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Upside down and want out!

Posted by ohcherryoh (My Page) on
Mon, Aug 15, 11 at 10:59

Hi everyone,

Bought our home at the peak of the market for $150K. It's currently worth about $84K. We have no trouble making our mortgage payment so we aren't in dire straits that would require that we consider foreclosure or short sale. But, we want out. Our family is growing, the house is too small and it is SO frustrating. I see ads that promise to help underwater homeowners get out of their houses, but I'm sure they are too good to be true. I can't imagine they can appeal to the lender and ask them to forgive tens of thousands of dollars, without this having some impact on credit, etc.

My questions: Is it even worth checking out a company like this? And, if not, any suggestions on what we can do or steps we should be taking?

TIA!


Follow-Up Postings:

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RE: Upside down and want out!

"I can't imagine they can appeal to the lender and ask them to forgive tens of thousands of dollars, without this having some impact on credit, etc."

This is exactly what a 'short sale' does.

One of the terms you insist on is that no deficiency is reported to the credit bureaus.


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RE: Upside down and want out!

Hi Brickeyee,

I understand what a short sale is, but I've only ever known someone who has gone this route because of hardship and they've always had their credit dinged. So, are you saying that you can request this and the lender will actually go for it?


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RE: Upside down and want out!

ohcherryoh-
The housing crisis has created a massive job opportunity for scam artists. These folks will not only want money upfront (that you'll never see again), they may make your situation even worse by doing things like telling you to stop all payments, or even send the payments through them. I've read many stories of desperate homeowners getting taken by these folks, but never once heard a story of someone being helped.

Whatever you do, do it directly with your bank. It's not going to cost you anything or hurt your credit rating to talk with the bank and see whether they have any program that is available to help someone in your situation.


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RE: Upside down and want out!

The short sale itself will only hurt your credit X points. Not a good thing, but there is a certain limit range but I don't know what it is. But then if you are late on payments, that adds additional bad marks to your credit.

I read an article that said a short sale alone is not as bad for your credit as a short sale along with late payments(2 dings, each taking X points) . or a foreclosure which naturally has late payments.

Maybe you can give the house to the bank and not short sale or foreclose and them move on. There is a name for this but I don't recall the name.

Some banks are willing to do all kinds of creative things...you just have to ask them.


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RE: Upside down and want out!

There isn't anything that you can do that will help you to move to a larger home except stay put and suck it up. Sure you can do a short sale and move to a rental, but if you want to buy another home, you'll be out of luck. Pretend that you are moving and downsize some of the excess stuff to make it more livable and look into space saving storage extenders. Maybe finish off some more attic storage, or build a small shed. Be more creative with what you have, and save every penny you can. The market will recover at some point and you'll be prepared then to be able to move.


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RE: Upside down and want out!

Unless you can come up with the difference in price at closing between what you sell it for and what you owe you will end up with a short sale. I don't see any way around that. And I certainly wouldn't trust any company that says that they can work some kind of magic with your bank for a fee. It sounds like what you want is for your bank to reduce the principal owed on your home by almost half, and I don't see that happening.
Is there any possibility of renting out your current home and renting a larger home for yourself? Or if your income is high enough could you purchase another house to live in and rent this one out?


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RE: Upside down and want out!

Cherryoh, so sorry this has happened. In the 80s we bought a condo for 92K and it was worth about 25K a year later. We wanted to start a family and ended up saving like crazy for several years, moving and renting it out at a loss for five years. Finally the market turned round and we sold it for a slight loss.

Unfortunately real estate goes up and it goes down. Would you offer to share your profit with the bank if the property was worth 250K now? There is a reason a short sale affects your credit, people who sell short have shown that they are risky for lenders.

Sometimes you have to make the best of a situation. Get in a position where you can afford to move on and rent it out, add on or finish some unfinished space. This may involve getting a part time second job, cutting out luxuries and some other not super fun things. Count your blessings that you can afford to pay the mortgage.


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RE: Upside down and want out!

Call the bank. They made the loan and the assessment.

Those companies are scams!


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RE: Upside down and want out!

Call the bank. They made the loan and the assessment.

The bank did not make the assessment. At the time the loan was made the OP paid the going price. RE does not always go up!


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RE: Upside down and want out!

Very, very well said, gmp3!


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RE: Upside down and want out!

When I sold my home, the buyers bank sent someone who assessed the value of my home. If the bank (which it did during the bubble) over-valued a home and gave a mortgage on that appraisal, whose fault is that? The banks over inflated home prices.

I think people who find themselves in a 'bad business deal' should move on if they can. Work with the bank and short sale the house.


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RE: Upside down and want out!

Jane, that was what the house was worth then. The banks were certainly foolish in offering 125% LTV loans, no doc loans, etc., but the value of the house was probably fair when it was purchased. What criteria do you suggest banks use when appraising homes? Current value or a crystal ball to determine future price drops.

I said it before, if your home increases in value should the bank get a share? No one is forced to obtain a mortgage, the bank performs a service. It was executed in good faith. Unfortunately market conditions turned south.

Suppose you loaned a friend $1000 to plant trees in her yard and she began to pay you back but there was a drought and her trees died after a few months. Should she walk away from your agreement because it became a bad business deal? Would that be okay?


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RE: Upside down and want out!

You can do everything that any third party negotiator can do... and for less money.
But, without a hardship, the lender probably will not allow a short sale.


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RE: Upside down and want out!

Probably everybody on here knows I hate banks lately (because they keep declining all my buyers) but I have to agree with gmp3. I don't think there's anything you can do that wouldn't mess up your credit and I'm going to say it, it's kind of not fair to the bank anyway. If you could afford a larger house, could you maybe afford a small addition so that you could be more comfortable till things turn around? Yeah, and what about renting? I remember years ago in the 90s when we were having a recession, my brother moved to a larger house when he got married and couldn't sell his original house. He rented it to me for what the mortgage payment was. It helped me out because the rent was cheaper than if I rented from a stranger and it was like my own house so I loved it, and then later when I moved on, the prices had gone up again and he sold it for what he paid.


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RE: Upside down and want out!

Amen gmp3!


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RE: Upside down and want out!

Ditto, gmo3'. Banks made mistakes, of course, and should answer to their stockholders and I'm sure their are some poor folks whose circumstances changed with job losses or serious health problems. I feel for those folks. But those who blame the bank for their own decisions because they made a bad investment are part of the problem andin the long run its those folks who have contributed greatly to the credit crises. No one held a gun to their browse and said buy this house. There is no guaranty that a property worth x today won't ne worth 2(x) or .5x next year. Like you said, if the market went up I truly doubt that they would be mailing a the bank a check for part of their profit. It defies logic that they are asking the bank to eat the loss.


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RE: Upside down and want out!

I never have known a lender to agree to a short sale unless the homeowner can prove hardship;
lost job, health, counted on 2 incomes to make the payments & got a divorce, etc.

You might check with an attorney to see how badly a bankruptcy & foreclosure would damage your credit & for how long.

I wish you the best.


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RE: Upside down and want out!

The banks inflated the houses by appraising them and giving out loans for more than they were worth. Who else is responsible for that?

In 2005, I applied for a 2nd mortgage to finance some work on the house. Wells Fargo sent out an appraiser who decided my house was worth 1.5 mil. I practically fell over! I assumed my house was worth around 800,000 due to the inflated sales I saw in my neighborhood. I actually thought my house was realistically in the 600,000 range. But the bank said 1.5M and I didn't argue.

I took the mortgage($250,000) plus the line of credit which they practically jammed down my throat.

No one held a gun to my head. The bank offered me the money, I was thrilled. I felt like I won the lottery...my house of 40 years, was worth a small fortune - before I did the work on it.

I sold my house in 2010 for $900,000.

If the buyers tried to sell the house now, they would be lucky to get $750,000.

Banks gave out mortgages to people who could not afford to pay them back. Bad business decision on their part. Many people who applied for mortgages for homes they couldn't afford, accepted the decision of the banks that they could pay them back. They lied to people and told them their house would continue to gain value. The average person is not a banker. They trusted and believed the lies the banks told them.

I feel for all the people who are stuck with worthless properties. Who is responsible for this mess? I blame the banks and their greed.

Jane


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RE: Upside down and want out!

When I look at the background of some of the short sales in my area I see people who bought many years ago and should still be able to make a bit of profit, but because they refinanced and pulled out cash they now owe more than the house is worth. These cash outs were spent on cars, vacations, etc.

Jane, are the banks responsible for the spending habits of these greedy homeowners? Banks were stupid, but plenty of people/homeowners scammed the system too.

I'm no genius, and it was so obvious to me that rising home prices without matching increases in wages/salary would end badly. I agree with the other posters, the banks aren't interested in helping someone like the OP. I believe a company has come up with a program that gives a break to homeowners like this, but then expects to have a share in any future profits - seems fair to me!


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RE: Upside down and want out!

"The banks inflated the houses by appraising them and giving out loans for more than they were worth. "

In response to the buyers offering to pay more.

Who's fault is that?


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RE: Upside down and want out!

Jane so the banks are greedy and the homeowners are not? We have been offered all kinds of credit by banks but made choices not to take the credit cards, equity lines and mortages on luxury properties. Are you saying consumers are stupid and have no free will? I think the banks did some things and the government enacted some policies that contributed to this mess, however people wanted to believe a fairy tale. I think some of the high end excesses ended up hurting the OP who bought a modest home for fair market price.

You claim they rammed the line of credit down your throat...you had to open your mouth for that to happen.

I think everyone who created this mess needs to suck it up. The government should have let the banks fail and the people who over leveraged their homes shouldn't get help from tax payers.


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RE: Upside down and want out!

What about the people that sold their houses to the current owners for over-inflated prices? They're the ones that really profited from everyone else's stupidity/greed. They're the ones that got the big cash payoff, not the banks, who only get interest. Is no one mad at them?

People talk about "giving the house back to the bank" as though the bank sold it to them at a huge profit or something. Nope, the inflated price wasn't the bank's fault, and the bank didn't benefit from it being overinflated. The previous homeowner did.


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RE: Upside down and want out!

Right on weedyacres. I just hate it when people feel like they have to demonize someone else instead of being accountable.
OP, like it was said above... if you can afford the mortgage payments, why not just add on to your home. Win/win for everyone... you get more needed space, your credit is saved, and there will be one less short sale on the market that will just bring down your neighbor's home value.


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RE: Upside down and want out!

I also say stay put. If you can, add on, or revise a space, but stay put. You will benefit in the long run (and it may be rather long) more than likely -- don't be scared by the current situation into turning a paper loss into a real one, because how exactly would that benefit you financially? to me, financial considerations need to come before the desire for a larger house.

I am not aware of any situations where just being "upside down" and wanting a larger place -- with no loss of income or a medical disaster or such like -- succeeds in obtaining any kind of bailout.

A larger house is a fine future goal. But, how essential is it to your health and well-being really? Focus on the fine points of the place, why you chose it, and stay put.


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RE: Upside down and want out!

On thing I would stronly suggest is to pretend you are selling, pare down throw stuff out and spruce everything up. You'll loo around and like your home better. Then get some bids on expanding if you think it would make sense to see if it is a possiblity.


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RE: Upside down and want out!

"Nope, the inflated price wasn't the bank's fault, and the bank didn't benefit from it being overinflated."

No, the bank makes more money on those larger mortgages.

Try and get a mortgage for only $30,000.

Most lenders will laugh.

It is a double edged sword.

Borrowers paid more, and the banks made more on the interest, and Wall street had all those nice bonds to sell and hold.


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RE: Upside down and want out!

"When I sold my home, the buyers bank sent someone who assessed the value of my home. If the bank (which it did during the bubble) over-valued a home and gave a mortgage on that appraisal, whose fault is that? The banks over inflated home prices."

Fault lies with everyone involved. Personally I believe fault should be assigned in the following order:

1) The buyer who should be responsible for their own actions and finances **
2) The banks which systematically inflated housing values in the pursuit of their own short term financial goals and in the process severely distorted the housing market.
3)The real estate agent who assisted the buyer with this sale. If the realtor was a "buyer's agent" and had fiduciary duty to the buyer, the fault is even more egregious.

