We’ve all heard about people walking away from homes worth less than the mortgage, but until recently I did not know anyone in this situation. Then my girlfriend told me she and her partner were stopping mortgage payments. WHAT???
My friend paid $470,000 for her home in 2004. Now it it worth $300,000, according to Zillow. My girlfriend and her partner bought the home with two loans totaling 100 percent of the home’s purchase price. The intended to sell it before their main loan reset. When things got sticky no one would refinance because they lacked equity. The market crashed and, well, you know the rest.
In January they stopped paying their $3,100 mortgage. She feels guilty, but then her partner lost his job so she reasons they would not have been able to keep up with the payments anyway.
Her father, who stopped paying his mortgage in August, just received a letter from his bank saying they were willing to work with him. She hopes the same thing will happen to her.
“You can’t have a nation of people with s—y credit,” she said to me recently over coffee. “There’s got to be a forgiveness program.”
Maybe, I thought. But why in the heck did she buy the home, which she did not even really like, in the first place? She and her partner were making interest-only payments that added up to more than 30 percent of their monthly income. Come on, girlfriend!
“We believed in two years the market was going to be great,” she said. “We would sell the home, make a few thousand, and buy a home we really wanted.”
As an outsider, I can’t help but think she should have been smarter about buying the home in the first place. But then again, Hubby and I also bought a home just before the market peaked that stretched us financially. The main difference between my friend and me is that my mortgage was 30-year fixed and we sold the place before the bubble deflated.
I wished my friend had not made a decision that, in hindsight, was a bad one. If her bank will not modify her payment, she will have to file for bankruptcy.
On the other hand, if she negotiates a lower rate and can stay in her home, I will not feel like she has unfairly gotten ahead of folks like Hubby and I, who played our cards conservatively. My friend has a huge ordeal ahead of her (read: stress and paperwork) and if things work out well, she will still be living in a home she does not really like.
April 3rd, 2009 at 10:57 am
I think that is pretty condescending of you. How dare you talk about your poor friend? Don’t you think they too are victim to financial products that should not have existed. But for greed. Buying a home is the American dream and homeowners make the economy flow with remodels and home repairs and stability. Your poor friend, she told you her story and you blasted it all over the internet without a touch of sensitivity to her situation. Some very well intentioned people file bankruptcy and not intentionally like you make it sound.
My son had medical bills of over 2.5 million dollars and we had to refinance our house so I could not work and go visit him in the hospital. We had a tough go with making our mortgage payment but we are doing it. I would hate to be your friend and tell you this just so you could say, maybe she should have let her son have lesser care so she could have lesser bills. Money is the root of lots of evil and I used to admire you and your frugality but not your rude judgement of others.
Help not hurt . . .
April 3rd, 2009 at 11:06 am
Where is she going to live? Or are they hoping the lender will reduce their payments? I have been through two cycles of the housing market already. I always advise to get a 30-year fixed interest rate loan.
April 3rd, 2009 at 11:21 am
Also realize that everyone will be picking up the tab if your friend ditches her house. You and hubby chose to be conservative (some would say _responsible_) with your choices, while your friend gambled and lost. The American taxpayers, who are helping to keep our banking and credit system afloat through this debacle, are subsidizing the bad choices of family, friends, and strangers everywhere. Yay!
April 3rd, 2009 at 11:30 am
Sorry, but I have little sympathy for people who make such stupid, uninformed decisions. Interest only! No down payment? Too bad she didn’t talk to her money-savvy friend, you, before she got into this.
April 3rd, 2009 at 11:59 am
Um… shouldn’t your friend make some effort to contact her bank and set something up, instead of just stopping payment and *hoping* that the bank will contact them with a deal?? At the very least, her contacting them might prevent a ding from showing up on their credit reports for non-payment.
April 3rd, 2009 at 12:20 pm
Mellany,
It doesn’t sound like BB’s friend’s situation is anything like yours. The friend bought more house than she could afford, gambled with a foolish bank’s money, lost, and now everyone has to pay for her poor decision. No names were mentioned to protect the “innocent”, so I see no harm in highlighting the case.
Just my $.02.
April 3rd, 2009 at 12:42 pm
I have to agree with Mellany ~ I wouldn’t want to be a friend of yours. Yes, she did something foolish, but in this time and situation, times are tough and your loss of sympathy for your friend isn’t right.
April 3rd, 2009 at 1:59 pm
I think it’s easy to place blame on the borrowers regardless of the situation, but what about the lenders and loan officers that offered products knowing these people couldn’t afford it? I’m not saying borrowers didn’t make poor decisions, but they aren’t the only party involved here.
It’s not as easy as everyone thinks to contact the bank and have the loan modified. Millions have mortgage servicers that make more $$ when borrowers are late and they don’t want to help. Then there is the brilliant product created by greed: bundling subprime mortgages into investment bonds. Try getting a loan modification then. It doesn’t happen.
