- and that's when we start seeing criminal prosecutions for fraud, etc.

[Timing It Right]

What no one is bringing up is that the banks will 1099 these dopes out fo sheer revenge -- so that the unpaid debt becomes taxable. Then, when the dopes don't report the capital gains...guess who comes knocking...the IRS -- and that's when we start seeing criminal prosecutions for fraud, etc.

[RationalLogic]

The point of walking away from a house is smart, and surely the banks are bracing for a wage of people eventually figuring it out.

In a free market economy individuals have the same rights as corporations, so an individual walking away from a property if it doesn't makes economic sense and leave the bank holding the bag, equals to the bank going bankrupt and closing all credit cards it had issued (remember Aspire) and the clients without the credit available to them.

Both are business decisions and equally moral. When the lender sold a loan to a person that didn't qualified in first place was betting that house prices will continue on the rise, and that in few years (or months) it would be able to milk the customer again with another refi, more points and more fees.

So when the customer got the loan was betting on the same thing, house prices going up, and expecting to get milk the bank for another equity line in few years (or months).

Then, being both equal, if the bank can write off billions of $$$, and stop paying investors, well, the individual can also write few thousands of $$$ and stop paying investors.

And talking about moral, has anyone questioned the morality of getting thousand of properties on the market at a hugely discounted price with total disregard for the rest of homeowners? That is what banks are doing with the short sales.

[Joseph...The Real Estate Guy]

Anon,

Your comments make a lot of sense. Regrettably, it appears to me you are a "Partisan Hack".

I have been in the business for over 17 years. This mess began in the mid 1990's, with the Clinton Administration...and the Bush Administration letting it continue to go on.

Most Real Estate Agents care about their clients. You have a small percentage, who don't care(Very minimal though).

A lot of mistakes were made by brand new agents who fell into the Sub-prime trap.

I opened a "Mortgage Company" in 2004, and I had lines of Sub-prime Reps. soliciting for business.

[Laker]

Timing It Right: "banks will 1099 these dopes out fo sheer revenge -- so that the unpaid debt becomes taxable."
Good Morning! Bush has sign into law the bill that is call Tax forgiveness of 2007. That eliminates any 1099 for forgiveness debt for 1st and 2nd house.
Now this is one of the fuels that will increase the fire of foreclosures/evictions/jingle mail...
Great news for future home buyers with good down payment and good credit.

[Laker]

"Then, being both equal, if the bank can write off billions of $$$, and stop paying investors, well, the individual can also write few thousands of $$$ and stop paying investors."
RationalLogic - Well said!
Walking away from a depreciating asset is the smartest thing to do.
Hey, If the median house in LA is not loosing $5,000 per month and lets assume that the median mortgage payment is $3000 (safe number for 500-600K homes purchased in 2005) Add a property tax, insurance and maintenance of another $1000 to $4,000.
So Do you guys see that the median owner is "paying" or "investing" $9000 every month to a property that is loosing value!
That is insane, considering the same "owner" can rent same house for a total of $2000-2500 easy!
WTF??? Give me a break and walk a way from your houses. You'll buy same if not better house in 3-4 years for less than half!

[Dave P]

This guy is both amoral and shrewd. He not only is backing out on his agreement but he's trying to sell us on the fact that since the greedy bank won't let him out of the deal he signed it's their fault. Whatever. He's smart not to keep holding on to a depreciating asset tho.

Here's the part he left out. Since 100% financing has gone the way of the dodo, why didn't admit to taking out a home equity loan on home A to use as a downpayment on home B? Does anyone NOT think he did this?

[MyLessThanPrimeBeef]

Things go in cycles.

The Romans used to throw debtors from Tarpeian Rock. Well, actually thieves.

Then we had debtor's prisons.

Now, we give debtors assistance to get through any difficulties they might have.

It certainly is humane...until the pendulum starts to swing the other way, like tightening the bankruptcy law, etc. I am sure soon banks will demand debtors be thrown in jail, like the good old days...for the banks I mean, unless you were Mexico in the early 1800's, in which case, the French army would invade to collect payment.

Let's hope that such drastic measure is not allowed in the Koran or Mao's Little Red Book.

[Bill G]

Is Mr.Hernandez even a citizen?

[1]

I interview and make hiring recommendations for engineers in my job. We run background checks which includes pulling credit histories.

Why would we extend an offer to a Kamikaze like this? There are too many good people to risk a chance on a loser like this.

[Vijay Iyer]

We need to bring back debtors prison. What this guy suggests is theft, pure and simple. It's no different than walking into a Tiffany's and stealing a diamond ring, just because they're a big company and could afford a loss.

[Ed Yahya]

Good business decision on dumping the subprime loan, then ride for free, and build up saving. Thousands of these people HAVE shaken our economy, combined with greedy lenders. All over the world actually reacted and suffered by these thousands who concern only on their well-being.

Some people just took advantage of subprime loans without MORAL obligation to pay.

We have to modify our current law to protect the whole economy. I had read an article of a government that gave a jail time for people that could not pay their obligation. This makes people think twice before junking their dues.

[I Am Not Dead, So This Must Be LA]

Marc
Don't know you, you could be a great guy, but unfortunately no matter what you say, bottom line is you were irresponsible. The mere fact that your credit was already "shaky" shows a pattern of irresponsibility, however small or justified it may have been. Like "arroyogrande" and "sunsetbeachguy" say, it was not NECESSARY to buy the house. You got swept up in the hype, and now you want to justify acting irresponsibly by blaming the lending institutions who won't/can't help you/bail you out, and though it may not be FAIR that they don't take your recent payment history into consideration, it has been common knowledge for quite a while.