** Unfortunately, reality is that many buyers are not knowledgeable enough to advocate for their own interests when facing off against sophisticated banks and realtors who have many person-years worth of MBAs defining processes and marketing designed to extract as much from each customer as possible.


While I believe responsibility lies first and foremost with the buyer, the deal they made with the bank (the mortgage) was one where the bank explicitly shared the downside risk based on their valuation of the property. If the buyer decides to stop paying their mortgage, the bank has indicated that it is willing to take the property in lieu of the remaining mortgage payments.

In this situation, the buyer should consider the option of returning the house to the lender, but be aware that doing so will tarnish their credit and make it difficult to borrow money to buy a subsequent house. (One strategy is to buy the second house and then default / return the original house.)

As a default is not a desired outcome for the bank, it is possible that the bank would be willing to work out some type of arrangement such as a short sale where the bank shares appropriately in the decrease in property value.


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RE: Upside down and want out!

Invisible Hand, you have to add the fed and the artificial manipulation of interest rates and the various peices of legislation that forced banks to make loans they would never have made to borrowers who should never be property owners and have been harmed as a result because they cannot easily move where the jobs are and are tied to homes with decreased value in depressed areas.

I can't fault realtors, they are salespeople, not economists. They would have had to tell every client during a ten year time period not to buy a house. I'd guess a good percentage of those realtors bought homes during that time period. Economist will tell you that over time real estate, like the stock market increases in value. The corrections are rough for people in them but I'd venture to guess the OPs home will increase in value over the next 10 years and in the meantime she will get tax benefits and would have been paying rent so she could end up in a financially neutral position.

I want to reinterate, I don't think the OP was foolish for her initial investment. People buying million dollar homes with no money down with interest only loans were foolish. The purchasers and banks are at fault for those, however the value of those homes were inflated because of easy money federal policies. Bailing the banks out was not a good answer either.


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RE: Upside down and want out!

If you have a local mortgage company, maybe you can contact them and explain what you need as to more room etc. Do you like the area? able to build on etc? Maybe they will reset the loan and give you the additional money to improve the property. Or, if not, go the a local bank or credit union and talk to them about refinancing and getting your property appraised for current value. Just a thought.


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RE: Upside down and want out!

'Invisible Hand, you have to add the fed and the artificial manipulation of interest rates'

I'm in complete agreement that the Fed should be added to the list. I would additionally add the quasi-governmental entities such as Fannie Mae. I am not sure I'd agree that the banks were 'forced' to make loans.

On the other hand, (and no disrespect intended) I do think the original poster was foolish to buy something that was priced so much higher than its intrinsic value. I do commend the original poster for buying something that is clearly within their means.

I strongly disagree with your willingness to let realtors off the hook, especially buyers agents who purport to have a 'fiduciary duty' to buyers, but who are often salespeople in sheep's clothing. I would be surprised if there were many homeowners who didn't have an agent who exclaimed what a good purchase price they paid. (Perhaps the original poster can opine as to whether their agent gave financial advice on this specific house!)

In terms of advice to the original poster that is actionable, I would suggest the following:

1) Look into HAMP (link below)
2) Call the bank and ask about principle reduction and short sale options
3) If bank isn't forthcoming, call back for information regarding 'deed in lieu of foreclosure' - this should get you in touch with someone who is interested in preventing your loan from defaulting
4) Explain honestly that your house is severely underwater and are considering your options and let them 'win' by talking you into a short sale, principle reduction or reduced interest rate.

Note: Before you commit to a course of action, research and consider likely impact to your credit rating and ability to meet your future financial goals. If possible, purchase your future house before you default / short sell your current house.

Here is a link that might be useful: Freddie Mac on HAMP


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RE: Upside down and want out!

"(One strategy is to buy the second house and then default / return the original house.)"

I'm pretty sure this loophole has been closed;
before anyone decides to try it, please check with a legal expert.
There may be legal consequences.


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RE: Upside down and want out!

There may be legal consequences.

I would hope so.


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RE: Upside down and want out!

"There may be legal consequences.

I would hope so."

Defaulting is not a criminal act.

The lender may be able to come after you in a civil suite for a deficiency judgment in some states (but not all).


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RE: Upside down and want out!

You are all leaving out the buyers who could afford the 'inflated' prices. They bought assuming they would build equity in the house and are now watching their investment go down the drain.

These people are making a business decision to walk.

Don't assume everyone who is under-water can't afford to pay their mortgage. They choose to let the banks have the property.

Jane


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RE: Upside down and want out!

Jane, to me it's pretty sleazy if people would consider it "a business decision to walk" if their home decreased in value, but they could still afford the payments.

As gmp3 said "...if your home increases in value should the bank get a share?" I really doubt that these people would have shared their gain.


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RE: Upside down and want out!

"These people are making a business decision to walk. "... breaking a contract nonetheless, and to me, very wrong!~


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RE: Upside down and want out!

There are many players in the guilt game across the board. A lot of good points were made in the responses so far. One of the responses was right on-target when they mentioned using home equity as a cash cow. I know two people right now who bought their reasonably priced homes with wide margins of error and could be sitting comfortable as the market adjusts, but made the mistake of pulling out equity at the housing peak and blowing it away on crap.

Not everyone who bought homes during the era of unsustainable appreciation made poor decisions, because all available homes were by default overpriced. It would be unrealistic to expect nobody to buy a house until the market adjusted. The absolutely nuttiness of how far some buyers would go is unexusable but their decisions and the laxity of credit created a situation where everyone was impacted.

One of my kids purchased their first home immediately before the poo hit the fan. Thank God they had enough sense not to be tempted by the amount of credit the bank had approved them for. But, I imagine they're upside down now too and they may be putting it on the market because of a career change. I think they stand a chance of moving it but we'll have to see how it plays out. It has never entered their minds to walk away from it or expect the bank to eat it.

Houses are investments, true. But if you expect to use them for money making propositions they are about as safe as your stock portfolio. And like stocks, your home's value is intangeable until it is bought or sold. But unlike stocks you can at least live in it. Like some of your stocks, you're gonna take a hit if you 'sell' at this point. But to expect to cut your losses on it are about as reasonable as me asking my broker to dig into his pockets and reimburse me for my risk taking.


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RE: Upside down and want out!

"Not everyone who bought homes during the era of unsustainable appreciation made poor decisions, because all available homes were by default overpriced. It would be unrealistic to expect nobody to buy a house until the market adjusted."

I'm sorry, but I don't agree. Each individual had a responsibility (if not necessarily the requisite knowledge)to decide whether to buy or rent. As noted by a number of posters up-thread, buyers share in this responsibility - if they weren't willing to ignore reason and pay ridiculous prices, the housing market wouldn't have bubbled and crashed.


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RE: Upside down and want out!!

"Not everyone who bought homes during the era of unsustainable appreciation made poor decisions, because all available homes were by default overpriced. It would be unrealistic to expect nobody to buy a house until the market adjusted."

Of course they wouldn't have shared the gain - that is not a part of a standard mortgage deal. The deal borrowers made with the banks was that borrowers agreed to pay the banks a premium to going interest rates and in exchange for the premium they were to receive, the bank took on some downside risk.

If the banks had done their job in fairly assessing risk, many of these loans would not have been made and housing prices would not have bubbled.

If buyers who are critically underwater now do not walk away, or force the banks to share in the downside (a right the buyers paid for!) the banks will continue to make irresponsible loans and distort our economy.


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RE: Upside down and want out!

"If the banks had done their job in fairly assessing risk, many of these loans would not have been made and housing prices would not have bubbled."

There job is to assess the ability of the borrower to pay the loan, and if they believe they can get the borrowed money in a sale following a foreclosure.

While some lenders played fast and loose with the rules, it was not without pressure from the government to turn people into homeowners.

The banks that wrote 'Alt-A' loans, and then packaged them into bonds or sold them off to Freddie and Fannie may bear some blame, but there is more than enough to go around.

Banks make money by lending.
They get paid to create the loans, service the loans, or if they hold the note are paid interest on the loan.

Lend more, make more.

It is called capitalism.


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RE: Upside down and want out!

I'm certainly not letting lending institutions and governmental policy off the hook. What happened is a travesty of gargantuan proportions. I never was a fan of 'everybody' deserves to own a home or the programs designed to promote such ownership to people who aren't fiscally prepared to take on the responsibilities involved Making the mortgage payment never has been the whole ball of wax.

"Each individual had a responsibility (if not necessarily the requisite knowledge)to decide whether to buy or rent. As noted by a number of posters up-thread, buyers share in this responsibility - if they weren't willing to ignore reason and pay ridiculous prices, the housing market wouldn't have bubbled and crashed."

Sure buyers share the responsibility and no way am I taking them off the hook. Perhaps they can assume a large part of the responsibility. However knowing that exact point in time where home buying was risky isn't as evident in real time or future time than it is after the fact. Where do you step off the merry-go-round? A lot of us saw the volatility coming before the fact and were gun-shy. But government programs are notorious for playing catch up and damage repair, aren't they?

As to chosing to rent as opposed to buying? It's not always an option. I moved to this locality thirty five years ago with every intention of renting a home until I could get a feel for the market. Rentals were almost non existant at any price, and rentals for pet owners or even single parents with kids were non-existant regardless of supposed fair housing regulations. I was FORCED to buy a house to have a roof over my head. The exhorbitant price of rentals at that time would have precluded many families from choosing that option anyway. One of the most common ads appearing in real estate ads were "payments cheaper than rent".

You betcha the market would have cooled down if everyone involved had just refused to play the game, but too many players had too many agendas to let a mass movement like that happen and lots of innocents were carried along on the tide who did choose not to max out loans, and who did cough up down payments and who did base their purchases on sound budgets. All I am saying is to consider this might have been the circumstances of the OP, although I don't consider the mass exodus of people like that walking away from their contracts ethical either.

I live in a two hundred year old home we have invested money in since the purchase. I don't expect if we sell tomorrow we'll get out of it what we put in it. But my house is my home. It's free and clear and if we ever sell at a loss I won't be bringing money to the table or have to consider short sales or foreclosure (barring a catastrophe) It's paid off because we ignored the urgings of the financial advise of the day that we'd be better off carrying a forever mortgage or using it as a cash cow. LOL. There is just a point where you have to say a house is more than a financial tool for moneymaking. It's your shelter and if you can afford to live there even under even poor economies you are probably ahead of the game even if it upside-down.


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RE: Upside down and want out!

"I'm sorry, but I don't agree. Each individual had a responsibility (if not necessarily the requisite knowledge)to decide whether to buy or rent. As noted by a number of posters up-thread, buyers share in this responsibility - if they weren't willing to ignore reason and pay ridiculous prices, the housing market wouldn't have bubbled and crashed."

Ignore reason based on what? Listening to appraisers, mortgage or real estate experts, economists, buyers, sellers, the government?
If you had a crystall ball and knew about it, why didn't you stop it?


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RE: Upside down and want out!

"Ignore reason based on what? Listening to appraisers, mortgage or real estate experts, economists, buyers, sellers, the government?
If you had a crystall ball and knew about it, why didn't you stop it? "

With all due respect, it was crystal clear that appraisers, realtors, banks, sellers and the government (among others) all had a vested interest in inflating housing prices. Anyone who based their purchase on these folks was foolish (though I do feel for those who did not have the skills or background to fully understand their actions.) A number of economists who had the tools did opine that house pricing had risen dramatically above historical salary to housing value ratios.

While it is true I didn't stop the madness, I did delay buying a house until several years after the bust.


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RE: Upside down and want out!

"With all due respect, it was crystal clear that appraisers, realtors, banks, sellers and the government (among others) all had a vested interest in inflating housing prices."

No, they had a vested interest in making money (the banks & lenders) and pushing people in to home ownership (the government).

The result was a rise in prices, like any other commodity in demand.

Glad you managed to wait.
Not everyone had the option.

And then their are plenty of areas that have not seen steep declines.

It was not a universal problem.


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RE: Upside down and want out!

Yep......who said the bust was over and values won't again take a hit? I was shaking my head at the economic optimism on this board two years ago and things don't look better. They look worse.

