Author Topic: Just Walk Away  (Read 10767 times)

Azrael256

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Re: Just Walk Away
« Reply #25 on: February 26, 2008, 12:21:02 PM »
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I must be a sucker because I had just such a loan.
Right, well, nobody is debating that.

And yes, it's a fine loan for people who know exactly what they're doing.  Which is... what, maybe 2% of the population?

Brad Johnson

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Re: Just Walk Away
« Reply #26 on: February 26, 2008, 12:23:23 PM »
And yes, it's a fine loan for people who know exactly what they're doing.  Which is... what, maybe 2% of the population?

From my experience that's being generous.

Brad
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AmbulanceDriver

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Re: Just Walk Away
« Reply #27 on: February 26, 2008, 12:23:43 PM »
Rabbi, you're in the (pulling a number out of my arse) 1/10th of 1% who a) understand the specific niche that this product is taylored to, b) are actually *in* that specific niche, and c) actually are paying more in the high times and less in the lean times.

Too many people see this product as "oooh... I can get a $400k house for what I'd pay monthly for a $200K house...."  Ignoring the fact that at some point in time the payments *have* to go up, and considerably.
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wooderson

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Re: Just Walk Away
« Reply #28 on: February 26, 2008, 12:28:56 PM »
Seems like I hear a new variation of this BS on the radio every week.

DECLARE BANKRUPTCY, IT'S NOT A BIG DEAL REALLY
CONSOLIDATE ALL YOUR DEBT AND SAVE 350%!!!!!
DEBT FREE IN SIX MONTHS, NO PROBLEMS
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K Frame

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Re: Just Walk Away
« Reply #29 on: February 26, 2008, 12:57:05 PM »
Seems like I hear a new variation of this BS on the radio every week.

DECLARE BANKRUPTCY, IT'S NOT A BIG DEAL REALLY
CONSOLIDATE ALL YOUR DEBT AND SAVE 350%!!!!!
DEBT FREE IN SIX MONTHS, NO PROBLEMS


Yep. Saw some slickie boy lawyer in a bad suit and an even worse hair piece advertising his bankruptcy businesses on TV just the other night. He was REALLY pushing the envelope of what could be said about filing for bankruptcy.

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Manedwolf

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Re: Just Walk Away
« Reply #30 on: February 26, 2008, 01:13:07 PM »
I don't listen to the XM talk channels anymore because it's nothing but ads for that sort of thing. Or "male enhancement". It's like audio spam.

The music channels are fine, no ads at all, of course, but the talk channels are obnoxious.


Bogie

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Re: Just Walk Away
« Reply #31 on: February 26, 2008, 01:19:30 PM »
One of the things that caused all this was the "buy this pricey real estate, cut the grass, paint it, and flip it next week!"
 
Then everyone and their brother tried that. Heck, I've done rehabs... Then the TV shows came on, and everyone, their brother, and their cousins joined in. And in some areas of the country, a seller's market turned into a buyer's market overnight.
 
I mean, seriously - could anyone honestly believe that a two bedroom condo could be worth several million dollars? But by golly, they got stepped up there - I wouldn't be surprised if eventually it turns up that some folks were in together on the buy/sell bit to jack up the comps for some neighborhoods...
 
Then those neighborhoods became "the housing crisis." Then it spread.
 
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Brad Johnson

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Re: Just Walk Away
« Reply #32 on: February 26, 2008, 01:20:46 PM »
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could anyone honestly believe that a two bedroom condo could be worth several million dollars?


It's all about location. 
Lubbock?  No.  Malibu?  Maybe...

Brad
It's all about the pancakes, people.
"And he thought cops wouldn't chase... a STOLEN DONUT TRUCK???? That would be like Willie Nelson ignoring a pickup full of weed."
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thebaldguy

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Re: Just Walk Away
« Reply #33 on: February 26, 2008, 01:36:34 PM »
ARMs are not always bad; we had one when we bought our duplex. We took advantage of the low interest to pay thousands toward the principal. When the ARM was about to go up, we refinanced at a lower 30 year rate. When rates dropped again, we refinanced at a lower interest rate. Our last refinance was a 10 year mortgage (we didn't have much left) at 4.3%. Our house bought in 1996 will be paid off in 2009. We have saved tens of thousands of dollars in interest by paying it off early. Most people don't understand that paying the minimum mortgage payment is like paying the minimum due on your credit card. The interest will kill you over time.

I have seen the "walk away" solution for houses before. They get your house, and you get a bad credit rating that will sting for years. The real problem is that people bought more house than they could afford. Period. I see the people on the news standing in front of their "starter castles" crying about losing a house. They can't make their car/credit car payment either because they have chosen to live above their means. These are the same people who want the government (you and I) to bail them out, along with the financial companies. Our tax dollars are already bailing out financial institutions (injecting money into the "credit market") because they gave loans to people they shouldn't have.

We are waiting until the market really comes down to purchase a nicer home we have been saving/investing for and will rent our current duplex out. This is just the end of the beginning for the housing crash, not the beginning of the end. This will take a few more years to work itself out.

