Meeting after meeting with "distressed homeowners" has me begging the question: Why should they keep their house? And this is not about a *payday* for me; it's about a business decision for the homeowner.
Picture this: A 40-something couple, bought their house near the top of the market with 10% downpayment. They have two small children, are self-employeed, and very hard-working, ethical people. They owe $800,000 and their house is now worth $390,000. Their business has suffered, and they easily qualify - and get approved for - a loan modification.
The loan mod slashed their $6,500 payment to $3,500, restarts their note beginning now, for 30 years. It does not lop off any of the principle, so they still owe $800,000. At the end of the life of the loan, when it's all said and done, they will have paid $1,260,000 for this house.
The husband looks at me and says, "Why am I going to work my tail off, to end up paying 3X what my house is worth? Why don't I just stop making payments now, short sell it and save $21,000 during the 6-month process, which will cover a year's worth of rent somewhere, rebuild my credit and purchase again in two years?"
He reminded me that everyone in his neighborhood has moved and he is the only "fool" left on the block that owes more than $400,000 on his house - double that, as a matter of fact. Furthermore, he says, "If I pay $350,000 for another house in two years, I can double-up on my payments (not exceeding the $3,500 loan mod payment) and pay the thing off in 15 years.
"I have to think about my future, my kids' future, their college, my retirement. I don't have an extra million dollars to throw away on this place. I understand completely, the moral dilemma. That is why I haven't pursued this option until now. But there comes a time when I have to look out for myself and my family, and if that means cutting my losses now to ensure a secure future, then so be it."
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