You bet, and I totally agree that a big society problem these days is a lack of personal responsibility and accounbtability. The home buyers are responsible as well. But tell you what........if everyone refused to buy a home in the last ten years and decided to rent so as not to fuel rampant real estate inflations, where would all those rentals have come from and what would that have done to rental prices?

I'm afraid a lot of people aren't going to get some magical relief from their real estate transactions and I'm not so sure they should. People across the board with all sorts of investments are sucking it up and getting on with it, and upside down home ownership isn't exempt.


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RE: Upside down and want out!

"With all due respect, it was crystal clear that appraisers, realtors, banks, sellers and the government (among others) all had a vested interest in inflating housing prices. Anyone who based their purchase on these folks was foolish (though I do feel for those who did not have the skills or background to fully understand their actions.) A number of economists who had the tools did opine that house pricing had risen dramatically above historical salary to housing value ratios.

While it is true I didn't stop the madness, I did delay buying a house until several years after the bust."

I agree, there is alot of collective guilt to go around, the least of which is the consumers.


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RE: Upside down and want out!

"But tell you what........if everyone refused to buy a home in the last ten years and decided to rent so as not to fuel rampant real estate inflations, where would all those rentals have come from and what would that have done to rental prices?"

That's exactly what's happening now. Just look around....owners rent out their homes, potential buyers are now renting and rental prices are up up up.


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RE: Upside down and want out!

"Yep......who said the bust was over and values won't again take a hit? I was shaking my head at the economic optimism on this board two years ago and things don't look better. They look worse."

Again, not everywhere.

Prices have returned to a slow increase in a lot of close in Northern Virginia.

The further out places with longer commutes took a real bath.

Many of the close in Virginia burbs had small (if any) decreases.

This is an area with land values that still swamp a lot of house values (60-70-80% of the value is the land).

There are NO empty lots.
The smaller single story (some on crawl spaces) houses are still targets for tear downs.


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RE: Upside down and want out!

"Defaulting isn't criminal".

but defaulting on your current home after you've closed on a second one may be.

(I did google, but I couldn't get the search narrow enough to get fewer than about a zillion matches, can check with a loan officer tomorrow.)


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RE: Upside down and want out!

"Prices have returned to a slow increase in a lot of close in Northern Virginia."

Hopefully that is migrating north. I have seen the houses in Frederick starting to increase. But I think it because a lot of the foreclosures have been scooped up.

Prices in Hagerstown are still very low on foreclosures. I am still seeing foreclosures selling at 50-60% of the original asking prices. Many of them sit on the market dropping 5K month until somebody makes and they accept a low ball offer. They are mostly in horrible shape - just how we like'em :)


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RE: Upside down and want out!

"Many of them sit on the market dropping 5K month until somebody makes and they accept a low ball offer. They are mostly in horrible shape"

As soon as I have the second house from fall of 2010 ready I am going to start looking again.

I did nicely on the first one.


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RE: Upside down and want out!

Of course the home value situation is very local and certain areas will hold value or even increase in value if that is where people need to be for jobs. In fact some areas may be seeing a mini housing boom.

You will not see the housing market in anything but flux in one direction or the other however until we get some calming of the economic direction. Like Brickeye says.....there can be some profit involved for risk-takers. I'm tempted myself and even did buy a piece of real estate when the market was tanking. If you know what you're doing and aren't using it as the depository for all your wealth you can advantage any 'crises'.

It's all cause and effect and any change in one variable will impact another. It would be a lot easier to base choices without the influence of governement interference because it can take you in all sorts of directions economic theory doesn't dictate.


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RE: Upside down and want out!

"As soon as I have the second house from fall of 2010 ready I am going to start looking again."

Sounds like we are on the same path, accept we bought ours earlier in 2010. We just work on it on the weekends.

I hope we finish up by Spring 2012, even if the market has not picked up we should do ok. I am more frustrated because I see SO MANY houses I would like to buy, but can't yet.


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RE: Upside down and want out!

"Jane so the banks are greedy and the homeowners are not? We have been offered all kinds of credit by banks but made choices not to take the credit cards, equity lines and mortages on luxury properties. "

What luxury properties? Homeowners were greedy? You didn't have to buy a house during that period. If you did, you would have been scammed too! My house was a 50's ranch. Wells Fargo told us our house was worth 1.5 Mil. Who's at fault?

What greedy homeowners are you talking about? If a bank says your house is worth a huge amount and offers you a large loan, why are the homeowners greedy? They believed the banks. I did. We thought home prices in our area, (only area we were familiar with ), had risen over the years. We were shocked but who were we to argue and who the heck would we argue with?

Gmp3, its easy to sit back and comment on a situation you weren't involved in. You were not shopping for a home. You were not transferred to another State where you had to buy. All the houses were inflated. But people didn't realize. I did because I am older and felt the homes were over-priced but that was the situation everywhere. You didn't have a choice!

If you needed to buy, you over-paid. There was no choice except to not buy. It appeared that was the norm. How were people scamming the system? How were buyers being stupid for foolish? There was no choice.

I applied for a mortgage to do work on my house and take advantage of the low interest rates. What is wrong with that?? It was the best thing I did. I paid off a first mortgage at 6.5% with a adjustable mortgage at 3%. I came out ahead. The bank jammed a line of credit down my throat by attaching it to the mortgage. I didn't want it - I had no choice. That was the way it came. If that isn't jamming a loan down someones throat, I don't know what is!

I sold my house for a decent price. I didn't get what I would have had I sold a year earlier, but we were happy with the price. We are fortunate to live in an area which didn't see big declines except for those who bought during the bubble. I do feel for those people.

The banks made tons of money selling junk mortgages. Those homeowners are struggling to pay those mortgages. I want to see the banks take responsibility for the mess. I want to see them sell those homes and take the loss.

Fair is fair.

Jane


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RE: Upside down and want out!

I'm sorry, but I would really like some clarification on the point made by a couple of posters in this thread about "having" to buy a house. When does that happen? Who has to buy houses?

Maybe I'm dim, but I'm confused by this, as confused as I was by the people who knowingly paid ridiculous prices to buy where I live at the height of the frenzy, knowing even at the time that they couldn't really afford to keep making those payments, when they could have gotten a much nicer, larger rental for less than half that amount.

I just can't think of a situation where you have no option but buying. Can someone please explain this? Give an example, maybe?


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RE: Upside down and want out!

No one really knew they were buying at inflated prices. That was the MARKET then. Everything was high.

It's not a buyer's fault if he can't pay his mortgage now because he lost his job due to the economy crashing and now he can't pay his mortgage because he can't find another one. Those are the people I feel sorry for. It IS a buyers fault if he can't pay his mortgage because he kept using a home equity line of credit for clothes and vacations or he was not educated enough to reject balloon mortgages, etc.--I don't think you are ready to buy a house if you don't know the basics. It is the bank's fault for making risky investments and being one reason everything crashed in the first place. It's not helping now that the banks are over-correcting and being almost impossible to get a loan from.


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RE: Upside down and want out!

"I'm sorry, but I would really like some clarification on the point made by a couple of posters in this thread about "having" to buy a house. When does that happen? Who has to buy houses? "

Unless you want to live on the street or from your car many folks live in areas with no available rentals.


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RE: Upside down and want out!

>No one really knew they were buying at inflated prices. That was the MARKET then. Everything was high.

Well, I won't speak in general terms (perhaps where I live is special and unique in some way compared to the rest of the world), but I will say that anyone who bought in our complex at frenzy prices had no excuse for not knowing. When I moved here in '98 they sold in the 50s. At the height of the frenzy--325K. Banks stopped giving financing on 100% of purchase price when they hit 200K, which certainly would have said something to me. Several of my neighbors sold then and didn't buy anything else because they saw it was insane.

No one knew? No one wanted to know, maybe.

I still remember one of my neighbors (who did get into a mess of trouble selling a paid off unit and buying a very expensive place at the top of the bubble) saying to me, "Prices will only keep going up." It was always obvious to me that as long as people's incomes weren't going up at the same rate that it wasn't sustainable, and I'm no rocket scientist.

I do feel very sorry for those who did buy within their means on the assumption that they could always find some kind of job, yes, because the total collapse of everything at once couldn't so easily have been foreseen.


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RE: Upside down and want out!

I live in NY, have you looked at rental prices? My husband and I are renting now and pay $3,000 a month...then there are the utilities. Costs us close to $3,500. We are planning to buy a house soon. I don't think it will cost us that amount per month.

Most people moving to NY work in Manhattan. They either pay a small fortune to live in the City or move their family to the suburbs where rental prices are almost as high. Unless you are single, you buy a house.

Love, many people took home equity loans (myself included) because the banks were pushing them and offering low interest for 5 years. We knew we would be moving and weren't concerned about rising interest rates. Most people thought they could refinance at the end of 5 years. They didn't know their home values would drop. That didn't occur to us at all.

The reality was all home prices were inflated and that was the norm. It appeared home values would continue to rise. Who thought they would 'tank?'


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RE: Upside down and want out!

I am getting a mental picture of Jane in a loan officer's office being strapped against her will into a straight jacket, and the loan officer then "stuffing the home equity loan down her throat"
Get real Jane.


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RE: Upside down and want out!

The general consensus on this form in the past has been: "The value of property is what someone is willing to pay for it." I do feel badly for people that lost their jobs and can no longer afford their homes but I think one should be penalized if you choose to default when you can afford payments.


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RE: Upside down and want out!

The reality was all home prices were inflated and that was the norm. It appeared home values would continue to rise. Who thought they would 'tank?'

People who know something about how markets behave historically. There is no "rule" that real estate always goes up. All you need to do is look at history to see that this isn't always so.


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RE: Upside down and want out!

But Writersblock...I really didn't know! Maybe I'm not the sharpest knife in the drawer, but as Love said, the economic climate when I bought in 2006 gave no indication that a turndown of this magnitude was on the way!

It did occur to me that the "bubble" would burst & values would hold steady. I wouldn't have been surprised to see my house remain at the price I paid for it the following 2, 3, 4 years, but no, I didn't think it's value would steadily decline.

In 2007 my house's value rose another $22,000. By 2009 it was worth $100,000 less than what I paid for it. It remains around that figure today.

2006 was unambiguously a seller's market, & the previous owners were not open to negotiating. They didn't need to be, & they made a huge profit.

If we sell this house five years from now & get what we paid for it, I'll be surprised. We certainly wouldn't get it now, even though we have installed granite & stainless in the kitchen, put in a large paver patio & walkways, replaced the furnace and air conditioning system, & are about to do a major bath remodel. Even so, we will probably have to ask at least $75,000 less than we paid for the house when we sell.

As I said before, I anticipated that my value would not continue to escalate, but no, I did not see this steady depreciation coming!


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RE: cycles

People who know something about how markets behave historically. There is no "rule" that real estate always goes up. All you need to do is look at history to see that this isn't always so.

Exactly. The faster the run up, the harder the fall, but real estate in places with dramatic rises is almost always cyclical. FL beachfront, for example, has gone in big swooping cycles forever, although this was probably the biggest so far, except for maybe the bubble in the mid-20s.

For some reason this thread reminds me of a very old Foxtrot cartoon, from back in the days of the stock bubble. The geeky middle schooler is showing his father how to make stock trades on the computer:

Kid (pointing at screen): Here's where you see how many shares you have. Here's where you see how much the stock went up.

Dad: Where do I see if the stock goes down?

Kid: Stocks can go down?


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RE: Upside down and want out!

Sure there's no rule that real estate goes up! To believe that is to have unrealistic expectations for sure. But at the same time, were buyers between 2005 & 2007 really supposed to anticipate that values would plummet so quickly & dramatically? For value to dive $100,000 in two years time is not rather remarkable?

Guess I am just naive, or plain stupid, like the child in the cartoon.


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RE: Upside down and want out!

I'm not that old and even I remember the real estate downturn in '89-'92. I was college age and even I noticed, at that youngish age, how it affected people and the economy. Heck, even the Japanese deflating bubble was in the news the past 20 years.


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RE: Upside down and want out!


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RE: Upside down and want out!

Terriks, would you add your own thoughts to the graph? Does this indicate that *you* are optimistic? While no one has a crystal ball, I know you are a sensible person...what's your take?


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RE: Upside down and want out!