And for everyone else who thinks this "is getting back at the gov't/lending institutions/etc" I ask again (like Kat and countless others) where does individual responsibility start? Why should we be proud that you are "sticking it to them" when our whole economy is intertwined with these companies? Just as you rail against insurance companies raising premiums or lowering coverage, you cheer the guy who "sticks it to them" by submitting a faulty claim or claims "pain and suffering" to get more money and given the opportunity most would do it too. We as Americans have made it perfectly clear that we support these companies by being massive consumers with instant gratification our number one priority, and yet when it turns out that all THEY care about is money, we want to act mortified and cheer their demise.

[Enlightenment]

So typical of many selfish Californians...they want to spend like rock stars...but are too childish for adult responsability...so they get what they deserve in the end.

When you sign for a loan, it is YOUR responsibility to UNDERSTAND it, and YOUR responsibility to PAY it. The bank didn't force you to sign the loan, so it is your fault, not the banks fault. The only fault is the bank being stupid enough to give your dumb a$$ a loan. If you don't abide by the terms of a loan, then it just means that YOUR word and YOUR signatures doesn't mean jack, and thus YOU are NOT trustworthy enough to receive such a loan.

[Personal Responsibility]

Let me tell you about the "defiant" Leonardo Hernandez.....public record doesn’t lie.

He buys his first home for $158,500 in November of 1997 with a loan of $151,447. Less than 10 months later, he cashes out $35,000 on a second mortgage.

In October of 2002, he combines his first and second into a loan of $197,500, and 16 months later he cashes out $70,000 on a second mortgage.

In July of 2005 he combines his first and second while taking out even more cash, obtaining a $334,205. He does this while committing loan fraud, probably with the help of his realtor, because he does not intend to occupy this property as his primary residence. He moves into a new home only 4 months later.

Surely he put down a big down payment with the $50k-$60k in equity he took out? Of course not! He buys his new home in November of 2005 for $575,000 with a $450,400 first mortgage and a $112,600 second mortgage.

According to the article, LESS THAN A YEAR LATER he is looking to sell his new home because he can't afford the payments.

He sells his investment property in November of 2007 and breaks even on it.

Remind me again why I am supposed to feel sorry for this guy?

[anon]

Joseph,

"Partisan Hack"?

LOL!

What do you expect? This country has been run by a cabal of Partisan Hacks for the last 7 years.

Turn off the Rush O'Riley show in your head for a few seconds and you might hear the sound of your fellow citizens waking up...finally.

[seattlesnoop]

Kay,
It's not right to make a loan to a non-English speaking person who works at McDonald's? Are you saying it's fine if that person speaks English? And what if that person who works at McDonald's does so because they are independently wealthy and love the food?
A one size fits all statement like that does not work, Kay.

[Rick Sroka]

It's a very good sign of the end of the age, as the New Testament states, when people have become lovers of themselves and the love many for God grow's cold. This translates into such activities as government, business, and individuals thinking about themselves first and not about how their actions impact on others. Why else would you think that we're in the economic, political, and social mess that now exists! Jesus said that one of the most important commandments was to love your neighbor as you love yourself. Making a bad deal--subprime mortgage--and then going to foreclosure when the interest rate increases or saying "no" when an opportunity to refinance is proferred by the lender is not the lender's fault. It's the buyer's fault. But that foreclosure, multiplied many times over, has economic effects far beyond that of the lenders and the buyers. It ultimately affects our entire economic system. Think of others more and your self interest less when making such a commitment. And, as Christ said, be as gentle as a lamb but as wise as a serpent.

[Tombstone Realty]

If enough people walk away, the banks will never catch them all - it would be sorta like shoplifting on a grand scale.

Also remember, it is this same anti-bankruptcy government that is now turning around and saying "Oh, we need to help the poor homeowners, we'll set up a hotline, we'll set up some kind of assistance program, we'll help negotiate a lower rate..."

Everyone was angry about bailout talk, because they thought it would artificially support prices - but it has also undermined the so called "moral authority" of the contract documents. The government has pretty much come out and said "You, the homeowner, are the victim in this. We will try and help you."

People now have the 'justification' needed to walk away - "even the government said we were wronged".

The banks' hands are tied too, because if they packaged the loans away, then who, in fact, owns the debt? Who can bring proceedings? Unless it's your local credit union in full control of your loan, how can 32 different funds turn around and say "we are suing homeowner X"? For what? 1/32 of the loan price?

It's a mess, and the government isn't helping any.

[aldo818]

Wow, I'm not the kind of person that feels that it's OK to avoid your responsibilities. However, It's one thing to be responsible and another to be stupid.

Why should he stay in this home when he can get another one for $100,000 cheaper? And, maybe, save $100,000 or more? Shouldn't his responsibility be to his family and their future? Those $100,000 can go to a lot better things than an overpriced home. Don't ya think?

Maybe the damage to his credit is not worth it but I think that it's up to him to decide that. He'll ultimately end up paying for walking away from his home.

One last thing, why do we demonize individuals for something like this and accept it when large corporations lay off thousands of employees due to their poor planning? Then, we reward the CEO's for "trimming costs" by giving them +$100 Million dollar bonuses. That is insane.

