Just Walk Away

[mtnbkr]

Tired of paying that rising Adjustable Rate Mortgage?  Too lazy to read your mortgage contract, so now your payments have doubled?  I have a solution for you: http://www.walkawayplan.com/

Should be good for a laugh or a cringe.  I heard about it on NPR yesterday. 

Chris

[Manedwolf]

I hope luxury rental communities start tagging this as a NO for letting people rent.

What's to guarantee that they'd pay their rent, either?

I also consider it ironic that there's a "protect against fraud" thing on the first page, when I consider deliberately defaulting on a mortgage like this to be fraud.

[K Frame]

Wow. Just WOW!

"Everyone needs to be comfortable and clear on the decisions they make.  This series of questions comes from Mike Mish Shedlock in response to the comment: 

Mish, Im very disappointed that you don't think people are morally obligated to try to honor their agreements. Just because it's legal doesn't make it right."

To this Mr. Shedlock asks:

Let's explore the issue of moral obligation with a series of questions.

Where was the moral obligation of those willing to lend money to someone who they knew could not possibly afford the house?
Where was the moral obligation of those willing to lend money to someone when the lender did not care how overpriced the home was?
Where was the moral obligation of those willing to lend money to someone when the lender explicitly knew how overpriced the home was?
Where are the moral obligations homeowners to provide for their family the best legal means they can?
Suppose someone could "afford" to make payments but at the expense of say health insurance or better schools? What's the moral obligation on that person?
Does moral obligation only run in one direction?
Should someone have a moral obligation if he signs a contract with a thief?"



Holy crap.

I wonder what this plan costs...

Actually, I wonder what it costs the individual who decides to default on the loan by walking away? The site says credit can be "repaired" in as little as two years, allowing the walk aways to buy a new home... I don't buy that for a second.

[mtnbkr]

Have you heard of any such communities considering that?  Just curious...

Heard on the news the other day that insurance related arsons are on the rise around here. 

I still get a chuckle from the folks that claimed they didn't understand what they were signing or they weren't told it was an ARM, etc.  How hard is it to ask a few simple questions such as "Does this mortgage have a fixed APR?", "Is this mortgage a traditional 30yr fixed or does it contain a balloon payment?".  The only homework I did prior to getting into the market was to ask my parents a few questions about what to expect and reading "Homebuying for Dummies", which was so basic, I felt like most of what the book contained was common sense.

I know some folks who bought home with balloon mortgages, ARMs, etc, but they all knew what they were buying and why.  I can't imagine someone so lazy or ignorant to not perform the basic research in order to be safe when buying their home.

Chris

[mtnbkr]

On NPR last night, they said the cost of their "help" was $995.

Chris

[K Frame]

Just found that the plan costs $995 for a half hour of consultation and the other stuff.

If you go into their Q&As, it pretty much admits that they can't "repair" your credit, and that the foreclosure (that's what will happen, you walk away and you'll still be foreclosed on) stays on your credit report for 7 years.

I'd have to say that my initial take is that they're getting an awful lot of money and not providing much of anything in return.

[Bogie]

The ONLY time I would recommend a balloon or ARM would be if I -knew- I would be selling it within a fairly short time - i.e., in a job with corporate moves, military, etc...
 
Problem was that Joe Blow was -assuming- that the house would be increasing in value, and continue increasing. And that he could easily refi when the ARM or balloon hit. Well, the price stayed the same, or dropped.
 
There are always a bunch of folks who don't understand the concept of "bubbles" or spikes...
 

[Manedwolf]

The ONLY time I would recommend a balloon or ARM would be if I -knew- I would be selling it within a fairly short time - i.e., in a job with corporate moves, military, etc...
 
Problem was that Joe Blow was -assuming- that the house would be increasing in value, and continue increasing. And that he could easily refi when the ARM or balloon hit. Well, the price stayed the same, or dropped.
 
There are always a bunch of folks who don't understand the concept of "bubbles" or spikes...

GET RICH QUICK! FLIP HOUSES! ...etc...

[cassandra and sara's daddy]

don't underestimate some folks stupidity. we had a modified ponzi scheme operated here where for 5500 bucks and 1/2 the equity in your house they promised to pay off the house in 5 years. they worked with some crooked loan officers at several reputable banks to qualify folks  for homes WAY  beyond their means.  used local churches to refer folks and suckered in a lotta folks including a couple builders who joined in to try to help move some houses during the slow down .some of the folks seem way too smart to be that stupid

[mtnbkr]

Bogie, I wouldn't touch an ARM regardless of the market or my plans.  Things change and you might end up staying longer than you planned.  I accepted a ballon as my 2nd mortgage when I bought the house because the term was 15yrs and the final balloon payment was $5k.  If I kept that mortgage for that long, I was reasonably sure I'd have at least 5k on hand to pay it off.  As it stands, I rolled that into my 15yr home equity loan I acquired last summer when I built our deck and did other work on the house.  Now I don't even have to worry about the balloon payment.  I wasn't crazy about it, but I was aware of the balloon payment and knew exactly how I planned to handle it.  It was the only way to get the rate I wanted on the primary mortgage (mid 5%).