My take is that everyone is clamoring to buy during the height of the market - part of what sends prices so high, but when the market is down, and you really have the best opportunity to make a good investment, people are skittish, "because of the economy".
I guess that it's just part of human nature to jump on the bandwagon and buy when everyone else is, but it's not always a good move.


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RE: Upside down and want out!

Terriks, in our case, we weren't intentionally jumping on a bandwagon...we'd sold a house in one state & relocated to another. We rented for a year. If I'd had an inkling of what would be in store, would have rented another year, or several more, but who had the crystal ball? Hindsight is always 20/20! I'd sure love to be house shopping now...but that's not what happened.


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RE: Upside down and want out!

Well, this is certainly a lively discussion. It's interesting that the original poster apparently fled over a week ago...in search of a flak jacket, perhaps.


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RE: Upside down and want out!

terriks...........how old is that graph? GDP is not keeping up with projections, inflation is edging up, jobless claims up. Newest projections I have read say we haven't finished tanking yet, and with some 'optimism' it'll be in 2012 instead. But you betcha sell high/buy low.

Kudzu........yes.....think the OP wasn't expecting it to all come oozing out when they picked that scab. I think it's been a good discussion, one of the better ones lately.


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RE: Upside down and want out!

I bought my home in 1971 for $70,000. It continued to rise in value for almost 40 years. Some years it held steady, but we never lost value. Why would I assume prices would plummet in a year? I agree with the above poster that I thought prices were inflated, but did think it was the norm for the time.

NC, no straight jacket. The mortgage came with a line of credit which I could choose to use or not. I didn't ask for it nor desire it. It came as a package. No charge if you didn't use it.

Jane


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RE: Upside down and want out!

Jane, I think you were referring to me. Thanks for your comment.

I ask the people who seem to think I, & others, didn't have a grain of sense to buy in 2006, how long should I have waited, & rented?

If I'd rented one more year & bought in 2007, I could have actually spent more for a house than in 2006, since my own house did increase in value that year.

So, how long to wait before it's clear that we'd hit bottom & I was getting a good price for a house?

Remember, in late 2008, the prognosticators were saying by Spring of 2009, the economy would be bouncing back!

We are approaching 2012 & things have sunken so much further since the original crisis hit. True, houses are now quite cheap, it's a fabulous time to buy, but I also would have thrown $20,000 a year away in rent before I took the plunge...also not ideal.

It's so easy to do Monday morning quarter-backing.

I do agree that history tells us that markets cycle & that's normal. We certainly have had buyer's markets before, & values that held steady or dipped.

I don't think that we have ever seen the likes of what we are currently in the midst of, however.


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RE: Upside down and want out!

Funny chart, but the reality is, there's no sign that says you're at the bottom now. So there's still a gamble for those who want to pick up a bargain.

Luckily for Canadians, we have always had strict mortgage rules, and - other than in Vancouver, where housing prices are insane, due to foreign investment - houses continue to rise slowly in value. Mine is worth 20% more (minimum) than I paid 6 years ago. But I don't plan to sell right now so it's irrelevant.


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RE: Upside down and want out!

I live in NY, have you looked at rental prices? My husband and I are renting now and pay $3,000 a month...then there are the utilities. Costs us close to $3,500.

I live in NY, too, in the suburbs outside of Manhattan. We had been out of the area for several years, and moved back slightly before the market peaked. It was obvious the market was ridiculously overvalued, and there was no way we were going to pay these inflated prices. So we rented. For 8 years. It really wasn't so bad-- rental prices were very low, because everyone was buying, so over 8 years our rent only went up $100. I will say there was tremendous pressure to be a buyer during that time-- people at work looked at me like I was an idiot for renting, and when I explained to them why I was renting they thought I was even dumber. Then when the market tanked and everyone was under water, the same people then told me I was "smart" for renting. But I don't get the notion that anyone has to buy. People seemed to buy at these prices either because they feared that if they didn't get in to the market now they'd be priced out forever, or because they bought into the notion that the house would keep going up in value and make them rich.

We ended up buying in 2010, and didn't think then that the market had reached bottom, but at least the prices in our area were no longer ridiculous. We bought a house that we could afford, at a price where we felt comfortable that we'd be fine even if it was under water for a period. Yes, hindsight is easy, but even at the peak, if one looked, one could see that there were real issues with the market. There were plenty of contrarians writing about the problems to come, but no one wanted to read them.

I guess that it's just part of human nature to jump on the bandwagon and buy when everyone else is, but it's not always a good move.

I remember during the peak I read a book about bubbles, the title of which I forgot, and the author noted that toward the end of a bubble, a large number of people who have been holdouts the entire time tend to jump in, too. It's like their need to be part of the group finally overwhelms their good instincts.


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RE: Upside down and want out!

It's like their need to be part of the group finally overwhelms their good instincts."
Then again, there are people like me who just don't have any good instincts to overwhelm! Clearly, my "need to be part of the group," must explain my being a mindless bandwagon jumper to boot. In essence I purchased my home so I could feel like a kindred spirit with an amorphous "group." Wow.


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RE: Upside down and want out!

Historically housing prices rise over time, historically the stock market rises over time. Like I have said before, no one expects to share profits when they make money on homes or stocks, but when they fall they think someone else is to blame. If you used your home like an ATM that was a risk you took. For some people they timed it right and they did well, for others the downturn is affecting them adversely.

Is anyone really blaming the sellers of homes during the bubble? Seriously ifyour neighbors sold in the 600K range and a realtor showed you comps that put your property in the 600K range, and sa buyer offered 600K for your 3 bedroom 50s ranch you'd say "whoa, cowboy, this place is tiny! I only paid 250K ten years ago, I won't take a penny over 300K."

Jane, where was the property that increased in value every year from the 1970-2010? There was a period in the 80s-90s where in NYC/NJ homes slid in value. Mine dropped to a third of the purchase price.


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RE: Upside down and want out!

No offense to you, stinky-gardner, since I don't know you or your circumstances, but it can't be denied that this bubble was in fact the creature of a herd mentality.


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RE: Upside down and want out!

Jane,
your lender probably split your loan up into two mortgages (one being the line of credit) in order to save you from ahving to pay PMI (Private Mortgage Insurance) every month. They probably did you a favor in the long run. If you just wanted one mortgage and pay the PMI, they would have probably done that too. Either way, it was your decision.
To the poster who thinks us RE agents are partly to blame for buyers purchasing homes that later depreciated... WHAT? I only wish I had that type of power over people. Agents do not sell homes... we market them to ready, able and willing buyers. If you are not in this category, no matter what I tell is going to cause you to purchase a property.
There was one main influence that dominated the cause of homes appreciating the way they did, to form the bubble... easy money. And that was caused by our government implementing HIPP and The Community Revitalization Act, and the fact that the Treasury kept interest rates at artificial lows. No one can manipulate the laws of the free market forever. The market will make a liar out of us all every time. And this is where we are.


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RE: Upside down and want out!

"So there's still a gamble for those who want to pick up a bargain. "

You haven't lost money till you have to sell at a lower price than you purchased.

If you wait for the bottom you can be very sure you will miss it, and and up purchasing after prices have started to rise.

Investing is never without risk.


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RE: Upside down and want out!

Sas, I appreciate your nod to my individuality. I am lamenting however, a lack of receptivity to the possibility that all buyers of homes between 2005 & 2007 were somehow not brain dead, followers of a herd, or otherwise lacking in common sense.

Gmp3, I applauded your remarks in an earlier post & I concur with your assessment regarding value. Could you also entertain the notion that some people in this predicament are not looking for anyone to blame? I know that I am not! I did what I did, I paid what I paid, & it is what it is.

At the same time, I am surprised by the lack of acknowledgement that the current economic climate, with its dramatically, rapidly falling real estate values, has leveled a noteworthy, substantial impact. Yes, real estate values, like stock values, go up & down. One takes risks when one purchases either. No guarantees. Granted. But, if a friend's retirement investments plummeted, would you say, "Well that's how the cookie crumbles!" or, "You shouldn't have made that investment...didn't you see the economic crisis ahead? Why didn't you hide your money under a mattress?" I think you would say, "Sorry, this is a bad time for your investments. The market is crazy. Hang in there."

Everyone is not looking for a scapegoat, a bailout, or a place to allocate blame. I & many others take accountability for actions & resulting repercussions. I just perceive harshness where I hoped there might be compassion. Afterall, all we did was buy a house.


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RE: Upside down and want out!

I just perceive harshness where I hoped there might be compassion. Afterall, all we did was buy a house.

You're right, stinky-gardener. I apologize if I came off as harsh.


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RE: Upside down and want out!

Thanks, Sas95. It's big of you to apologize. Obviously I wrote you off as lacking "receptivity" a bit too soon! I apologize for that!


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RE: Upside down and want out!

What sas95 said. I'm not saying I don't feel sympathy for people who are in a bad situation, not at all. I have plenty of friends who not only bought high, but bought unwisely because the high prices drove them into opting for pretty crummy properties because that was what they could afford. Those have fallen even farther than most, too.

I genuinely meant I don't understand the concept of "having" to buy, though. I can see many circumstances in which it would seem desirable and wise to do so, but I'm still not understanding exactly what those who've talked about people who "had" to buy mean by that. Really, truly. Is it a thing where a job insists you buy when you get moved to a new city, or something like that? I'd honestly like to understand that.


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RE: Upside down and want out!

I think you would say, "Sorry, this is a bad time for your investments. The market is crazy. Hang in there."

As far as those who purchased homes at the height of the market, I think that they are being told, that if you don't have to move, and your financial situation hasn't changed, ie., you still have your job, then sit tight and hang in there. You still need a place to live, and presumably you bought a house that you like that suits your needs.


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RE: Upside down and want out!

Yes Stinky Gardener, I think plenty of people realize they had bad luck and don't blame anyone. I don't think they were stupid or foolish unless they bought a luxury property they knew they couldn't afford. Many people bought middle class homes at prices that were fair for the market including the OP, who had bad luck with her timing. Had she bought and sold 10 years ago she would have done well, assuming she didn't buy something else.

I do feel badly for people who got stuck in this, sorry to give you an impression otherwise. I thought that was clear. I have contempt for people who used their homes as ATMs and blame the banks and people who think the banks should be partners for real estate losses because they offered them money.


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RE: Upside down and want out!

"I am surprised by the lack of acknowledgement that the current economic climate, with its dramatically, rapidly falling real estate values, has leveled a noteworthy, substantial impact."

Except it is far from uniform.

Some markets have only decreased a relatively small percentage and are now showing signs of climbing again.

All the national data is just that, national averages.

It actually says little about any particular market.

"I have contempt for people who used their homes as ATMs and blame the banks and people who think the banks should be partners for real estate losses because they offered them money. "

The banks have as much fault as the foolish borrowers who lived of the apparent equity in their houses.

HELOC loans have always been viewed as riskier than acquisition loans, thus the higher rate.

The banks made plenty of money off those HELOCs.
Now they and the 'house milkers' are paying the price.


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RE: Upside down and want out!

The banks certainly deserve a share of the blame, but ultimately we, as consumers, need to take responsibility for our decisions. I live in a NY suburban area with relatively high home prices, but at the peak of the market people were paying as much as $1 million for houses that were just a step better than shacks. Something has to trigger in us, the buyer, to think, "Hmmmm, in what way is this tiny, unimproved house on no land worth this much money?" Even if a bank tells you it is, you have to know deep in your heart it isn't. Again, this doesn't describe everyone, and different parts of the country were affected differently, but this is how it was in my neck of the woods.


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RE: Upside down and want out!

I genuinely meant I don't understand the concept of "having" to buy, though. I can see many circumstances in which it would seem desirable and wise to do so, but I'm still not understanding exactly what those who've talked about people who "had" to buy mean by that. Really, truly. Is it a thing where a job insists you buy when you get moved to a new city, or something like that? I'd honestly like to understand that.

I've moved several times under an employer's corporate relocation plan. They typically pay the transaction costs of selling your old home, and sometimes have a guaranteed purchase arrangement as well if you can't sell it. They don't offer any sort of help if you're a renter, and basically eliminate the costs and risks of buying, so it's usually a no-brainer to buy.