I don't know about you guys. But for me, this is the one time an individual can win against big companies. They should have never done so many risky loans in the first place.

How much did Mozillo get in bonuses over the past five years again? Ken Lewis?

Power to the individual...

[firesale]

DEBTORS PRISON FOR HOUSING SCUM !!!

Leonardo Hernandez's children should be
at the boot-blacking factory? Dickens' himself
would throw away the key on the likes of this
riff raff.

DISGUSTING!

[Uncle Billy]

RationalLogic: Thank you for being the arbiter of morality. Have to disagree with you, however, about your examples being equal. Executives, corporations, and others that manipulate the greed and hopes of others for a profit seem to me more morally repugnant than their greedy victims. They manufacture and push the crack; we just use it due to our own frailty. In these terms, who is more of a villain? So, after the damage is done, should we let the addicts continue to junk their own and others' lives? Don't think so. Should we come down on the entities that allowed this to happen with great vengeance and regulation? I think so.

[l.a.guy]

I'm sure it's of little interest to anyone, but the now hated "Marc" IS NOT the poster Peter is referencing in this blog post. That item was posted by "Condoblue" on this thread: http://snipurl.com/condoblue

I don't find the notion of walking away admirable, but I do think it's not so cut and dry. If for example Condoblue had said "I can no longer afford to pay my mortgage and still feed my family" then no one would have objected, yet it would have had the same effect on the bank. Presumably what we all object to most is the idea that he went out and bought something else knowing full well he intends to walk away from a prior obligation.

However, let's say he was a small business owner who signed a ten year lease for office space that he thought he needed, but the economy tanks and although he can still pay his lease in the near term, he foresees that it will put a huge strain on his business eventually and so the prudent business move is to walk away from the lease and work out of his home. I suspect most people would view that as an unfortunate but sound business decision. At the end of the day how is that different than what "Condoblue" is doing?

[Theorist]

Ok. So now one person has a hold of the tail, one the trunk, another the leg, and another stroking a big fat belly. After conferring with each other we realize that this is an elephant; we've put all the clues together. How do we move it out of the dimly lit room out into the sunlight, and what do we do with it going forward?

Some stray thoughts: a) In some countries (Turkey?) when children commit violations, the parents are punished. Does this actually do any good? Do the children behave less badly? b) Up til now, the kids have been rewarded, at least in the short term, for behaving irresponsibly by a dearth of consequences for their actions. c) In a family with no strong examples of responsibility for the kids -- no matter how much the parents yell and punish, the kids are going to behave as their parents are behaving, without regard to what the parents say.

Solutions: require licensing for future parents? Use MUCH more carrot to obviate the need for big sticks? What carrots can we use to encourage responsible behaviour at the governmental, corporate, familial and personal levels?

[billybob]

to those that hate the guy especially vultur I say too bad boys and quit your whinning. it is a business decision and if those execs werent walking away making millions at being incompetant and corrupt and probably bushco buddies i may agree. but they find it no problem screwing the country and thats ok so why not us making business decisons like the same. as a matter of fact I beleive its karma that i read this because starting feb 1 i am also going to choose to not make payments and start saving some money. hell i will just put some into my 401k and save the rest for a vacation this summer. also, bad credit keeps you out of daycare???? what a fool. for the next few years the strong will fight the oppressor of our country and our freedom from debt.

[jb]

I dont blame this person at all - the banks should protect themselves against these type of losses by requiring 20% down, etc.

My rage is 90% against the banks with their army of risk management 200k/yr professionals [who should all be fired], 8% against the Countrypuke-type crap packagers [if the banks are willing to buy crapola, they should be able to sell it], and 2% against the FBers [they will certainly lose substantially regardless].

WaMu, Countrywide, etc should fail. Please someone start a new bank called PHBB (Post Housing Bubble Bank), I will send you all of my cd's even for a lower rate of return. You can replace these poorly managed banks as they fail.

[madashell]

guess what if your a vet you can do a loan in 3 years, so screw you all you bush cheney loving scum. they created this mess from the top down and you idiots talk of honor about paying off debts. how about the zillions made by no bid irewck contracts. sont you dare use the word honor in todays business world while i struggle to pay for my home. fico scores are stupid. my bank told me i cannot do a refi, you see i can pay $1800 a month but be doing a refi i would only pay $1300 a month and the bank says i dont have the credit score or equiyt. huhhhhhh, you bet narc walk away because the banks are going to create there own nightmare. and BTW my home was with 15% down and i had to leap before the market went further nuts and my rent kept going up. screw you fools who use honor and responsibilty when dealing with the bushco banks. bought at 360k with 15% down and now itsworth 275k. i will walk when its best and wont care about you fools with your honor.

[Paul H]

Listen Up everyone.

This is America. Land of the free, home of the brave. The folks out here that bought houses they couldn't afford, did so because they wanted a piece of the American dream, just like you. The banks and financial institutions that fed these bad loans are the ones at fault. Not the buyers. Take a close look at the history of this great country. Black families that toiled in slavery for hundreds of years were denied simple rights to vote. To buy and trade goods. To own land. The American Indians had their land taken from them, as well as their beliefs, They were forced to accept the ways of the white european and their God. Is this real estate problem a race issue? No. It's a CLASS issue. Non-English speaking people took these bad loans because they believe in America, and the American dream. People with bad credit took these loans because they believe in America and the American dream. If you can call anyone on this blog a "bad" buyer, it's the person/family that could afford the American dream at $500,000, but instead used an Option ARM to purhcase the dream for 1.5 million. Now THAT'S irresponsible. So while you rail on these folks you call dead beats, or irresponsible, take a good look in the mirror. Or better yet, think about those people who are less fortunate than you that believe in this great country. Remember this is America! If Arnold Schwarzenegger can become Governor, then that guy asking if you want to super size your meal deserves to buy a house.