The Rabbi

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Re: Just Walk Away
« Reply #34 on: February 26, 2008, 01:47:05 PM »
Rabbi, you're in the (pulling a number out of my arse) 1/10th of 1% who a) understand the specific niche that this product is taylored to, b) are actually *in* that specific niche, and c) actually are paying more in the high times and less in the lean times.

Too many people see this product as "oooh... I can get a $400k house for what I'd pay monthly for a $200K house...."  Ignoring the fact that at some point in time the payments *have* to go up, and considerably.

They sell a lot of them and their default rate is probably pretty low.  So probably more than 1/10th of 1%.
You are right, it didnt hurt that I was a mortgage originator for 9 years.  As I said, it is a product for the sophisticated buyer, not for someone getting his first house.  But dont blame either the product or the way its sold for the fact that some people are just too @#$%^ dumb to read the contract.
But is that any different than the guy who buys the cheapo Maverick by Mossberg 18" pump and then complains when he can't his skeets?
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Bogie

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Re: Just Walk Away
« Reply #35 on: February 26, 2008, 02:01:45 PM »
You know, what Hilbama oughta do is tell the nice folks "Okay, we've got you, your wife, and three kids. We're gonna put that McMansion you got up for sale, and get you an 1800 square foot doublewide."
 
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Balog

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Re: Just Walk Away
« Reply #36 on: February 26, 2008, 02:17:49 PM »
Quote from: Brad Johnson
Sorry.  If you can count to ten you can see what a craptastically poor choice these products were.

Awesome.  grin

Stupid people doing stupid things, and the feds bailing em out to buy votes. Wish I was surprised.
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Re: Just Walk Away
« Reply #37 on: February 26, 2008, 02:21:49 PM »
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Stupid people doing stupid things, and the feds bailing em out to buy votes.

They're not being 'bailed out by the feds'.  The loans are being recast when possible in the interests of the lenders and mortgage holders, who want to limit the foreclosures.

Balog

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Re: Just Walk Away
« Reply #38 on: February 26, 2008, 02:32:44 PM »
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Stupid people doing stupid things, and the feds bailing em out to buy votes.

They're not being 'bailed out by the feds'.  The loans are being recast when possible in the interests of the lenders and mortgage holders, who want to limit the foreclosures.

Yeah, because if fed.gov didn't step in we'd all be screwed. Lord knows lenders never act in their own best interests or anything. rolleyes
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Re: Just Walk Away
« Reply #39 on: February 26, 2008, 02:42:10 PM »
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Lord knows lenders never act in their own best interests or anything. rolleyes

When they made those loans, did they act in 'their own best interests'?  Or was it just in the interest of a quick buck?  And the future be damned because the CEO's are rewarded for driving up the stock price in the short term?

You tell me, Balog.  Were those loans sound business decisions on the part of the lender?


Balog

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Re: Just Walk Away
« Reply #40 on: February 26, 2008, 02:45:31 PM »
For the most part no. But A) corporations aren't perfect, and make mistakes & B) ALL mortgage, hell, all credit issuers want nothing more than for you to continue paying. As was pointed out they have departments set up to help this happen.
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If government is the answer, it must have been a really, really, really stupid question.

Paddy

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Re: Just Walk Away
« Reply #41 on: February 26, 2008, 02:50:33 PM »
Right.  And government usually doesn't interfere except when the so-called 'free market' fails.  Examples run from the crash of '29 to the savings and loan debacle to Enron and on and on.  These free market failures resulted in more regulation.

They bring it on themselves when their greed overrides their integrity.  Ce la vie.

Headless Thompson Gunner

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Re: Just Walk Away
« Reply #42 on: February 26, 2008, 03:19:02 PM »
Businesses make bad decisions all the time.  They tend to lose money as a result.  The market quickly balances things out, moving capital out of failed and foolish companies and into safer smarter ones. 

It isn't a failure of the free market, it's failure of (some) people to understand how free markets work.

BTW, it's spelled "c'est la vie".  Your version translates roughly as "this the life"

Paddy

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Re: Just Walk Away
« Reply #43 on: February 26, 2008, 04:05:59 PM »
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Businesses make bad criminal decisions all the time.  They Their stockholders and employees tend to lose money their life savings as a result. That's why they need regulation and public oversight.

Fixed it for you.

And thanks for the francais lesson.  I only habla a leetle espanish.  laugh

Headless Thompson Gunner

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Re: Just Walk Away
« Reply #44 on: February 26, 2008, 04:17:40 PM »
Oh, thanks for correcting me.  I had the mistaken impression that lenders and borrowers were acting of their own free will.  I hadn't realized that this was all a big crime.

meinbruder

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Re: Just Walk Away
« Reply #45 on: February 26, 2008, 05:21:18 PM »
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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.

No, not much of a stretch at all.  For the last four years Ive been scratching out a living as a notary signing agent.  The hoyty-toyty title is loan signing specialist but its really just a notary trained to present and explain the basic documents in a loan package. 