Even though the housing market was just beginning it's climb here and things were very rosey, I wanted nothing less than a 30yr fixed.  Even then, I was paranoid about the market, my job, etc.  I wanted the security.

Chris

[Azrael256]

How hard is it to ask a few simple questions

Pretty hard, evidently.  Especially when you can "own" a $400,000 house for $1500/mo (or so it would appear...).

[K Frame]

My ex and I bought the house I'm in now with an ARM.

It was very reasonable for an ARM -- 18 month fixed with adjustments up of no more than 1% per 12 month term after that.

After she and I split I refinanced for a fixed rate loan.

My last refinance was a 7 year balloon (I have 3 or 4 years left on it before I have to refinance again).

There were some significantly good reasons for my doing that at that time. The rate is currently 4.25%. Keeping the rate low allows me to shave a LOT more off the principal.

I'll be looking at refinancing again in a year or two, and unless someone drops a nuke on DC I'll still have far more equity in the home than what I'll refinance for.

[mtnbkr]

How hard is it to ask a few simple questions

Pretty hard, evidently.  Especially when you can "own" a $400,000 house for $1500/mo (or so it would appear...).

I could be wrong, but I'm pretty sure nobody was buying $400k houses for $1500/month.  A friend of my wife's bought a $500k house and was paying over $2k with an interest only loan. 

Chris

[Brad Johnson]

What's really sad wasn't that many of the people who went ARM/interest only didn't know what they were getting into.  No.  The sad part is that they didn't care.  All they saw was a payment.  Twice the house for the same payment as they were being quoted by the legitimate lender down the street. 

Interest rate?  Adjustable what?  Rate Cap?  Don't care!!  I got more house than the idiot down the street said I could get.  Well... screw him!  Ha Ha!  See what I did!  Oh... what?  Higher what?  Payment increase... huh!?  But.. But...?  Waaaaahhhhhh!!!! Somebody bail me out 'cause I got snookered!  Waaaahhhaaaahhh!!

Sorry.  If you can count to ten you can see what a craptastically poor choice these products were.  Too stupid to care, or too incredibly dense to take ten seconds and run it through a calculator?  Tough cookies there, Scooter.  Get over it, and stop getting mad at me for not feeling sorry for you.

Brad

[Azrael256]

with an interest only loan

Interest-only is a loan for suckers!  Behold!  I give you the Option ARM!  Imagine a loan in which you could actually pay less than interest, and continually accrue a negative amortization until you hit, say, 110%, 115%, or 125% of principal (or five years, or whatever the contract specifies as the breaking point), at which point the loan recasts for the new principal at market rate.  It's like paying rent on a house that you already have a mortgage on.  Quite a deal, really.

No, I'm totally not making this up.  It exists.  $1500/mo for a $400k house might be a *bit* of a stretch, but not much.  Not much at all.  So you can end up, after making your option payments on time every month, owing $500k on a $400k house that you've been paying on for years.

[BrokenPaw]

The only people that I feel sorry for in this are the people who thought they were getting a 30-year conventional, and got an ARM instead.  I don't have a cite, but I read an article about one lender that was double-stacking papers at closing, with 30-year fixed papers on top, and nasty-term ARMs underneath.  They would get people into the momentum of signing, and would slip the ARM papers in once people were in the "yet another paper to sign" mode.  Then once the people had left, they'd tear up the conventional papers, and have a signed ARM doc that they could hold the people to.

Yes, yes, you should read every paper that's put in front of you before signing, but it's still reprehensible to get someone to verbally agree to a conventional note, and then deceive them into an ARM.

As I recall, the company got spanked pretty hard when it came to light what they were going.

-BP

[K Frame]

"Twice the house for the same payment as they were being quoted by the legitimate lender down the street."

I'm not so sure that one can say that these loans were being made by non-legit lenders. There were a LOT of players in this, both in the primary and secondary mortgage markets, and some of them were old, established names.

The secondary mortgage market lenders could also have put a stop to a lot of this, but were willing to take on larger portfolios as a means of hopefully bulking up their bottom lines. It looked like a good risk in an escalating market.

[Brad Johnson]

The secondary mortgage market lenders could also have put a stop to a lot of this, but were willing to take on larger portfolios as a means of hopefully bulking up their bottom lines. It looked like a good risk in an escalating market.

Agreed.  But the borrower is still under the onus to make sure they can pay back the loan.  I saw way too many people who's only concern was "What will my next payment be." and not "What will the payment be in a couple of years."  It's not that they didn't know.  They just flat didn't care.