Sometimes as well because of family size or pets, there isn't a suitable rental property that would meet the needs and wants of a family. Or if I'm an exec that needs a high-end home to entertain clients in, or just wants fancier digs, I'm not likely to find a rental that will meet my needs.

Neither of these make it a "have to buy" situation, but they do make it logical, reasonable, and preferable to do so.


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RE: Upside down and want out!

They don't offer any sort of help if you're a renter, and basically eliminate the costs and risks of buying, so it's usually a no-brainer to buy.

Well, if you're in a situation where someone is eliminating the costs and risks of buying, then you're not going to be one of those people feeling overwhelmed by the turn of events in the market. This is the exception to the rule, not the norm. And it's different to say, "I found it preferable to buy," than "I had no alternative but to buy."

It has always struck me as funny that people characterize paying rent as throwing their money away. What's worse, paying rent or getting locked into an unworkable financial arrangement? Until you have equity in your home, you are renting-- you're renting from the bank. Buying is nice, but it doesn't make sense for everyone, and in this country, people think it's their inherent right to own their home, whether it makes financial sense or not.


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RE: Upside down and want out!

Buying is better than 'nice.' You can do what you want, have dogs, kids, music and decorate as you please. I've been renting a great place for over a year. I look forward to buying another home. There is no comparison between the two.

Gmp, we live in NY, close to Manhattan. Very desirable area because of the proximity to the City. Prices leveled a bit in the 80's but did not drop. The housing market now is still good. Moderate and high-end homes are selling quickly. It appears to be heading toward a sellers market again.

Jane


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RE: Upside down and want out!

Thanks very much for your reply, weedyacres.

I do see that buying would usually be considered very desirable in those situations, but I'm afraid that to me they still read as "want to buy" (albeit for good reason), rather than "have to" buy.


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RE: Upside down and want out!

Writerblock, Gmp3, & Terriks, I appreciate your comments. Thank you for elaborating.

Sas, I used the term "throwing money away" in reference to renting. That is my bias.

While I agree that there are some instances where it is not preferable to buy, & much wiser to rent, to most people, it is more desirable to build equity. Every situation is different, weighing the pros & cons thoughtfully is required. There is no one right course of action across the board...especially not these days!

I am sure that there are people out there as you describe who feel "entitled" & believe they have a "right" to home ownership. Imo, *most* people want to own property because they resent forking over rent & padding a landlord's wallet. They are not able to claim rent as a tax deduction or build any equity. Seems like a pretty one-sided deal.

Once that money (rent) is gone...it is gone. Yes, for some that is not a "problem" and many renters no doubt are delighted to pay for the greater freedom & flexibility renting affords.

Still I would venture that most value the fact that with a mortgage, even with the higher risks & responibilities, some equity of their own accumulates with every payment made. That means a lot to many people.

I do hear what you & Writersblock are saying about a mentality of entitlement. It exists, I agree. I just don't think that particular mindset is what undergirds the motivation to own a home for *most* Americans.


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RE: Upside down and want out!

Hi, stinky-gardener. I'm not talking about a sense of entitlement so much as the pervasive feeling that you "must" buy because it's the only thing that makes sense to do, when so often it's actually far from that.


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RE: Upside down and want out!

They are not able to claim rent as a tax deduction or build any equity. Seems like a pretty one-sided deal.

Except in a market like the one that we are currently in, where many have lost equity!


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RE: Upside down and want out!

Re the notions of tax shelter and building equity:

You "build equity" (as the saying goes) in a property in three ways: invest more in the down payment at purchase; gradually pay in an increasing share of the principal in the monthly mortgage nut; and have the opportunity to capture the theoretical increase in "equity" in a market with rising prices.

Of the three, the last is purely speculative gain, you're not building anything just harvesting whatever increases are possible at the point you liquidate (sell) the investment. Whatever the sale price might have been in the interim (up or down) is immaterial, it's only the price at the moment of sale which counts. If you thought that you had "built equity" in a property simply because in theory you could sell it for more than you had invested in it, but weren't selling it at that moment, you were confused by real estate industry cant. And the risk is always there (viz general real estate market decline in US c 2011) that whatever actual cash equity you already have invested in the property could be consumed if there is significant downturn in real estate price.

Of the first two ways to "build equity", you're not "building" anything you're just intially and then gradually increasing your share of ownership of the property by transferring funds from your more liquid asset (bank account) to the illiquid one of the property. It's just a dollar for dollar exchange.

Now you do get two concrete things out of the deal: shelter (which is a basic need) and the possibility that if the property has increased in value at the moment you choose to sell it, you can capture some of the speculative gains. Of course, as noted above, that's not a guaranteed thing, so you have the downside risk that whatever money you have sunk in the house will be lost if the sale prices are lower.

As for the tax benefits: you can (at least for now, though I think it won't last too much longer) deduct your mortgage interest and property taxes from your (Federal, and some -most/all state?) income taxes. But even there, some people are quite confused about this. You don't get a dollar for dollar savings on this. Your savings are limited to the total amount deducted times your marginal tax rate on that amount. (Ex: Say you pay $10,000 in all for mortgage interest and property taxes. If your marginal tax rate is 25%, then your actual saving is only $2,500. You're still out $7,500 for these expenses.)

And that brings me to the cost of the interest on mortgages. Even at quite low rates, you're still paying a lot of money to borrow the purchase price of a house. If you want to depress yourself sometime, figure out what the interest on your mortgage costs over the lifetime of the loan, compared to the principal you borrowed. That's why many people are in a hurry to retire a home mortgage early.

Now Dave Donhoff (if he was posting still here) would eagerly point out that staying leveraged in your housing frees your cash for better investments. That's certainly true, but it assumes that you will do something better with your money, and it will succeed. That you are not so attached to any particular house that you aren't prepared to de-leverage, as needed, on fairly short notice. Or even walk away from a bad situation (as the OP was querying about).

For most people however, the security of their home is something that isn't quite so fungible. For them, a better choice would be to purchase a more moderate scale of shelter, and use the savings to invest in something else. This runs counter to the late, and unlamented, approach, which was figuring out the max amount of loan you could "qualify for" and then buying at that level, or a teensy bit above. And then to keep up with increases in prices by staying maximally leveraged via refinancing.

The upside result of this game of economic musical chairs was spiralling house prices. It enormously benefited the real estate industry, bankers and those people who were active in the market (for whatever reason).

The downside was that inevitably the bubble would burst creating the crash and misery we are seeing now: the emotional tragedy of people losing their homes, vaporizing whatever equity they have paid in, ruining their financial scores, etc.

The idea that nobody knew it would happen is risible. Anybody with any claim to economic smarts could see that it would happen, at some point. The question of when it would happen, and how severe the contraction would be was more in doubt.

Unfortunately a lot of people where bambozzled by the real estate mania (it was all people seemed to talk abobut, for awhile). The real estate industry fiercely promoted the idea that home ownership was the easiest, sure-fire, path to individual wealth. Not just the personal security and comfortable shelter of a home, but wealth. Sort of the idea that all you had to do was buy it, mortgage it, live in it and you'd hit the jackpot on the way out the door. So everybody fancied themselves mini-real-estate tycoons, forgetting that true real estate investors are engaged in a dicey, speculative game that often collapses. They get high rewards, precisely because it is a risky, non-liquid, long-term type of investment.

Unfortunately too many people "bet the farm", or in this case their homes, on the whole notion it would always pay out. They wanted the rewards of real estate investments (and to live in them in the meanwhile) without accepting (or even thinking about) the inherent risks.

Does that make them foolish, or bad, or morally culpable? Not really. But it does leave them (and all of us, as a society) with the severe problems created by the catastrophic burst of an economic bubble.

L


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RE: Upside down and want out!

Well said, liriodendron.


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RE: Upside down and want out!

Great analysis liridendron!!


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RE: Upside down and want out!

Thank you, liriodendron.


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RE: Upside down and want out!

To the OP: Your opportunistic attitude is the main problem with the housing crisis. You have an attitude of entitlement, which when explored, is silly and selfish.

OK, you actually think that DECLINING home prices are the reason you can't buy that big house for your growing family.

And you really think that if your small home increased in value, you would be able to sell it and buy that big house for your growing family.

Am I the only person to see the irony here?

If you had equity in the small house you paid $150K, say it is worth $200K, you could put down $50K on that big house, right? The same big house you see listed for $150 today. The opportinity is available to someone with some cash and good credit.

But what did the big houses cost when you paid $150K for yours? $300K; out of your price range. And what would the big houses be worth, if yours had appreciated rather than declined? More like $400K. You'd never be able to afford it.

Think about it the other way: the big houses are only about $100K out of reach. Years ago, they were $250K out of reach. You do not have a personal hardship. You have things pretty good. But you want to walk away from your current house, have the debt forgiven, and then buy a bigger house with borrowed money. Who are you accountable to? You are financially illiterate.

Opportunities are not entitlements. Everyone on the planet needs to get this fact straight.

An opportunity is not an entitlement.


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RE: Upside down and want out!

Liri, could you be more specific? "... use the savings to invest in something else." Like...? Stocks? Mutual Funds? Gold? What "investments" are preferable, recession-proof & teflon coated?

I wasn't familiar with "...the idea that home ownership was the easiest, sure-fire, path to individual wealth." Again, maybe for real estate gurus, but common, ordinary folk? Wealth? Via real estate? Don't think that's what most average people dare to even dream.

I've learned from this thread that people are being bamboozled, following a herd, need to be part of a group, & are jumping on bandwagons! Yet, you conclude in your final paragraph that even so, people are not foolish or bad for doing all of the above. Well, thank goodness for small favors.


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RE: Upside down and want out!

"We have no trouble making our mortgage payment..."

Save up some money for a down payment on that bigger home for your family. The big houses will stay affordable for another couple of years. Plenty of time to save up for a down payment.

Then rent out the house you have now, for a few hundred dollars less than your mortgage. Remember, you have no problem making the payment, so this is a good opportunity for someone in your position.

If you think this option is not within your means, then the bigger house isn't either. If you really have no problem paying your mortgage, you have enough income to prioritize certain expenses as necessity or luxury. Put the larger home on the "necessity" list and move some things over to the "luxury" column.


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RE: Upside down and want out!

>use the savings to invest in something else." Like...? Stocks? Mutual Funds? Gold? What "investments" are preferable, recession-proof & teflon coated?

There is risk in any speculative investment, including real estate. However, historically over the long term there are many other forms of investment that average out to a higher return than real estate does when you look at long term averages. There is no guarantee on any of them that you won't lose your shirt on a a particular investment, either.


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RE: Upside down and want out!

Out of 105 posts (I now make 106) - the OP only made 2 posts (#1 and #3). The OP is long gone, and this thread is no longer relative. Strange how some of these posts go on and on (and on and on). Time to put it out of its misery?


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RE: Upside down and want out!

I think it's interesting. Everyone pointing fingers. Kind of like our politicians.

I'm sorry, but I don't think that people should have known. And I'm not saying that because I'm upside-down. I bought my house for cash. I made a killing on the one I sold in 2006. But you know what? It was LUCK. I had no idea the market was going to crash and I'm not stupid like some of the comments are trying to make people sound because they lost all their equity. Maybe it would make sense to know you could expect the market to start going down again. Yeah. But to know that it was going to crash like that? Com'on.


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RE: Upside down and want out!

Stinky-Gardener,

I see it was your comment that started me on my long ramble about building equity. It is exactly your belief that paying rent money is throwing it away and just padding a landlord's wallet vs. the pervasive, but incorrect, concept of "building equity" by homeownership that I was trying shine a spotlight on.

Both rent and mortgage payments should, in theory, be simply the appropriate and necessary cost of obtaining shelter. On one hand (renting) you are paying for the temporary use of another's shelter/property; on the other hand (a purchase money mortgage) you are paying for the temporary use of someone else's money to in order to purchase shelter/property for yourself. In the best of all worlds individuals would be able to choose which solution to the universal need for shelter best fit their circumstances at the time. Neither is a better or worse, or smarter or more foolish economic or personal choice.

But the real state industry has in the last 20 years or so endlessly promoted the notion that owning a house was the superior option. Their vested interest in this theory should be obvious. But it is no more corrupt than the dairy industry promoting milk, or the ocean-cruising industry promoting Caribean vacations.