[mbagrad]

The guy who sold me an egg mcmuffin the other day no more "deserves" a house than anyone else.

He "deserves" to save money and get a loan he can afford like the rest of us.

But yes, I agree with your point that it's the banks' fault 100%.

I almost fell for it - in 2004 some guy with a suit says,"hey, don't bother trying to save money for a down payment, you can't save as fast as house prices go up!" and you look out the window, and he's right, because house prices have gone up $100,000 while you were looking at them. And he says,"don't worry if the payment seems a little expensive, it always does" and that seems plausible too, because that's what your parents and everyone else says.

But in your gut you know it's not right, you know you really can't afford a house 12 times your income. I was able to walk away. But it was hard.

Some people can't resist - Because you WANT to believe. Because you WANT that house, because everyone you know owns a house, because owning a house means security, because owning a house is the only thing you can ever do to really, truly BELONG anywhere. Because owning a house is what separates "US" from "THEM".

It's a very powerful emotional draw, and that makes it very easy to prey on people.

It's too bad, because now it's been ruined for an entire generation.

[Tim]

I live in Sacramento and there was a story in today's paper describing the exact same thing with a homeowner here. I really think this will become popular. People bought 450K houses in flood zones two years ago that are now worth about 250-300. Many people who bought quickly will get out just as fast. When in history have people been 100K+ under in their homes? It will be worse down in LA. The nubers are too large. Cut your typical SoCal house by 40% and how many years of income does that equal for the "homeowner" who bought in the last few years?

[OC Native]

Paul H.

If "this is America!" where is personal responsibility?

Folks that bought houses they can't afford deserve to lose them.

Let them rent like the rest of us who saved pennies to make a down payment and lived within our means.

[mbob]

Second L*f* = the world's largest congregation of virtual bar flies.

Maybe the virtual bank was writing liar's loans.

Salsa puedes, mi compadres, asta su puede. Or, en Ingles, "...there ain't no riche like the noo-vo riche."

We'll know that the imputed 11 trillion USD in housing value is gone when illegal immigration reverses itself and we're all trying to arrange transport to Matamoros.

[Theorist]

Is George Carlin still alive? I'd really like to find out if he reads this blog.

Can't we all just become communists and have the discipline to stay communists? I'm just asking this because i don't have a lot of money. If I had a lot of money, I would buy a lot of stuff and then die. My children would buy a lot of stuff then die. Et-Cet-A-Rah, Et-Cet-A-Rah

[Ed]

Paul H: Please pass the tissue. The tears won't stop flowing, in spite of the fact that you are a Kool-Aid-drinking, left-loon absolute idiot.

I want the "guy who asks to supersize my meal" to get off his duff and go to school and better himself. Get an education, get off the fry-cook shift and get a real job (and that doesn't mean as a r.e. salesman!). And only then, buy himself the house he can afford.

Oh yeah, and stand by. Schwarzenegger was only elected because we wanted to get rid of Gray Davis. Schwarzie has now proved that he's an absolute charade in the gov's mansion. Write this down: Schwarzenegger will go down in history as the third worst governor of the State of California (along with Davis and Brown Jr) and drift off into obscurity, along with his wife and the rest of the Kennedys.

[bailmeout]

Lemme guess: he bought house number 1 with a stated income loan. When is debtors prison comiong back?

[mattress man]

I agree with "original thinker" of 1:22 P.M. This is going to be a huge
problem and one that will be as unfair to those who stay-and-pay as it is
to those who wait-to-buy.

I believe that "thinker" is right in suggesting that some form of post-facto
law will change mortgage terms so that those with the means to pay will not
be able to walk away. The law will back-date to catch all who chose to be
foreclosed-on for the financial benefits seen in rethinking their deal.
Diocletian did it to stabilize Rome. Should work in CA, too. Of course,
such deadbeats are outside the benefits of Bush's windfall tax relief bill of 2007.
So they will also have the IRS on their tail to collect the income debt on
their ill-gotten gains.

If it was up to me, I'd unleash the hounds on them, too.

[Mike S]

One thing the Communists had down pat was the direct consequence for not keeping a commitment and trying to stick one's comrades with the bill. If I recall correctly, the Chinese even made the transgressor's family pay for the bullet used to shoot the transgressor.

Personal responsibility and self-discipline. SoCal is full of such talk when it comes to diet and exercise. Too bad it appears infrequently when we discuss THE LARGEST FINANCIAL TRANSACTION MOST FOLKS MAKE IN THEIR LIFE: PURCHASING A HOME.

You sign a personal contract when you buy a house. You promised you will repay the money. The failure to honor your personal promise is not a "business decision." IT IS A FAILURE OF MORALITY, PERSONAL RESPONSIBILITY AND SELF-DISCIPLINE.

One's reputation takes far longer to build than any house. It is also far more valuable than any house for it stays with you for life and is reflected in your children's eyes. Just because a number of others are morally bankrupt as well doesn't change the fact you are morally bankrupt and everyone knows it.