Interest only is not just for suckers.  Have a look at the amortization schedule on your first mortgage; in a thirty year fixed loan the amount of principle included in the payment for the first few years is almost negligible.  An Interest only loan is really just a marketing gimmick to make the slower members of the herd think theyre getting something they are not.  Ive not heard the term Option ARM before but this could be a nebulas term to further disguise an interest only.  Qxxxxxx Loans comes to mind; they have a plan that lets the borrower pick their payment.  One can make a conventional payment, interest only, half interest only, interest plus extra principal, or even skip a payment entirely; all on the whim of the borrower.  Do keep in mind the pay-off date; skipped payments will show up as a balloon payment at the end of the loan plus any interest skipped will be taken off the next few principle payments.  I have presided over more than a few of these.

Whats causing all the trouble in the present market is the Adjustable Loan with adjustable interest, something the good folks over at Q are very good at marketing; on the other hand several major lenders have been in the news for the same practice, CW comes to mind.  Here is how it works, mind you Im working on memory from a loan I signed a year ago and have no copies of documents to refer to.  The borrower re-fid his premium from an existing 30yr fixed, call it 300K.  He bought the 5/ 25 plan which means he had five years of half interest payments of about $500, the going rate for his loan was 8% so the payment represented a 4% increase, of the interest amount, in the principal amount of the loan every month.  At his 61st payment the loan will adjust; to whatever the current interest rate of the day is and became a free floating adjustable and his payment jumps to $1200.  There is an additional adjustment on the due date of the 85th payment, $1500 for the balance of the loan with a pre-stated possibility of a balloon payment for any unpaid principal on the maturity date.  BTW, total payments dont include taxes, PMI, or possible HOA fees.

Those of you feverishly scratching on paper with the stub of a pencil have already figured out that the principal of the loan increased by 30K at the end of the five year period.  The payment of $1200 is probably a close estimate of what he should have been paying from the get-go and the $1500 payment representes the dollar amount needed to maintain the original 8% amortization schedule for the remaining life of the loan.  Dont forget the loan will be free floating from month to month at this point or that the principal would have been negligible for the first five years anyway.  Did he make a mistake?

Only time will tell that tale.  He might bank the savings for a future re-fi but given his age, profession, and the presence of a slinky blonde girlfriend I dont think that will happen.  He might marry the woman and sell one or both homes to consolidate both their debts; they both own a condo in an up-scale area.  As long as he intelligently re-fis in less than five years, he will be ahead of the game.  I dont think intelligence is his strong suit; he and GF downed a bottle of wine in the hour it took to get through the documents. 

Azraels got a good grasp on the nubbin of the problem.  A lot of people have bought into this kind of loan and this is the reason the mortgage market is in a crises.  A lot of bad decisions are being made and just walk away is one of them, it could be considered economic suicide.  There is also a snowball effect, every loan that defaults wills increase the interest rate for the rest of the pool of people paying a mortgage.  Lenders will have no choice but to edge up a quarter point or more to re-coup loses, just like insurance companies up rates to cover the loss from un-insured drivers.

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Azrael256

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Re: Just Walk Away
« Reply #46 on: February 27, 2008, 05:32:34 AM »
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One can make a conventional payment, interest only, half interest only, interest plus extra principal, or even skip a payment entirely
Yup, that's the one.

My mother almost walked into that one.  After a "conversation" on the subject, I convinced her to take a vanilla 30-yr at just under 5%.  After a few more "discussions" about making 13 payments a year and the like, she's got 30% in equity after five years.  With her annual letter to the lender demanding reamortization, her payment is down about 20%, but she still pays the original monthly.  Who would've thought?  Pay ahead and you'll get ahead!

Brad Johnson

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Re: Just Walk Away
« Reply #47 on: February 27, 2008, 05:36:58 AM »
Another "extra payment" option is to make an addition 15% per month paymnt to principal.  That will take your 30 yr loan and make it an 18 yr loan, not to mention shaving roughly 62% off the lifetime loan interest.

Brad
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Manedwolf

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Re: Just Walk Away
« Reply #48 on: February 27, 2008, 05:38:23 AM »
Another "extra payment" option is to make an addition 15% per month paymnt to principal.  That will take your 30 yr loan and make it an 18 yr loan, not to mention shaving roughly 62% off the lifetime loan interest.

Brad

Some lenders have a penalty for early payment. Have to read all the fine print.

Brad Johnson

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Re: Just Walk Away
« Reply #49 on: February 27, 2008, 05:44:12 AM »
Very few conventional loans have a prepayment penalty.  In fact, I can't remember a single conventional I've even been involved with that had one. 

The only ones I see, and they are regular as clockwork, are the b-paper stuff.  In addition to costing you a small fortune up front they usually have a two or three year pre-payment penalty period.

Brad
It's all about the pancakes, people.
"And he thought cops wouldn't chase... a STOLEN DONUT TRUCK???? That would be like Willie Nelson ignoring a pickup full of weed."
-HankB