However many people really bought in to this and began to see their home as not simply the place to hang their hats, but instead a vehicle on which to base their future economic security. No longer was the expectation that your house would give you physical shelter, but it had to also provide you with ever-increasing "equity", even if that equity was entirely on paper. This whole thing began to change how people saw their houses. If the nominal "value" of their houses increased, then they felt richer, believed themselves to be richer, and sadly, many people came to think that they were richer when all they really were building was an ever-increasing debt-load (repayable only in real dollars) backed by "equity" valued only in on-paper dollars. It shouldn't come as any surprise that eventually the need for real money to pay the debt on the paper money gains would eventually bring it all down.

However, the strength of the illusion is still being felt; the OP started this thread because she/he is apparently taking umbrage that her $150K house (and its $150K-sized debt) has been revealed to be a $84K house (yet still with the $150K-sized debt). And she's looking for a way to stick someone else with a good share of the debt. Apparently it didn't occur to her to evaluate whether the $150K house and the $150K debt were well-matched. And to be fair, a great many people didn't do that either, possibly because they were led to believe it wouldn't matter because at the point when they had to pay the debt with real dollars, there would be some other shnook willing to pay even more real dollars for the same property. And on and on. But maybe the house was, is and will be for the foreseeable future a $84K property.

As for your question about what else to invest your money in: there's everything from gold to T-bills to choose from. I'm not recommending any particular one, just trying to caution you against confusing your house with your investment portfolio as the real estate industry propaganda machine has been so successful at doing.

You're not "building equity" in your house. You're just investing more of your own assets in it as your mortgage amortizes. It's providing you with physical shelter in the meantime. And, if you're lucky when you go to sell you will realize a gain to partly re-pay you for the use of your money, and for mowing the lawn all those years. If you expect your house to give you a guaranteed path to riches then you are either a speculator, or the victim of propaganda.

L.


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RE: Upside down and want out!

Ragtop... I bet $1000 that the OP is still reading the responses


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RE: Upside down and want out!

Well, Lirio, there's no doubt about it, you write very well, & clearly articulate the ideas & philosophy that you have come to hold dear.

As for the OP, her motivation to search for, & her notion that it should be possible & even desirable, to "unload her debt" somewhere else, seem to stem from things she has heard in the media. Maybe she is young, is easily influenced by all the news & information swirling around her, & needs guidance to help her get clarity about her true rights & responsibilities as a mortgage holder.

The idea that.."Apparently it didn't occur to her to evaluate whether the $150K house and the $150K debt were well-matched" is uncertain to me. Maybe at the time of purchase, she was well aware her value was at 150k or even higher. That may have changed very quickly after purchase.

Yes, when I buy I am "just investing" my assets. Exactly. When I rent I am "just spending" my assets. As you said, "...if you're lucky when you go to sell you will realize a gain to partly re-pay you.." Bingo! When I leave my landlord, is there any hope that I will be repaid any of my assets whatsoever? I do have to live somewhere, don't I? Why not choose the path that will allow for some repayment of my assets, however meager that repayment may be?

I do agree that it is unfortunate to view something as intimate & integral to our well-being as one's home, as merely an "investment." To do so is to miss out entirely on the depth and true richness of the experience.

Speaking of "richness," again, the idea of a home being a "path to riches" as I said earlier, "I wasn't familiar with." "...maybe for real estate gurus, but common, ordinary folk? Wealth? Via real estate? Don't think that's what most average people dare to even dream."

But you & I probably move in different sorts of circles, Lirio.


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RE: Upside down and want out!

cas66ragtop, it isn't about the original poster anymore - and threads on most forums are like that! On the dog forum I post on, I laugh when the OP gets mad that a thread veers off into another direction.

On this forum, I find these discussions fascinating and educational. :-)


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RE: Upside down and want out!

Stinky-Gardener,

I doubt we move in very different economic circles, unless you live in lofty ones, which I certainly do not. I am puzzled why you seem to somehow believe that I am well-off. I'm not, alas.

Perhaps we are hung up on my use of the word riches. I don't mean that in the literal sense, or even the metaphorical sense.

I am using it to describe the oft-repeated assertion that a person's homeownership is the largest, most central basis, of their personal net worth. Just today I was reading something that cited the drop in current housing values as the single largest factor in the enormous recent reduction in net worth experienced by the "middle class" (which these days is whatever you want to claim it is, apparently).

I am just trying to suggest that it would be better if in the realm of housing we expected our costs (whether paid in rent or mortgage) to be simply guided by our needs and desires for shelter, not as lever to build our "net worth".

In rent you are buying temporary (even if you live in the same place for a long time), no strings attached, shelter and you pay a certain premium for that because it is, as you correctly point out, not giving you any return on your money beyond shelter at the time. But it is also absolving you from the risks of your asset becoming devalued, for any of a number of reasons. Plus you don't have to worry and fuss over its maintenance, insurance, etc. Easy come, easy go. And there's (or at least there should be) no moral or financial penalty for renting.

Owning a home, however, comes with considerable on-going costs of ownership. Not the least of which is the opportunity cost of tying your money up in a highly illiquid asset. And the risk, though few would really have believed in it until recently, that your asset could substantially fall in value. But as we have seen, it can and does happen. Of course at the time of sale you are entitled to hope for a return to compensate you for all the time you have had your money invested in the asset. But there is no guarantee. For that reason it's financially more prudent to purchase shelter in home ownership at a level that's matched to your shelter needs alone, and not as an investment vehicle. That way if your house doesn't appreciate much, or even loses value, you still are not out of pocket because at the same time it has provided you with the shelter you needed anyway. Even if you can actually "afford" more expensive personal housing, because of the nature of it as a class of investment it might be wiser to live in a more modest house and invest any surplus cash you may have in something else. If only because if the investment turns sour, at least you've only have lost money, not your home as well.

It's hard to imagine anyone who was not aware of the extensive, wall-to-wall assertions about the ever-rising home values, and the home-ownership basis to building personal financial security (wealth?) that was so commplace just a few years ago. That was the accepted conventional wisdom. It was used to justify the financially "smart person" self-image of lots of people who are now stuck in underwater hell. Because they believed it without examination and acted on the principle that they could always use ever-rising home values to pay off one mortgage with another. I often saw it repeated over on the Kitchen Forum vis a vis kitchen renos and second mortgages to pay for same.

As you say about the OP, perhaps people put too much credence in what was swirling around in the culture, media, and general conversation about real estate. It seemed for a while that it was all everyone was talking about. From late-night TV-hucksters with get-rich with no money down info-mercials to dinner party chit-chat, it was wall-to-wall house prices and mortgage and reno blather.

It wasn't morally wrong (how can you knock the simple, human desire for a home), it wasn't foolish (it was earnestly promoted by everything from the government to the financial press), it wasn't even really greedy (in the sense of being aware of snatching more than your fair share).

It was, alas, just not true.

I keep going on about this because I really hope that the lessons from this terrible crisis will be burned deeply into our collective conventional wisdom and we can avoid repeating it (again). I am the child of Depression-Era parents who weaned me on tales of the dangers of over-indebtedness for housing and the risks of loss by foreclosure. That outlook helped me stay clear of the (potent) lure of the recent housing boom. We chose our house for its match to our needs, not to the size of what we could theoretically "afford". And it was a priority, though often a stretch, to retire the mortgage early. That has left our housing equity unscathed in the real sense, though depressed because we have suffered the same paper losses as everyone else. But at least we don't owe somebody money for those losses. That would be a nightmare to me.

Stinky- I can't recall where you are in all this: owning, looking, selling. Where ever that is I wish you success in your goal.

L


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RE: Upside down and want out!

I've been fortunate to look at and treat my homes as an investment/commodity when buying and selling over the last 25 years and live mortgage free today because of it.


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RE: Upside down and want out!

Hi Lirio...thanks for elaborating. You do write beautifully! Even the notions your put forth that I find disagreeable, you express so eloquently, you make them palatable, perhaps even a pleasure, to consider! Reading your "essays" remind me of being riveted by a person with a British accent on an infomercial selling scrubby things I thought I had no interest in whatsoever. The elegance of the presentation lures me in & makes me think scrubby things are indeed, something I really need! Lirio, did you have any idea that you possessed such a gift?

No lofty circle circulation going on this side of cyberspace! Why did I think otherwise about you? Well, I assumed this must be your place!

Here is a link that might be useful: Lirio's digs


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RE: Upside down and want out!

Lireo,you said, "Just today I was reading something that cited the drop in current housing values as the single largest factor in the enormous recent reduction in net worth experienced by the "middle class" That's because the middle class doesn't have the money to invest in gold, stocks, etc. ALL investments depreciated. Like I said before, no one could predict this. Maybe we could guess that values would start to start to go down again someday. But no one could predict a crash like this. If we could, millions of people wouldn't be upside down in their mortgages. Just like the stocks. What are stockholders advised to do? Sit tight. Just like homeowners should do if they can. The average buyer did not buy a home to try to make money on it. Maybe they shouldn't have overextended themselves but that's a different story.

Owning is much more sensible than renting in most cases. Landlords make money doing it! Your rent increases every year but your mortgage stays the same. Not to mention the quality of life. You write well but you haven't persuaded me.


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RE: Upside down and want out!

"You write well but you haven't persuaded me." LOL, LitH, I wouldn't go so far as to say tha Lirio has "persuaded" me either, but I had to give credit where it was due! Talent is talent. Furthermore, I can admire Lirio's passion & conviction without agreeing with all the arguments that were so poetically stated. We can find someone likable without agreeing with them.

People believe what they believe. I know what I believe. It is interesting to learn more about how others view the situation. This thread has certainly introduced me to different viewpoints!


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RE: Upside down and want out!

>Landlords make money doing it!

As opposed to mortgage lenders, who do it strictly as a charitable enterprise?


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RE: Upside down and want out!

Like I said before, no one could predict this. Maybe we could guess that values would start to start to go down again someday. But no one could predict a crash like this. If we could, millions of people wouldn't be upside down in their mortgages.

You are wrong. There were plenty of people during the time of the housing bubble, both economists and "average citizens," that were writing that a crash of epic proportions was inevitable. Not the mainstream media, of course, because they were shilling for the real estate industry, but if one cared to go beyond the mainstream media there were dire predictions galore. Reading the warnings of economists like Robert Shiller at Yale, and blogs like The Housing Bubble Blog, Patrick.net, Of Two Minds, and Global Economic Trend Analysis-- to name just a few of the many cautionary blogs out there throughout this madness-- are what kept me sane during the bubble, and confirmed my instincts to sit tight and not buy despite my friends and neighbors' incessant chatter about the ever rising value of their homes and their pity for me in being a lowly renter.

The fact that millions of people are upside down in their mortgages today does not mean that "no one could predict" that people assuming ever-increasing amounts of debt that was way out of proportion to their incomes would end up badly. Of course this was predictable. The real issue is that no one wanted to believe it.


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RE: Upside down and want out!

Uh... but Writersblock, the dynamics between landlord & tenant are exponentially more exploitative.

Using "other people's money" is the key to making money in rental housing. Rarely do landlords pay for a rental property entirely with their own money. Tenants buy it for them.

Mortgages allow landlords to buy more properties with less of their own money. More importantly, for tax purposes, landlords deduct the interest payments made on the mortgage, along with other operating expenses, from the income they receive from the property. The tax system encourages landlords to take out mortgages since the "cost" of the mortgage (the interest paid to the bank) is deducted from taxable income.

Landlords can depreciate their properties over time to reduce their taxes. Every year landlords can deduct a percentage of the purchase price of the rental building (not the land) from the total income they received on that property. This is a "paper" deduction that does not correspond to any actual expenditure on the property. It assumes that the building "wears out" over time and steadily loses value.

The landlord might be able to depreciate 4% of the purchase price of the house in a single year. This would indicate a "loss" on the house even though the landlord actually made a profit.

Landlords owning multiple properties do not want to show a paper profit (or gain) on each of their properties together. The more paper profits landlords show, the more income taxes they must pay. Many small-time landlords can deduct losses on real estate directly from non-real estate income such as wages and salaries.