Brad

[AmbulanceDriver]

You know, my wife and I are starting to look at houses, etc.  And you know, we've got our dream list of things we want in a house.  But we're willing to wait until we can afford that dream list.  In the meantime, we're gonna get into a sub 200K home in our area (which is what starter homes are going for here in Portland) and just build equity.  With a straight up, 30yr fixed mortgage.

Boring, I know...

But we like keeping our house

[mtnbkr]

That's the way to do it AD, even in a growth market like we had in the DC area a few years ago.  It's boring, safe, and you get to keep your house even when the economy changes (assuming you keep your job).

Chris

[Paddy]

It's a ripoff scam.  You don't them.  Every lender has a department whose job it is to prevent foreclosures by working out terms with the borrowers when possible.

[mtnbkr]

It's a ripoff scam.  You don't them.  Every lender has a department whose job it is to prevent foreclosures by working out terms with the borrowers when possible.

You think? 

The part about lenders working with folks in trouble was covered in the NPR report as well.  That's another thing that surprises me, nobody ever talks to their lender if they get into trouble.  It's in everyone's interest to keep you in the house, making payments of some sort.  A friend of mine did this back in the 90s when he lost his job.  They put him on a reduced payment schedule (interest only) until he got a job, then let him pay current interest and back interest or something until he got caught up, at which point he went back to his normal payment.  He kept his house and the lender didn't have to foreclose.

Chris

[K Frame]

"But the borrower is still under the onus to make sure they can pay back the loan."

Never said that they weren't.

But let's face it. You're dealing with a group that is marginal financially for any number of reasons.

In my limited experience in the financial industry (Navy Federal Credit Union employee for 3.5 years) those people are marginal financially for two major reasons...

1. Low income (or income to debt ratio)

2. Personal irresponsibility.

In both cases, however, there tends to be a rather low level of financial knowledge, especially when it comes to complex transactions like home purchases.

Navy Federal has, for years, run home buyer's seminars designed specifically to educate buyers who are on the cusp, and also offers a broad range of financial education for members, from simple stuff like reading a statement or balancing a checkbook to seminars on how to invest wisely. I wrote/edited/updated a lot of those educational materials.

As a result, NFCU has one of the lowest foreclosure rates in the nation, and has barely been touched by the subprime mess.

In the case of a lot of the subprime lenders whose portfolios are now going bust, no tought was ever given to a potential buyer's financial sophistication.

Yes, the buyer has to take a chunk of the blame, but the lender and the secondary consumer also has to take a very large chunk of the blame.

[Brad Johnson]

Again, agree completely.

Unfortunately I saw way too many people so used to living paycheck to paycheck they didn't care.  By "didn't care" I mean exactly that.  All they heard was "payment" and anything else was superfluous noise.  Try to talk to them about the future ramifications of their loan choice and they glazed over or clammed up entirely.  I had a several walk out in a huff when I tried to explain why their choice wasn't a good long-term one. 

One guy called me a liar and a thief to my face because I was directly contradicting what he'd been told by the Jickeylender.com loan rep.  They were in their house less than two years before it went back on the market as a foreclosure.  I know because I helped another person buy it in November.

I tried a buyer's seminar last year.  A free one, hosted at a local library.  I sent out 1500 invitations to a carefully selected demographic which falls squarely into the "moderate income / financial inexeperience" category most likely to be first-time home buyers ... apartment dwellers, 25-40, and in $500-$700 per month apartment units.  The invitation specifically stated that the seminar was to educate them about financing, and about the home buying process in general. 

Fifteen hundred invitations.  Most probable buyer demographic.  Free seminar. 

Attendance ... one.

Brad

[The Rabbi]

with an interest only loan

Interest-only is a loan for suckers!  Behold!  I give you the Option ARM!  Imagine a loan in which you could actually pay less than interest, and continually accrue a negative amortization until you hit, say, 110%, 115%, or 125% of principal (or five years, or whatever the contract specifies as the breaking point), at which point the loan recasts for the new principal at market rate.  It's like paying rent on a house that you already have a mortgage on.  Quite a deal, really.

No, I'm totally not making this up.  It exists.  $1500/mo for a $400k house might be a *bit* of a stretch, but not much.  Not much at all.  So you can end up, after making your option payments on time every month, owing $500k on a $400k house that you've been paying on for years.

I must be a sucker because I had just such a loan.  It is a terrific product, in the right hands.  Pretty much like all of them.
That loan is tailor-made for people whose earnings are seasonal, like airline pilots or people with big bonuses.  It allows you to change your payments around to suit your cash flow.  So in lean months you pay interest only or even less than interest only and in bonus months you make that up and pay down the principle.  Good for rental property too when a tenant has moved and you need to make repairs and dont have cash flow.
Of course it is for more sophisticated borrowers.  People who are just going to look at the payment or the teaser rate will get raped by it.  Which isn't the product's fault.  And those people probably shouldn't be owning homes anyway.