House Poor

Why Felix Should Walk Away

We put 20% down on our condo in CA as well. ($78K in our case) We have a 30 yr fixed rate. We've been making our payments for 4 yrs. Now moving out of state for a better job. What do you do? You can't sell it without still owing money, you can't refinance to lower the payment. We don't want to take on the expense of trying to rent an out of state property when current rents don't even cover the monthly nut. We've lost considerably in our 401K, etc. I don't know what we're going to do. You can't even make an informed decision because the bottom hasn't hit yet. Our only sensible choice for financial survival may be to walk. If anyone has constructive suggestions, please share them.


On Mar 05 03:20 PM Crocodilian wrote:

> There's a very important distinction between recourse and non-recourse
> states, and when you look at the economics of busted mortgages, the
> financial choices faced by a homeowner in a recourse vs a non-recourse
> state are so different as to essentially be a different country.
> We risk opening up a major "fissure" in the US, by having incentives
> that are so radically different between states.
>
> In fact, when you think about it, that fissure has already opened:
> the states with the massive foreclosure rates are all non-recourse
> states. California, Florida, Nevada (a bit more complicated there,
> but basically non-recourse)
>
> Basically, the non-recourse option is an "implicit put" from a legal/financial
> perspective. People who have puts would, all other things being equal,
> be more likely to take on more debt and more risk in the pursuit
> of gain, because their downside is minimized.
>
> And the "Felix" of the call is atypical -- he put down a very big
> down payment. . . if you think about a California buyer, who put
> down %10 and is now deeply underwater; he's heavily incentivized
> to "walk away".
>
> We should take care to structure our incentives to do the things
> which are for the public good, and the low down payment, non-recourse
> mortgage is not that at all.

What Would You Do With Just $350 Billion to Spend?

I used to think like you until my husband got transferred in his job.
We bought a house in 2005. The price of the house was 2X our income. We put 20% down and have been making our payments for over 3 years. Imagine our shock last week when we contacted a realtor. She told us the value of the house now is worth less than the loan amount. We know all the money we saved for our down payment is gone. What we don't know is what to do now. Do you try to rent an out of state property at a monthly loss? Do you walk away and ruin your credit? It was a new housing development when we bought, so every other family that bought there is in trouble as well, whether they know it yet or not. Hopefully none of them will lose a job or have to move for another job. Insanity!!!


On Jan 13 01:42 PM John Polomny wrote:

> "Still, what exactly should the money be spent on? I’m tempted to
> say: housing, because this continues to be a major unresolved problem
> that looms over both consumers and their balance sheets. Unfortunately,
> however, the banks remain a greater priority."
>
> No and No. Housing got into trouble because of malinvestment, greed,
> and flat out fraud. The only thing that can solve the problem is
> to let the price of houses fall until they reach market clearing
> prices. As far as the banks, quite a few of the large regional banks
> are not in trouble. I have no problem with letting the likes of Citigroup
> go under along with their inept management. Other investors, banks,
> managers will then come in buy the bankrupt assets and then the healing
> process will begin. Rewarding failure and the losers who made bad
> calls at the banks during the bubble is no way to fix this problem.