Larger landlords try to offset profits that they show on some of their properties with losses shown on others. Although large, wealthy landlords can't deduct real estate losses from their non-real estate income, they can deduct their real estate losses from real estate gains. This allows them to avoid paying taxes.

In addition, landlords' mortgage payments are not simply a "cost" for them. They are buying the property over a number of years with the rent tenants pay to them. If the landlord has managed to maintain a positive cash flow in the meantime, then this is just icing on the cake. Once the landlord owns the building outright, she can sell it and pocket the cash or continue to rent it out without having to make mortgage payments.

Tenants pay and landlords collect.

Sas, your warm, fuzzy compassion seemed to fade fast..."Of course this was predictable. The real issue is that no one wanted to believe it." How many times are you going to say that? At least you are consistent. As I said, people believe what they believe & you are like a dog with a bone on this point.

How you can presume to get into peoples' heads & know what they know & even when they first learned it, gives you talent well beyond Lirio's writing ability!

The hubris here is beyond belief!


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RE: Upside down and want out!

Sas, your warm, fuzzy compassion seemed to fade fast..."Of course this was predictable. The real issue is that no one wanted to believe it." How many times are you going to say that? At least you are consistent. As I said, people believe what they believe & you are like a dog with a bone on this point.

Stinky-gardener, you seem as fixed in your opinion as I am in mine, as you keep coming back with the same points over and over as well. I was responding to someone else's point that "no one could have predicted," and I was pointing out examples where other people did, in fact, predict... I get it that you don't agree with me, but I'd prefer that you follow your own advice and refrain from "getting into my head" and making a judgment about my compassion or lack thereof.

Just because landlords make money off of tenants doesn't necessarily mean that renting is a bad proposition for a tenant. If being a landlord was a charitable endeavor, there would be no rentals. I'll give you an example of how renting ended up being good for me. During the housing boom when everyone was buying, I was renting. Because there were many buyers and few tenants in my area, my rent was extraordinarily cheap-- less than half of what my mortgage payments would have been if I bought a similar home. So I took that differential (plus the amount I was saving from not paying maintenance, insurance, etc.) and put it in the bank. And when home prices dropped, I had a huge down payment for the home I bought in 2010. But I'm sure I could never convince you that renting is ever beneficial, could I? I think all of the people who are now being foreclosed upon (and yes, I do feel compassion for them) have ended up "throwing their money away" in a way much worse than any tenant. At least the tenants are still in their homes.


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RE: Upside down and want out!

Point well-taken, Sas. Yes, I believe what I believe, & express it repeatedly too, but also stated in an earlier post:

"While I agree that there are some instances where it is not preferable to buy, & much wiser to rent,...Every situation is different, weighing the pros & cons thoughtfully is required. There is no one right course of action across the board...especially not these days."

I have no doubt that your particular situation is one of those instances! I AM convinced that renting can be beneficial. I sense however, that you refuse to make a space for exceptions, & simply insist upon lumping all buyers during a certain time frame into one not-so- admirable group.

Forgive me, but it doesn't transmit much compassion when you refuse to entertain any motive other than "You just didn't WANT to know!"

I hate labels, & don't mean to brand you Sas, as "uncompassionate." People are too complex, & are never just one thing. Surely, you are empathetic & understanding in many ways. It is clear that you are a very smart person, & I haven't doubted for a second that you have made the savviest investment in your own situation.

But a rainbow of possibilites also exist for why people bought when you didn't think it was wise to do so! That's all I am asking you to consider. But really I understand if perhaps you can't, because you have the bias you have based on lots of compelling academic data.

It is impressive that you are so well-read. You have been " Reading the warnings of economists like Robert Shiller at Yale, and blogs like The Housing Bubble Blog, Patrick.net, Of Two Minds, and Global Economic Trend Analysis.." You are obviously very erudite & well-informed.

But remember, that sets you apart from the "average Joe or Josephine!" LoveintheHouse, I'd be willing to wager, & certainly I, do not keep such materials on our nightstands! Recognize that your not-so-typical reading habits have shaped your opinions!

It also sounds like you have been insulted & criticized by people IRL regarding your choice. I am sorry to hear that has happened.

Anyway...What's Irene doing up your way? We're getting tons of rain here in VA Beach, & some wind, but not TOO bad so far. Stay safe.


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RE: Upside down and want out!

Yes, I see what you're saying stinky-gardener, but you overlook one of the advantages of renting: if the landlord says that next year the rent is going up and you think it's too much, you just move. I can't think of any situation in which rents have proportionately followed the up run in purchase prices in recent years.

The idea that rent goes up every year is also not quite right--the last two places I rented, for 8 and 6 years respectively, my rent went up once each place, and that was, as it happened, when I told the landlord I thought I should pay a bit more (to help offset their increased costs as the owners of the units I rented--insurance and HOA sure do go up, even when the mortgage payment doesn't, as did their non-homesteaded taxes during the frenzy).


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RE:forgot

Oh, forgot to say, stay safe, stinky-gardener. I hope the storm proves to be no more than a nuisance for you.


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RE: Upside down and want out!

Thanks, WB...hope you stay safe too, wherever you are!

The wind & rain have intensified significantly since I last posted. It's this wild & wooly & yet we're just feeling the effects of the storm from NC! Irene won't actually be here until 7:00 this evening.

I still have electricity though! Yay! (Knock on wood!)

Thanks for your good wishes. Keeping my fingers crossed for all of you in the NE!


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RE: Upside down and want out!

Oh, I'm in FL, so we did our worrying about this one last week. :)

At least it's not as strong as they feared it would be, so that's one good thing. I hope you don't lose electricity for any extended period.


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RE: Upside down and want out!

Yes, stay safe everyone. Opinions are opinions but ultimately, it's nothing personal. If we can keep our electricity I will consider it a major victory.


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RE: Upside down and want out!

Sas95, well said!


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RE: Upside down and want out!

Stinky-Gardener,

Your link absolutely floored me! The idea that that's my house is hysterically funny. Is that why you think I travel in wealthy circles? I can see why you thought that, but alas, my old farm is in northern NY (north of Albany along the VT border), not Maryland. It's a shabby, early-mid 19th c vernacular, Greek Revival-ish, farmhouse (not a Belle Epoque Mansion) which I often write about here on GW (see my many posts on the subject). Heck, my house is so primitive it isn't even fully electrified, and is only heated with the modern equivalent of pot-bellied stoves, rather than having any central heat.

I chose the word liriodendron as a user name because it is one of my favorite trees (tulip poplar, aka Liriodendron tulipfera. And because the word amuses me.

It never occurred to me to Google it and see who or what else might be attached to it.

Looking at the link, your assumuption that I might not know how ordinary people live, while incorrect, now makes sense to me.

Thank you for your kind words about my writing.

Berniek: I would like to have the self-possession to consider using my (successive) homes as investment vehicles. But it would completely unnerve me to think of selling the farm. I expect to live here for the rest of my life. As it happens there's a cemetery on the property, so I plan on being here afterward, as well.

Liriodendron (which is just a funny word, chosen on a whim.)


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RE: Upside down and want out!

This was an interesting thread, and while I realize that the enthusiasm for it will probably die soon, I feel compelled to pitch in the "rent" vs "buy" debate, because that was an issue my entire Naval career as I moved back and forth from MD to CA again and again.
There were situations where we thought we "had" to buy. Did we have the option of renting? Sure, if we lived in a ghetto sleeping with a firearm by our sides. Or lived in our van. Or commuted two hours each way to work and left the kids on their own, hoping that social services didn't find out. Not to mention giving away our pets. Let's just say that buying is sometimes the only reasonable option in some parts of the country.
Other places, we were relieved we could find a rental that suited us. Fortunately the housing allowance made it possible because they tended to be the high-end areas where long, long commutes were the only other option.
And this meant of course, that we ended being long-distance landlords after we moved away. Consider that we had one tenant for 13 years and we only raised the rent once, at his suggestion, because he was great and wanted him to stay. One house that we "had" to buy in 2001, and therefore turn around and rent out, the tenants we found were soooooo relieved to find our rental because they didn't want to buy (in 2005, good move) and there just aren't rentals in that area, which is exactly why we ended up buying in the first place. We were lucky to sell at a profit in 2008, but only because people were starting not to be able to get mortgages for the mega-mansions that were going up all around us. Buyers were complaining that our walk-out basement wasn't finished, because apparently the 4 bedrooms, 2 1/2 baths, living room, family room, kitchen nook, dining room, laundry room, and office/den weren't enough for a normal family. But that's another thread!


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RE: Upside down and want out!

Liriodendron, thanks for sharing more details about your interesting life! I recall seeing you over on Home Dec, but never saw pics of your farmhouse. It sounds beautiful. Your real digs sound far more charming & desirable to me than the mansion that might have been yours! How are you? Saw that Southern Vermont was hit hard, as were areas of NY state. Hope Jane & Sas are fine too.

C9pilot, I'm sure being in the Navy offered you the chance to see quite an array of housing scenarios. Thanks for sharing your perspective.


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RE: Upside down and want out!

Thanks, c9pilot, that's very interesting and I can totally see what you're saying. Just curious, though--don't you get any help with this from the Navy? With buying and selling, I mean? Is it just the allowance?

stinky-gardener, glad you're okay.

Liriodendron, I saw the videos of Margaretville. I sure hope you're not having that kind of flooding where you are.


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RE: Upside down and want out!

"....if the landlord says that next year the rent is going up and you think it's too much, you just move."

At a cost of $4,000-$6,000 per move, I would not be moving much (moved 6 miles in 2008).
When I was in the service, I did not receive any financial government help in selling my home, only reimbursement for travel and household goods. I retired in the mid 80's after 20 years.


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RE: Upside down and want out!

It's changed slightly now because base housing has been privatized, but families basically have the choice (sometimes, if available) of living in base housing for "free" (some places have unreasonably long waiting lists or other issues; each base is different; also some people are required by position to live on base). Or, you live on the economy and get a housing allowance based on location. A few really high areas also have a COLA. It is your option to rent or buy based on what you can find.
The military pays for move and every rank has a different pound allowance. Also pays travel expenses for your family and a few days of temporary lodging at your departing or arriving station if there is a delay for housing.
Honestly, few enlisted folks can afford to buy except in the lowest cost areas. Knowing that you'll be moving in a couple of years and may not return to that duty station is a factor. we bought where our careers at the time would have lead us back to that base, but it turned out that career changes kept us from ever going back to any of the homes we bought.
Another helpful benefit is that military is entitled to take a week of house hunting leave that is not charged to your leave account. They won't pay for the travel, but if you can work out something, you can go check out the area before you move to really get the lay of the land and see what your options are. A lot of times you're moving somewhere that you know nothing about and you've just got to see it. (There are a few areas here that I have to advise buyers that they've got to see in person before they get too sold on the online listing, but that's another thread)
I was chatting once with a young enlisted gal who had orders to report to my station in a few months in the SF Bay area, and she was telling me about this great rental she found in Richmond...ummmm...NOT. I forbid her from moving there (lawful order?) because at the time, it had the highest homicide rate in the country! The rentals there were so bad that we had to use command funds to rent apartments for the junior enlisted because the allowance wasn't enough.
Hope I haven't rambled too long, just an idea of how the military housing works.


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RE: Upside down and want out!

Thanks very much, c9pilot. Very interesting.


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RE: Upside down and want out!

I can't help but chime in here because of my amazement that so many half and non-truths still exist regarding the reasons behind the housing crisis that was the root cause of the global economic downfall.

First and foremost, please be aware that a good portion of the nonperforming mortgages were issued by mortgage lenders who maintained no skin in the game. And, the bigger the mortgage, and/or the more onerous the lending terms, the more money they made off of those mortgages when sold off to the finance sector. Hence, HUGE motivation to originate as many as possible, even if it meant changing incomes, assets, salaries etc AFTER the borrowers filled out the application. In addition, many of the mortgage brokers employed anybody who could fog a mirror to "sell" mortgages...many who were indeed x-cons. The recent pervasive robo-signing demonstrates just how crooked and unsupervised the system remains.