This is a fundamental truth one cannot escape irrespective of how clever one thinks he is by walking away from a personal promise to repay money that one borrowed. You have compromised your moral fiber, thrown away your reputation, damaged your children's view of you and revealed how you cannot be trusted in the most important personal financial decision of one's life. All for some as stupid as a little prestige, a granite countertop and some SS appliances.

Mike S

[sympathetic]

All in all, this homeowner is making the best of all possible decisions, none of which are entirely attractive. He acknowledges his responsibility, and proceeds to extricate himself as well as he can. His primary responsibility is to his family, not to the lender who quite possibly encouraged irresponsbile borrowing, based on my own personal experience. He also correctly acknowledges that this is primarily a business decision, and he is playing according to the same rules that the banks and other lenders have and will continue to play by for eternity. The whiners and castigators should stop sniveling and accusing, and leave this borrower in peace, such as he can find it.

[shocked, just shocked!]

There are some outrageously harsh judgments going on here, people! Many of you are straining at the bit to condemn folks to endless purgatory for committing the sin of having -- a poor credit rating!

Against the conventional wisdom in these parts, I don't think a bad credit score is necessarily quite the same thing as a morality meter. I mean, I know you're all freakishly frustrated, but jeez...

[AZ JOE]

im thinking of doing same thing in AZ, and I have credit score of 790, but i am worried of legal ramifications, I dont know if there are any?

[Hambriq]

"I don't really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions... make mistakes... they are not excoriated and vilified with the same righteous zeal."

Reality check: Yes, they are.

Anyway, this guy is a scumbag. I'm sorry, but the whole "But Enron did it, too!" argument just doesn't fly. This wasn't an example of a large lending institution making a predatory loan. You make it obvious enough that it is within your means to pay for the condo.

It's simultaneously funny and sickening that he tries to rationalize this act by saying he is "[W]ithin my rights to walk away from a bad deal and suffer the consequences," as if the consequences are only affecting him. The only person who gets screwed when you get stuck with an overpriced condo is you.

Now, on the other hand, everyone else in the country gets screwed when people like you pull stunts like this. Have you not been watching the news? Have you not noticed we are on the brink of recession? People like this guy are, in my mind, equally as culpable as the predatory lending institutions which facilitate these loans.

Ugh. Time to sneak some extra blood pressure pills at work today.

[Red]

Wait till you hear this....

My husband and I sold our house at the peak in 2007 - just BEFORE the subprime crisis hit, made $400k on our home and moved out of state. We had ZERO debt....ZERO credit card debt, ZERO car payments (cars paid for long ago). We also had a nearly PERFECT CREDIT SCORE and PERFECT payment history - we'd never paid a bill late -ever, $500k in the bank, and an Ivy League & Law edication plus 25 years of excellent stable work history. We purchased a home, which we could have bought with CASH, but decided that we wanted to save a little extra cushion, and so decided to take out a TINY $50k loan. WE COULDN'T GET A LOAN! DO YOU KNOW WHY???? Becuase every single lending institution told us we didn't have enough DEBT!!!!!!! I couldn't believe it! I was arguing with them that - didn't it make MORE SENSE to loan money to someone who had NO DEBT and you knew could pay off this small loan with cash in their bank account than someone up to their ears who had a MUCH higher RISK of DEFAULTING????? I mean, we had a 20 year credit history of having paid off cars and our home which counted for nothing!!

The goernment AND the corporations in this country WANT people to be in debt! They told us that we needed AT LEAST THREE - 3!!! - other sources of "CURRENT PAYMENTS* to get our loan AND if we went out and bought two NEW cars they would lend us the money!!!!!!!!

These companies are GREEDY and SELFISH and want nothing more in my opinion than to SHACKLE people to loans they'll never pay off and to keep American's PRISONERS of their system!!

NOW, the tables have turned. TOO MANY people are collapsing under the weight of the systems THEY created, and now the companies are panicking. BAIL US OUT!

Of course, they're going to take us ALL down with them. Thank you. As a hardworking, 30 year fixed loan holder who never paid a bill late in my life, I want to thank you for screwing us.

[Long time listener . . .]

I love the moral outrage on this board towards a buyer walking away. I don't see the moral implications at all. The banks made a business decision to give this guy money, and they secured it with his house. They obviously valued his house to be worth as much as the loan they gave him. So when he walks, they get the house. No big deal, right? Oh, I see, they overvalued the house. Probably fraudulently so that they could sell the mortgage as part of a derivative security for more money on the secondary market. (See the multiple lawsuits popping up alleging collusion between lenders and appraisers in order to inflate the value of mortgages). Yeah, I guess the buyer is more morally bankrupt than the lender. Just like crackheads are more morally bankrupt than Columbian cartels.

But, hey, this is good news for first time buyers. It means prices will come back to affordable levels faster, and that, in the long run, is good news for everyone. I get the feeling that the people that are angry with Mr. Hernandez are dangerously close to his position themselves, and are desperately justifying their decisions to stick it out (lest cognitave dissonance sets in).

