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What would you do???

Ok everyone - here is the first question in what will be a weekly series on -

what would you do? ----

You have excellent credit - 785 scores...

you have been on your job 15 years and make a solid income....

you have money in savings and a very nice 401K built up.....

you purchased your home at the very height of the market------- you owe 400K and you home is now worth 275K...

you have made assumptions and believe it will be 8 - 10 years before you break even on the value of your home......

what do you do?

1) - continue to pay the mortgage?

2) - request a short sale?

3) - tell the bank the keys are in the door and like they say in old Mexico city AMF

I am not looking for the ethical answer nor am i looking for a expose on what is right or wrong...... just a simple decision on what would be best for you and your family....

so What would you do?

Posted by Lewis Poretz - - Maryland Mortgage Expert - on 10/19/2009 08:40 PM

Comments (12)

what would you do

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12 Comments on What would you do???

OCT

I would continue to pay the mortgage. I made a commitment to the bank to pay it, and with the way real estate works....Next year or in 5 yrs. the house could be worth more than I paid for it.

Perhaps a loan modification would work in this case.

Tough question! I think I would call my lender and lay the cards on the table and see if they would make any adjustments. I'll assume they may adjust rate or something. But if I have a good job with no need to move (assuming this is 4-5 years into a 15 yr note) I think I would stick it out and pay it off. The balance on the mortgage after 5 years would be within 50,000 of 275,000. By the time I moved, paid closing costs and started over on a new mortgage I would probably be close enough to not be tempted to trash my credit and loose my equity. Don't get me wrong...I'd still be mad! Either way I've lost my equity...no use loosing my mind!

Verlyn

I pretty much agree with Sherry & Verlyn. If I like the house/neighborhood and don't need to move, I would stay put. I would also petition for a reduction in assessment and property taxes. So, I'm going with door number 1.

Sorry, but I can't take ethics or morals out of my decision. If I keep my job and can afford the monthly payments then I continue to pay. Ethics and morals are what guide us when the going gets tough. As long as I can make the payment I will live up to my committment/obligation. The message this sends to my children is priceless.

Assuming the person asking the question is experiencing financial difficulty, short sale would be the 1st option and perhaps a Deed in Lieu would be the 2nd option. Foreclosure would be the last resort. Good luck!

OCT

These numbers are a real situation that a past client of mine is in. However, these numbers are no different than the situation millions of Americans are facing. Has anyone seen the statistics on the % of loan mods the government supports and has supplied money for that banks actually have completed. It is pathetic! I know the rules. I have called my mortgage holder. It has been six months and they finally sent me a loan mod package. I had been turned down numerous times over the phone. OVER THE PHONE! With out documentation..... it is usually a clerk who makes these decisions.... YET - this bank announces quarterly profits...... hmmmmmmmmm

Recent statistics have shown once a homeowner is more than 25% underwater it can take 10 - 12 years to break even.

Sherry - No way in the next 5 years the house gains 30% of the value back. We are not even at the bottom yet. sorry... I wish this was the case but it is not... great suggestion on the loan mod... less than 10% of all eligible loan mods have been completed...

Verlyn - a 15 year note... what a marvelous idea... every mortgage should be no longer than 15 years... but the fact is - a 30 year mortgage hardly pays down at all until after the first 5 years....

Nick - I agree - if there is no compelling reason to move and you plan on staying in the house for a long period of time... suck it up and pay the note!

George - a big hell yeah to ethics and morals... I am right there with you.... now let's talk about B of A, Countrywide, Merrill Lynch, Lehman Brothers, Washington Mutual, AIG, the United States Government..... the question above is NOT an ethics or morals question it is a business decision based on what is best for your family...... Let's say you own a business.... and you were bleeding like the example above... what would you do? Ethics and morals - hell yeah? Set examples for your kids? Hell yeah - do like the United States Government does and bail out the crooks and develop program for American homeowners and then never police it? give me a break!

Melinda - Nope it is not me facing this situation... not yet thank goodness.... I believe a short sale would make the best sense.... let me ask you, you are a Realtor... have you ever sold a short sale and seen them take up to six months because a bank can't get authorization to sell the property because they are so mismanaged??? And then the deal just dies, the bank forecloses and winds up taking 100K less than it would have made in a short sale?????

People - this IS the next wave coming.... calculated foreclosures.... and this will be from Americans with good credit and the ability to repay..... and you know what happens when foreclosures mount? Property values continue to slide downward.... which will lead to more calculated foreclosures...... The government better act on this and act on this soon! Thank you all for your comments... keep em coming... this will be the hot topic in the next coming months....

Lewis: I'm not sure a home should ever be looked at as an investment. For most of us, it's the place we live in. True story: When I was growing up, we lived in a nice home in small town. When my parents sold it years later, my dad calculated the annual percantage rate of return. It was 4%. My dad's point was that there are better investments out there. Thanks for the post!

Paul

P.S. I would keep paying on the note.

I think that you need to stay in it if you can afford it. I'm looking at the integrity issue. If you can afford it, you need to teach your kids that you can't just "walk" when things don't go in your favor. You can try to sell while you're paying, but you need to keep paying. Secondly, it's a credit bomb that will become so much more costly to you by walking away. Again...not moral here, but the long term economic cost because of the credit hits will be astounding.... For the client, abandoning the house ....it'd be short term gain, for long term pain. Just my .02 cents.

First off, I'd get out of the Mortgage Business;) I would stay put. If for whatever reason I wanted to move, then it makes that decision a tad bit more difficult. And the second to last sentence Larry wrote above is deadly accurate. Ethics aside, you'll kill credit if you chose to walk away.

Stay and pay under the terms of the contract as I promised....... unless I have to move for job or something, then I guess it would be short sale. I don't have that problem here in Texas so I haven't given it much thought.

Paul - very interesting comment.... I own a broker shop... just because i make 100% of the deals i sell does not mean i make 100% of all revenue coming in..... the truth lies in a spreadsheet... check out the link to the calculator below... very informative..... there are people who live in houses that are over 50% upside down... maybe it is because they did a 100% int only loan... maybe because they took out a whopping line of credit.... for whatever reason - it is what it is....

Larry - I am with you 100%... let's assume that your income has drastically been reduced and you need to take care of your family first..... do you walk away and rent for 1/2 the cost of a mortgage and hope to stash away some money for a few years from now and rebuild or do you spend every penny you make on the mortgage and pray property values return within 10 years or so?

Sardi Mortgage Inc - damn I love that ring.... Jason... I believe with the amount of American consumers with bad credit reaching historic rates, the ability to rebuild credit and purchase a home in the near future will become EASIER than ever before.... once the economy stabilizes.... just my .02 cents

Tom - I have given thought about moving to Dallas as you guys have not experienced 50% declines in home values like we have in many other parts of the country..... but then I would have to be a Cowboys fan.... ugggghhhhhh

Check out this link - there is actually a calculator that determines if it makes good business sense to walk away from your mortgage.... amazing...

http://www.payorgo.com/

i also find this article very interesting...

http://banking.about.com/b/2008/02/11/more-walk-away-from-mortgage-troubles.htm

OCT

Stick it out..... I've done similar things many times in my life... Every Time I Financed a Car, it went upside down real fast. I never thought of requesting a short sale on my car, or calling the finance company and telling them "the keys are in the ignition.. come get it". While the risk is apparent when buying a car, it should've been too when we signed our mortgage papers.

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