Professor Advises Underwater Homeowners To Walk Away From Mortgages

[HVVS]

Date: 11/29/2009 3:02:03 PM
Author: swingirl
When you buy a car it doesn't go up in value. What makes people think that when they buy a house they should have a guarantee from the bank that it will go up in value otherwise they default?


It's everyone's own choice what to buy, how much to put down, what type of mortgage to get and whether or not they can afford the ups and downs of the economy. Who ever said an investment wasn't risky? I don't remember there ever being any guarantees. Sometimes investments go sour. But everyone is hurt by loan defaults, the ones who took the risk and the ones who didn't.

I doubt that banks or anyone else would guarantee that now. But the difference is that an automobile has always been a depreciating asset, while a home purchased for your primary residence is intended and (historically) expected to be an appreciating asset that offsets the depreciating ones. Said another way, if you know that you are going to be losing money on a home every year, why would you build one? Why would you buy one? Why would you put any money whatsoever into upgrades or even preventative maintenance? Why not just burn the place down now while it's still worth something, and collect the insurance? Historically, home values in the USA trended up over time, not downward. The decay and death of inner cities was accepted, but home values deflating 26% in "the nice areas" was unheard of. For many people, the home that they own is their greatest asset, and looking at history since probably the 1930s, if the home is located in a desirable area, it's supposed to appreciate not depreciate. It's not insignificant if your major investment loses 26%.

 

[iluvcarats]

Date: 11/30/2009 12:07:25 AM
Author: miraclesrule
In California, you don''t have the pay the capital gains tax that is owed when you short sell. The feds passed a bill that basically forgave the tax debt and then most of states followed with their own. I am sure that California''s is being extended.


It''s a huge tax debt that most people can''t afford. If they could, they would have stayed in their homes.

If you can''t afford to stay in your home, then I guess there is no choice. But if you choose to leave because you don''t think it is "fair" that your property value is now less, and saddle your neighbors with the tax burden (they''re going to get the money from somewhere!) and let your state crumble, well THAT is despicable. Especially in CA which is in the worst financial shape of all.

 

[crown1]

Date: 11/30/2009 7:43:08 AM
Author: HVVS

Date: 11/29/2009 3:02:03 PM

Author: swingirl

When you buy a car it doesn''t go up in value. What makes people think that when they buy a house they should have a guarantee from the bank that it will go up in value otherwise they default?



It''s everyone''s own choice what to buy, how much to put down, what type of mortgage to get and whether or not they can afford the ups and downs of the economy. Who ever said an investment wasn''t risky? I don''t remember there ever being any guarantees. Sometimes investments go sour. But everyone is hurt by loan defaults, the ones who took the risk and the ones who didn''t.

I doubt that banks or anyone else would guarantee that now. But the difference is that an automobile has always been a depreciating asset, while a home purchased for your primary residence is intended and (historically) expected to be an appreciating asset that offsets the depreciating ones. Said another way, if you know that you are going to be losing money on a home every year, why would you build one? Why would you buy one? Why would you put any money whatsoever into upgrades or even preventative maintenance? Why not just burn the place down now while it''s still worth something, and collect the insurance? Historically, home values in the USA trended up over time, not downward. The decay and death of inner cities was accepted, but home values deflating 26% in ''the nice areas'' was unheard of. For many people, the home that they own is their greatest asset, and looking at history since probably the 1930s, if the home is located in a desirable area, it''s supposed to appreciate not depreciate. It''s not insignificant if your major investment loses 26%.

maybe one would build one and not burn it down so that they may live there and enjoy the amenities. a home is to live in, the fact that it has dollar value is just icing on the cake for most people i know.

 

[ksinger]

Date: 11/30/2009 7:43:08 AM
Author: HVVS

Date: 11/29/2009 3:02:03 PM
Author: swingirl
When you buy a car it doesn''t go up in value. What makes people think that when they buy a house they should have a guarantee from the bank that it will go up in value otherwise they default?


It''s everyone''s own choice what to buy, how much to put down, what type of mortgage to get and whether or not they can afford the ups and downs of the economy. Who ever said an investment wasn''t risky? I don''t remember there ever being any guarantees. Sometimes investments go sour. But everyone is hurt by loan defaults, the ones who took the risk and the ones who didn''t.

I doubt that banks or anyone else would guarantee that now. But the difference is that an automobile has always been a depreciating asset, while a home purchased for your primary residence is intended and (historically) expected to be an appreciating asset that offsets the depreciating ones. Said another way, if you know that you are going to be losing money on a home every year, why would you build one? Why would you buy one? Why would you put any money whatsoever into upgrades or even preventative maintenance? Why not just burn the place down now while it''s still worth something, and collect the insurance? Historically, home values in the USA trended up over time, not downward. The decay and death of inner cities was accepted, but home values deflating 26% in ''the nice areas'' was unheard of. For many people, the home that they own is their greatest asset, and looking at history since probably the 1930s, if the home is located in a desirable area, it''s supposed to appreciate not depreciate. It''s not insignificant if your major investment loses 26%.

Gee, I must be a simple soul. I bought my house not as an asset first, but as a place to LIVE. A home. A roof over my head with a few benefits over renting. I also find it amusing that no one was complaining when the houses were going UP in (alleged) value by double digits each year, something that is equally unrealistic "historically". Historically I think it''s been more like a steady 4-5% a year. (I''ll check with the historian I married to confirm my recollection).

The houses in my area have retained most of their increase from the boom times, precisely because we never really boomed here, not like the larger more desirable markets. (Last time I checked, houses in my area were still quite happily WAY above what I paid for it, and are still darn close to what they were selling for just 2 years ago.) That and people in my state are long scarred by the boom/bust cycle, and are quite a bit more wary of "good times" because of it. Darn few advantages in living dead-center of a place where the collective psyche is seared by the Dust Bowl, Penn Square Bank, and the oil boom/busts, but not going nuts on overabundance is one of them.

 

[katamari]

If anyone is interested in the research, you can read the full paper here. I think he does an excellent job highlighting the need for equitable policy between both borrowers and lenders and clearly establishes how unfairly tipped the scale is currently toward lenders.

The LATimes article does take his findings a bit out of contexts in terms of what he is suggesting--especially in suggesting he is speaking to individuals when he is clearly speaking to a policy audience about policy, but that is, unfortunately, part for the course when academics and media collide.

 

[Dancing Fire]

Date: 11/30/2009 7:21:40 AM
Author: crown1

too bad that it is shocking when people do the right thing. we are not entitled to have everything we want. when you agreed to the purchase terms then you need to stick by them. it is sad that people have things happen that they can not control, like loosing a job. when they overindulge and expect someone else to pay for their mistake it is revolting. i am for keeping up my end of the bargain unless it becomes impossible. why should someone else pay for me. i am for banks and people doing the right thing.