[Red]

Agree with "mbagrad"...people in this country do not only *WANT*, they also *BELIEVE* they can 'afford' homes WAY out of their income range, and worst of all, they believe they are *ENTITLED* and DESERVE to have them, despite ALL financial information to the contrary! WAKE UP, you are NOT ENTITLED to ANYTHING. There is no free lunch! Didn't anyone ever teach you this? I know you're watching TV and reading People Magazine and you WANT the big fancy home with the gorgeous furniture, new SUV and vacation to Hawaii too, but you CAN'T AFFORD IT. You probably never could.

How is it that I, a middle class designer, with serious deficits in MATH was able to see this all coming YEARS ago when I used to ask my above mentioned Ivy League educated husband "Where are these people getting the money for all of this stuff and these huge homes they are buying??? We're not rich but I KNOW they're not making as much money as we are!"

The chickens have come home to roost.

[john]

what scum you are to side with the bankers and bushco for creating the mess then running away at a personal profit and attack the regular people just trying to own then doing the same thing while loosing there money and homes. I have read words like honor and jesus and communist against the owners and nothing against the benefactors of this being the bankers and bushco. I wish this was a communist state because I would enjoy seeing a bullet put in your head. In CHINA they jail and execute corrupt business leaders and jail porongrahers, read about it before your glorify it.

[Red]

ALL this is, is an EXTENSION of the corporations actions into the lives of the average American. There is no corporate *loyalty* any longer in this country. People do not feel ANY kind of *loyalty* or *pride* in their jobs anymore. They are now nameless faceless, EXPENDABLE. This is MERELY an extension of the mentality that they have learned from these Corporations over the years. In a word "WHO CARES"...and "NOT MY PROBLEM". I mean, aren't they interchangable? You could be describing ENRON''S position, right? Well, they've now created a whole generation of citizens who have learned their lessons from this current working model.

Corporate America has been RAPING our society for years now. Big faceless corporations, 39 hour work weeks so they can avoid paying your health benefits, securities fraud, walking off with thousands of employee's retirement funds after having worked for 30 years, Countrywide's CEO walking away with, what was it again...a $200 MILLION dollar payment plus lifetime health benefits for screwing everyone and then leaving? Blackwater murdering civilans and evading any kind of legal responsibility. Big pharma killing people just to make that extra buck on pills they KNOW are dangerous.

There is no job security, no job stability, no benefits, no insurance. Corporate America USES their employees and dumps them when they get too old and close to retirement so they don't have to pay expenses.

THESE are the lessons we've been taught. THIS has been our example. What did you expect? I'm only 40, but I remember when you also wouldn't let kids touch anything in a store because "if you broke it, you bought it". Now, if you break it, oh well...it's Target....they can afford it, right? Who cares anyway? It's not your neighbor's small corner store. You don't have to spend the holidays with their family or attend school with their children.

We don't have COMMUNITIES anymore! We have masses of people who move constantly for jobs and have no sense of belonging or caring for those around them and who do not make any kinds of *connections* to one another! Why should they? Their company is probably just going to move them again shortly.

SO MUCH will have to be reversed, and I am not sure that's possible anymore. America is going to pay for letting Corporate America to take over our souls so we could afford to buy lots of cheap foreign made crap. Looks like those payments have come due.

[brian horn]

The golden rule is "treat others the way you wan to be treated" not "the way you have been treated". Granted, there has been a great deal of preditory lending over the past 10 years and the lending industry got away with it until recently, but that does not justify his retaliation. If he has the ability to pay the mortgage, stay there and pay it. His home value will return in time. He has to live somewhere, his loss is simply a paper loss that will eventually turn into a gain (what goes down must come up). This view is very short sighted. I find it amazing how easy it is for people to rationalize their way into or out of just about anything....Finally, tow wrongs don't make a right....

[sid]

Marc, thank you for posting. I appreciate reading about how people feel and think when in comes to all aspects of the Real Estate business. I already know how the majority of the posters in this blog think.

I often feel this blog is just one big support group for people not to buy LA Real Estate. A lot of back slapping between folks who saw the bubble and eager chastisement for those with different views.

[Kat]

There seem to be two camps here - those of us who live within their means and the idiots who think they are entitled to a house whether they can afford it or not.

This whole thing goes way deeper than financial and personal responsibility. It's a direct result of pure blooded GREED. Many here might blame the banks but it's the house flippers, greedy homeowners, and speculators who have cause the ripple that's turned into this tsunami. The buyers who are now stuck are no better. They bought more house than they could afford thinking it would continue to appreciate and they could capitalize someohow.

This whole deal is like a bunch of greedy jerks playing financial musical chairs and it's the up side down homeowners standing without a seat when the music stops.

One good thing about living in little nowherseville in the south east is that we never saw the boom and we never saw the bust. We don't have foreclosure problems or sub-prime default epidempic or any of that crap. We are sitting on the sidelines watching this mess and shaking our heads. This is madness and it's only going to get worse because of people like Marc here.

[amystruve]

Im am glad i am reading this now. I was supposed to buy a house for retirement now that the prices are down. my family lived in texas for 15 years and we are ready to come back.Now ,smart thing to do is wait......

[Ed]

Long time listener, AZ Joe and the rest of you morally-bankrupt knuckleheads, read this about 10 times and see if you can understand it. Maybe you can even get someone to explain it to you if that's too difficult.

Mike S said (and very well put, I might add):

One thing the Communists had down pat was the direct consequence for not keeping a commitment and trying to stick one's comrades with the bill. If I recall correctly, the Chinese even made the transgressor's family pay for the bullet used to shoot the transgressor.

