Jon Smirl

Deleveraging Through Loan Modification

I know of two people now that have purposely left their houses go into foreclosure because their loans were underwater. Both couples were able to make their payments but they hid that fact from the foreclosure process.

Both are in rentals now. One is paying $500/mth more and the other is paying $800/mth more. Both think they beat the system because they escaped from being underwater $100-200K.

Personally I think they are both worse off. They are paying more per month for a rental that is not as good as what they lost. The rent is not deductible and they aren't building any equity. When housing comes out of its depression they won't participate in any upside. When they buy in the future they are going to pay a higher loan rate.

If your rent is going to be more than your payments, it is stupid to go into foreclosure just because you are underwater. The probability that you will still be underwater when a 30 year loan is finished is pretty close to zero no matter how far you are currently under. The impact of inflation over the next 30 years will far exceed the current housing depression.