Second, the feds never "forced" the banks to do ANYTHING...more like the other way around with millions upon millions of PAC contributions that bought the banks and investment banks all the deregulation that led to this debacle.
The Community Reinvestment Act contains no language that I have been able to find that supports that urban legend and no one whom I know who parrots this fallacy has been able to provide any documentation as back up.

Third, for every person who blames the greedy home buyer, where is the blame for the greedy finance sector? The home buyer was told that the home would appreciate so much that they could soon refinance into better terms due to the almost daily increase in equity or sell at a big profit. Why wouldn’t they believe the lender when all around them homes were appreciating every single day?

Why no scorn for the banks that as a whole would not hire Appraisers who would not appraise to the offered price?

If the Appraiser did not play the game, he/she would get no more business from the lenders, so they had to play, or close up shop.

The Appraisers had a petition before Congress for YEARS asking them to enact legislation to eliminate the banks ability to do this, but it fell on deaf Congressional ears....probably because they were too well padded with bank PAC money.

And…better question, if anyone believes the buyers “should have known”, then Wall Street HAD to have known as they wrote the play book. So why that is routinely ignored?

They leveraged EVERY mortgage a minimum 40 to 1 and more. They then bundled them into worthless securities called Credit Default Swaps. Also called “synthetic” (apparently their own private joke) and sold them as gold.

When the home buying slacked off, they "created" new investment instruments that appeared to be mortgage backed, but were actually backed by nothing at all and proceeded to knowingly and intentionally deceive "investors" to the contrary. They also subsidized the ratings agencies to back them up, with false ratings.

These are Harvard/Wharton/Yale MBA's, who make millions per year on these scams, yet all too many people can still only focus on the loser in the equation, aka the home buyer...and blame the home buyer for not seeing the future. Meanwhile, the buyer has lost their home, most assuredly by now their job and their health benefits their retirement, and has bleak prospects for recovery.
On the other hand, the architects of this debacle enjoy the millions upon millions that they made, and the banks continue to borrow money from the Fed at almost 0% interest, on the taxpayer’s dime.

If anyone was/is short sighted, it is those who still refuse to recognize these realities, as that makes the economy ripe for it to happen all over again. Fool me once shame on you; fool me twice, shame on me.

Think about it. The last time the Dow was this high, we had less than 3% unemployment. The Dow does NOT reflect economic health. It merely reflects the economic health of those who are wealthy enough to invest in the market on a regular basis.

That said, I agree entirely with Jane NY. I also agree with much of what liriodendron and gmp3 have said....but their facts are not entirely accurate.

Please visit the following link for an education on the realities. In addition, watch "Inside Job", narrated by Matt Damon, a documentary about the financial crisis which is a winner of numerous awards. It is extremely well done, and very easy to understand. It clearly explains exactly what led to this crisis bit by bit and how none of it could have happened without the fed being complicit in what amounts to legalizing fraud for the finance sector. It includes interviews with many of the key players.
IMO, no one should be permitted to vote in the next election without watching this movie first.

As one critic said, “If you are not enraged at the end, you were not paying attention".

People need to come to grips with the fact that the ONLY way this will not happen again is if they take the time to educate themselves on the facts, as opposed to buying into the spin that the finance sector and the “investors” want the public to believe.

People need to base their analysis and/or opinions on the facts of exactly how the finance sector created this never ending mess, yet continue to enjoy the spoils while the global economy is on the brink of crashing around them.

Last but not least, realize that commercial property owners often have financing deals that allow them to walk away from properties without penalty aka non-recourse loans.

"Non-Recourse Debt
What Does It Mean?
What Does Non-Recourse Debt Mean?
A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan."

Again, a double standard. Why no criticizing of the commercial property owners who have done just that, but a private home owner who wants to do the same is derided?

Here is a link that might be useful: Sold Out: How Wall Street and Washington Betrayed America


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RE: Upside down and want out!

logic, interesting post. I am thankful that our Canadian rules are/were so much more stringent.

P.S. When pasting from another software into the Message box, GardenWeb's conversion of some punctuation makes it a bit distracting. Is it possible to correct this in Preview? Or is it just my computer?


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RE: Upside down and want out!

Why no criticizing of the commercial property owners who have done just that, but a private home owner who wants to do the same is derided?

Well, I expect mostly because that's not what we're talking about here. I have much less sympathy for them, but if we get talking about every possible kind of financial malfeasance going on right now..... Ditto for all the insider trading in foreclosures that keeps them off the open market where consumers might benefit, but both of these are other issues.


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RE: Upside down and want out!

Writersblock, can you tell us about that--"insider trading in foreclosures," etc. What do you mean?

I've lived in dozens of rentals throughout my life and a few owned homes. I never made out as well as I have in the owned homes in any way--financially or emotionally. Even now in this bad economy.


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RE: Upside down and want out!

Ottawa, the weird symbols do not show in the preview. As you can see, this is a vey outdated forum format, which accounts for the problem.

Writersblock, the point is that the system is clearly slanted toward making certain the home buyer gets left holding the bag while corporate entities can walk from their financial responsibilities with zero penalty. It goes directly to the OP's question.

There should not be two sets of rules where those who are wealthy enough can buy special consideration and privileges that allows them to walk away without penalty, while those who can't buy those privileges are left with zero recourse.

The bottom line is that "every possible malfeasance" has been and
continues to be enabled by the Feds, as they have allowed the fox to not only guard the hen house but run it as well....and it is THE root cause of
the economic crisis. It is therefore relevant in every respect to any financial dilemma that one may face, especially the OP's position.


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RE: Upside down and want out!

Logic, since you mention facts that are not entirely accurate, these statements of yours qualify:

"They leveraged EVERY mortgage a minimum 40 to 1 and more. They then bundled them into worthless securities called Credit Default Swaps. Also called “synthetic” (apparently their own private joke) and sold them as gold."

Charles Ferguson didn't even describe it like that in his clearly biased movie.


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RE: Upside down and want out!

Writersblock, can you tell us about that--"insider trading in foreclosures," etc. What do you mean?

Oh, it seems to be happening here a lot. Owner owes, let's say 200K on a property that would currently have a market value of 125K, can't make the payments due to hardship or whatever, tries to do short sale, no dice. Bank takes it, sells to someone who works in the bank for 20K, then bank attempts to go after original owner for the balance.

There's all kinds of jiggery-pokery going on with foreclosures around here. I've seen Homepath properties that supposedly were only available to owner-occupants sell for 50 cents on the dollar of the asking price, then get resold as a flip in three months time, too, without anyone ever living, renovating, or doing anything to the property. The foreclosure that goes on the market for a half a day only, just to satisfy the rule about public offering when they've already got an investment group locked in, etc.

For all the huge number of REO properties around here, very few actually make it to the open market so that individual consumers can derive any benefit from them. It's a double pity, because not only does it make it very hard for regular folks to buy them, but it also makes it impossible to sell any property at a reasonable price, since it promulgates the idea that if you wait long enough you might luck out and get something at a fire sale price. Who wants to take a chance on spending 70 or 80K for something someone else might get for 35k?


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RE: Upside down and want out!

jmc01, when stating that a point is incorrect, the best bet is to explain what you understand to have happened...and how it differs from what I described. Otherwise..what is the point of saying anything?

That said, as far as Inside Job is concerned, regardless as to whether or not you believe it to be biased...the end result of near global economic collapse while the finance sector rolls in the spoils speaks for itself.


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RE: Upside down and want out!

jmc01, I caught my error, typing Credit Default Swaps (CDS's) instead of Collateralized Debt Obligations (CDO's)

Investopedia explains Synthetic CDO

"Synthetic CDOs are a modern advance in structured finance that can offer extremely high yields to investors. However, investors can be on the hook for much more than their initial investments if several credit events occur in the reference portfolio."

That said, here is a bit of documentation that supports my statements in terms of leveraging, from Wall Street Watch, and easily verified:

"In 2004, the top cop on the Wall
Street beat in Washington the
Securities and Exchange Commission
now operating under the
radical deregulatory ideology of the
Bush Administration, authorized investment
banks to decide for themselves
how much money they were
required to set aside as rainy day reserves.
Some firms then entered into
$40 worth of speculative trading for
every $1 they held."


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RE: Upside down and want out!

Logic, I caught another error. There are non-recourse mortgages for homeowners. This is mandated at the state level. CA is a non-recourse state and there are a few other states. BUT once you refinance or mess with that innitial mortgage it then becomes a recourse debt.

In the bubble run-up I would assume a large percentage refinanced and pulled out equity, so they not only lost their non-recourse status but also increased their debt.


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RE: Upside down and want out!

chispa, thanks for the info; it seems that about 12 states or so have this provision, but conditions vary from state to state.

That established, it further serves to underscore my point about the double standard. Invariably, people rant and rave about those who walk away from their underwater homes, whether non-recourse or otherwise....but there are no rants about the commercial property owners who do the very same.
Also, although I have not yet researched the issue, my guess is that an individual homeowner will be subject to other repercussions...such as trashed credit, higher interest and auto insurance rates, and fewer job opportunities. Corporations on the other hand, just seem to move on, business as usual.
If anyone knows otherwise, please share what you know.

That said,it appears as if our society values and expects moral obligation only in individuals, but accepts, condones and even applauds zero moral obligation for corporations.

IMO, this general attitude of acceptance, and those who champion the practices of raping the overall economy for the benefit of a small segment of the population is one of the main reasons why we are in a financial crisis today.

Here is a link that might be useful: How Non-Recourse Loans Vary from State to State


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RE: Upside down and want out!

Writersblock, if that's going on, that would explain a lot of things.


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RE: Upside down and want out!

Writersblock,
Why would a bank sell a $125,000 property for $20,000; hence netting $105,000 less then if they would have sold it to the open market? Do you really think they are going to spend thousands of dollars on attorney's fees to go after the original owner for the $105,000, knowing darn well that the owner has no money. Come on, Man. Your silly accusations just do not make common nor financial sense.
If you feel left out of the foreclosure market, you need to come on over to Charlotte. I just closed a deal for my 22 year old client, who got a 3 bedroom, 2/0 bath, full brick home for $12,000. It needed only about $6000 of work. I wonder why the bank gangsters did not jump on this one?


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RE: Upside down and want out!

Writersblock,

What you said sound like "urban legends".

Banks are tightly regulated after recent crash, they are being audited to death. Do you really believe they would allow any individual to dump bank owned assets "pennies on the dollar" through back door deals?

What would they gain from running the huge risk of getting sued by share holders, government agencies or competitors..etc.?

We all know that now banks are tightfisted in approving mortgages, how in the word, at the same time they would freely give away their assets?


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RE: Upside down and want out!

".but there are no rants about the commercial property owners who do the very same. "

Commercial lending has always been higher risk and higher rates.

The banks sure seemed to like the profits.

One of the things any economy must have for long term stability is a way to dissolve insolvent business activities, without forcing the overall economy to take a hit.

We use bankruptcy in the US.

Small corporations (especially) pay higher rates for there commercial borrowing.
This is an acknowledgment of the higher risk, and the lowered chance of recovery if the business fails.

Larger corporations can go so far as to issue bonds.
These pay less since (theoretically until GM) bondholders are in front of stockholders to recover from a failed corporation.

The bonds thus have a lower rate than a loan, and less risk to investors than stock.

By messing around with the entire system the stability has NOT been increased.


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RE: Upside down and want out!

I daresay you're right, ncrealestateguy and azmom, Still, it's an odd coincidence that of the five foreclosures in our complex, for example, three just happened to be sold for considerably less than appraised value to people who just happened to be employed by the lien holders, despite the fact that the one unit that did come on the open market sold for quite a bit more than appraised value in a bidding war.

You're right. I'm sure it often just happens that people who work for the bank just happen to buy these properties at very low prices and just happen to have gotten the paperwork to the HOA while the bank is still telling other would-be buyers that they can't give any information because the property isn't fully through the foreclosure process yet. It's got to be just a coincidence, I'm sure.


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RE: Upside down and want out!

Another article about short sale and foreclosure fraud. Most of the fraud is being carried out by real estate agents. The banks are just as stupid on the way down as they were on the way up! I read a blog by a very straight forward & honest San Diego agent and he says that he sees 1-3 of these fraudulent transactions per day. Crime does pay!

Here is a link that might be useful: Short sale fraud


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