Personal responsibility and self-discipline. SoCal is full of such talk when it comes to diet and exercise. Too bad it appears infrequently when we discuss THE LARGEST FINANCIAL TRANSACTION MOST FOLKS MAKE IN THEIR LIFE: PURCHASING A HOME.

You sign a personal contract when you buy a house. You promised you will repay the money. The failure to honor your personal promise is not a "business decision." IT IS A FAILURE OF MORALITY, PERSONAL RESPONSIBILITY AND SELF-DISCIPLINE.

One's reputation takes far longer to build than any house. It is also far more valuable than any house for it stays with you for life and is reflected in your children's eyes. Just because a number of others are morally bankrupt as well doesn't change the fact you are morally bankrupt and everyone knows it.

This is a fundamental truth one cannot escape irrespective of how clever one thinks he is by walking away from a personal promise to repay money that one borrowed. You have compromised your moral fiber, thrown away your reputation, damaged your children's view of you and revealed how you cannot be trusted in the most important personal financial decision of one's life. All for some as stupid as a little prestige, a granite countertop and some SS appliances.

Mike S

[Mike S]

So some bankers were/are greedy... So are crack dealers. So are liquor store owners--they'd rather you buy a case instead of a bottle of gin.

They offer choices--you choose--you decide. They may of advertised, they may of cold-called and hard-sell'ed, but they didn't hold a gun to your head. No demand, nobody stepping up to by their toxic wares they, would move on to some other revenue generating business.

To even suggest someone else's poor decisionmaking and/or lack of morality justifies yours says a lot? Are your kids and reputation not more important than a house? What real lessons do your kids take away? What does the common man think of you? You threw everything away for a lousy bigger house.

MIke S

[Rogue]

"We as Americans have made it perfectly clear that we support these companies by being massive consumers with instant gratification our number one priority, and yet when it turns out that all THEY care about is money, we want to act mortified and cheer their demise."

Exactly.

To bad "Financial and personal responsibility is the American Dream" hasn't been hammered into out dull noggins...

Just because it's so easy to spend money that you don't have doesn't mean that you should. All this, "It's their fault!" spewing wears me out. It's always someone else's fault. Always. Don't buy it if you can't afford it. It doesn't matter if it's a house or a pair of True Religions. Why is that so hard for people to grasp?

I would love to have a new laptop and a Slingbox. Hell, throw in an iPhone too, why not?However, at the moment my current cellphone that I bought last year (last year?!!?! egads!) works just fine, and I have more important things to do with my money. Maybe I'll do something really wacky and stupid like invest it.

I don't need these things, I actually have two computers already, but who cares, I WANT the latest model. Maybe I should get them anyway and refuse to pay my credit card company. After all, they have more money than I'll ever have and they're a COMpany, a dastardly, capitalist, BUSiness - they're interested in taking as much money as I'm willing to give them. How dare they?! Cretins.

Isn't that how it works? I think I've finally got it. I can barely withstand the Appolonian vision flooding my mind - like the American Dream itself - giving me clarity for once in my life. Yes! I think I've finally come around.

Let me see if I got this right you morons:

... your mother forced to work as a sex slave in Thailand never to return to your Dad who had also been held captive and beaten daily for the last six and a half months, were returned to you only after you wrote 100 times on a blackboard - in your own blood, "Spending more money than I earn is truly the smartest thing I could ever do in my life?" and "Being in debt, rocks!" Right?

... those evil credit card companies force you to apply for their cards. You were informed that in no uncertain terms, "They" would send someone to rape your daughter if you DON'T, right?

... you were threatened with a gun butt to the face if you DID read the contract on your credit card agreement? Right?

... you found Fluffy impaled on a stick on your lawn with a note reading, "Mr. Jiggs is next" because you had the audacity to get a credit card with a 7%APY instead of one that rips 22% out of your hide? Right?

... the pain from the bamboo splinter that Boris rammed in your eye compelled you to refuse to actually read and understand the loan you signed? Right?

Right?

Got it.

[Housepoor in 2008]

I am one of those "dum dums" here in California who unfortunately purchased a home only months before the market started to decline. I was not greedy. I had owned a home before (that was sold due to a divorce). I did put equity down and thought I was making a good decision. I agreed to the ARM because I thought I would be able to refinance soon. I had rented for years after my divorce and thought I would wait out the "craziness" of the ridiculous housing market. I did this for 4 years. However, when I saw homes go from $200K to $600K in just 2 years. I was afraid that I would never be able to own a home again. So I bought the cheapest home on the market in my community (an old 1959 home for $370K) so I could have a home again. I intended to live in that home forever. I was not one of those "greedy investors" that some of you speak of. That was two years ago. Since then, my Fortune 100 employee (Intel) has been laying off on a daily basis (which still continues)...until finally I accepted a more stable job in here Southern California. I have tried to rent the home with hopes to keep a renter in it until I can sell it. However, the rent doesn't come near the mortgage payment I have to pay. I am current on my mortgage but I am borrowing from all my credit cards, used up all my sign-on bonus, and will have to use my tax return this year to just keep afloat. To make matters worse, my ARM is about to adjust and I'm afraid it will add another $800 to my monthly bills that I cannot pay. I am one of those who is contemplating just giving the house back to the bank so I can stop the "bleeding" and pay off my credit cards that I have been using to keep afloat. I don't ever plan to return to the home and it's sitting empty right now. My realtor advised that it has already lost $100K in value (and it may go down even more) and she doesn't see the market changing in the next few years! Previous to this situation I had very good credit and good income. Now I feel like a complete failure and it tortures me every day that I'm in this situation. I'm not GREEDY or IMMORAL as some of you write about. I just don't want to go bankrupt and lose the house anyway. I also have two kids I'm raising as a single mom and I'm tired of not having enough money for daily necessities because I have to pay a mortgage on a home that noone lives in that I won't be able to sell for 5 years. I feel like I should just cut my losses now. I also heard there's a new law that Bush just signed in December called the Foreclosure Tax Relief Bill that will eliminate taxes once I foreclose so I think that would be a better option than trying to get a short sale. I ask that those of you who are so quick to point fingers and say that people like me are greedy and immoral---that you think again. I know many people, like myself, who are working professionals, with familes, working hard, but are in the same situation. I don't blame the bank--I ultimately blame myself for making a dumb decision. But I'm also smart enough to recognize when to throw in the towel. I thank God that I live in America where you can't be jailed for these types of things. There will be consequences to this decision, so I will have to live up to it. But there's also a need for survival which I choose versus going bankrupt. Thanks for listening--and I hope that we as a country survive this.

[USA]

NUMBERS. Remember people, stay calm, all we are dealing with at the end of the day are 'numbers.'

No matter how excited you get about this guy, calling him a thief and all sorts of other colorful words that I enjoy using as well, remember, everyone is working with inflated numbers here, even Tiffanys, as we all know has always dealt with inflated numbers.

Anyone who participated in this market is guilty...banks and borrowers alike.

Stop crying about this guy...the feds, for all their glory, did not step in and stop this mess when they should have...Greenspan did not know better and Bernanke came into this mess too late.

Just remember little girls and boys...stop crying...we still have all of the homes that were built during this time, some with extra features like pig poop, but we will eventually be o.k..

[jb]

Mike S,
I have never bought a house - but I thought you promised to pay the money OR the bank takes the house. This is a risk that the bank should protect itself from by requiring 20% down so that it is less likely that you will walk. I think it is ok to take the "or" option and walk.

You make it sound like you promise to pay back the money regardless of any and all circumstances - and I think this is not how it is written or implied.

[Red]

Mike S...let me first say, I agree with you completely, but don't you all see...it STARTED with the corporations. Couldn't we say the same about the big Corporations?

"Your reputation is the most important thing....it takes years to build....It stays with you and is reflected in our societies eyes....they way you've behaved reveals how you cannot be trusted...."

And guess what? They don't give a rats behind! You don't like us, trust us, like the way we treat our employees or do business? OH WELL. Go somewhere else and find what you need CHEAPER. You can't? Oh, looks like you're stuck doing business with us.

WHY the double standard? Yes, you can argue that if everyone acts on this, our society will be a mess. Look around, it's already here. The problem is that this has been a ONE WAY STREET for a VERY long time now, with Corporate America and Banks FLEECING the people ....People are starting to look around and say, If Corporate America can walk away from all of their bad dicisions. If they can walk away from the PROMISES THEY MADE to pay someone's pension or health benefits, then I'm walking away too. You don't like it? Too bad.

When someone starts forcing these big companies to walk the line too and expects them to keep their promises too, then perhaps, the average American will start to follow suit again. For right now, why is the average American small fry supposed to sustain these really high *morals* while the big banks and corporations RAPE them?

Tell me, has all the really bad press about Walmart affected their bottom line? No. How about the Gap having their clothes made by slave labor? Nope. I still see people crammed into their stores. Oh, it may make headlines for a week or two, and then it's back to business as usual.

Years ago, people worked, felt they had value, had pride in their jobs, their homes. They had DIGNITY. They could depend on their jobs and employers, there was a loyalty that went both ways. Employers valued thier employees and vice versa.

Now the employers are so big and powerful - they couldn't care less if you're not happy with their service, their reputation or how they run their business.

And thus, the average American feels no particular obligation to be honest, hard working, or keep their promises either.

[Red]

Stop with the double standard! Corporate America has been IMMORAL, IRRESPONSIBLE and UNDISCIPLINED for DECADES now. Who's going to force THEM to do the *RIGHT* thing???? Let's make the little guy feel *SHAMED* so the big banks and lending institutions can continue to rape everyone in this country.

"IT IS A FAILURE OF MORALITY, PERSONAL RESPONSIBILITY AND SELF-DISCIPLINE."

It is also a failure of morality, responsibility and self discipline when Corporations take advantage of workers in this country, hiring them for a 39 hour work week to avoid paying benefits so their executives can make $15 million bonuses every year while laying off thousands of workers, it is irresponsible when a company steals their employees entire retirement account, ie: ENRON, and it requires self discipline not to give loans to people you KNOW can't afford to pay them just so your company will make billions of dollars - while it lasts.

>Giving loans with "NO-MONEY DOWN" to people with bad credit was a "STUPID" idea

I find it amazing how ignorant some people are, when the Banks are the ones who knew, KNEW, that using loan shark tactics would backfire. It wasnt bad enough that they milked the poor with higher interest rates, they bitch and complain when they lose money. What about the home owner? If the house dropped value, the government doesnt run in to protect them. They only run in to protect the bankers. How people cant take off the blinders its not a dead beat issue, its a banking industry and interest issue. With interest rates being unregulated now, the modern day loan shark is called Wachovia.