Borrowers got excited about the inflated housing market and made poor decisions because crappy loan products were available, does this mean they are trash and not worth compassion? I don’t think so.
April 3rd, 2009 at 5:51 pm
I personally appreciate it when my friends are honest enough to tell me when I’ve gone off-kilter, but are nevertheless willing to lend a helping hand when I need it. We can’t assume that all BB did was castigate her friend without offering some sort of comfort, if not outright sympathy.
April 3rd, 2009 at 8:38 pm
I hope your friend knows and is okay with you posting this on your blog or your friendship may be very different in the future.
April 3rd, 2009 at 10:38 pm
Somehow, the concept of working and saving your money for a down payment on a house has gone out the window. Your friend (and thousands and thousands of others), along with the lending institutions, are part of the reason our economy is in such a mess. You, me, and the other responsible ones are left to foot the bill for the self-centered, irresponsible choices your friend and others have made. We all do stupid things, but your friend had to know she was taking advantage of the “system” and went ahead and did it anyway. No sympathy here.
April 3rd, 2009 at 11:18 pm
I agree with Elaine. It’s the responsible people who are going to get stuck with having to help foot the bill for those whose greed was more than they could afford (ie your friend and the banking system). It’s a shame that the responsible people are stuck and will not be getting a bailout from the system. As usual, those who are bad get rewarded with bailouts and forgiveness of loans, etc and those who are responsible are stuck paying the bill for them!
It’s a good thing you did not publish your friend’s name or initials. Do they realize you were talking about them?
April 4th, 2009 at 10:57 am
Oh my! What a backlash BB has received. Never the less the subject matter of the article is not really being dealt with. Her friend invested in a plan to turn a profit with no money down & expected to come out a winner. She along withe many others lost. It is that simple. Don’t read more into to this folks. I am sure she & her friend are perfectly aware of what would be shared on the blog & don’t think BB would post her insight in regards to the situation if she hadn’t verbalized it to her friend already. That is what friends do. Tell you what you need to hear even if it isn’t what you want to hear.
April 4th, 2009 at 12:19 pm
I wholeheartedly agree with J Wojcik and Elaine! I also see that there is “some” responsibility on the Financial Institution’s side, as well. I too purchased a home at the height of the market, in Jan. 2006, but despite the fact that the mortgage lenders told us that we could get 100% financing and a loan at about $150K more than we were comfortable getting, because they could make the payments afordable by getting us an Interest-only loan, we did not. When we argued that we couldn’t aford something like that because we couldn’t aford the adjusted payments – they actually tried to tell us that we should be anticipating advancing in our careers and receiving larger incomes when the loans adjust. (By the way, I lost my job in November of ‘08, instead of an advance in my career.) I just refused to let them tell me what the future would be and looked at things pessimistically. The problem with all these forclosed or near forclosure homes is that so many people were hyped into the Optimism! Too many people were wearing the Rose-colored-glasses!
I wish that more people could take responsibility for the fact that they made a bad choice and failed to predict the future, and face the results from their short-sightedness!
April 6th, 2009 at 6:41 am
I agree with Chris C. When we bought our house in 2001, while we weren’t pushed to get an ARM, we were told we qualified for a loan $100,000 more than what we knew we could afford. I think sometimes people let greed get the best of them. That and the “Look at the really expensive house we have.” My husband is a plumber and he goes to plenty of expensive homes where the curtains are sheets and the furniture is lawn chairs.
April 6th, 2009 at 10:25 am
I guess I am in a similar situation to your friend, except I paid about 1/10 of what she did for her house. At the time I bought mine, it was cheaper than rent and it seemed like a good investment, but that was nearly 8 years ago and a lot has changed including property taxes that have increased at an astounding rate and a home value that has gone in the other direction.
Hard to know what the wise thing is to do in this situation. I am presently trying to work something out with the mortgage company, but I’m not sure if it makes sense or if I am going to be throwing my money away if the value of my home continues to plunge. The alternative is to move in with my parents, which isn’t something I am too keen on either. One thing is for certain, these are extraordinary times.
April 6th, 2009 at 10:32 am
a few thoughts — Melanny, MONEY is not the root of all evil, it’s the LOVE OF MONEY. Big difference. Money makes life easier and more fun. Let’s give it some credit (bad pun, sorry).
I, like Julia, am a professional “frugalista”, and I also got caught up in the Great Real Estate Debacle of the 2000s. (The 2 are not mutually exclusive.) I was excited after my first few flips and thought the market would continue and reinvested all my profits. I admit I got a little greedy, but I was not doing it to take advantage of anyone or anything, but to make a living and to help people have beautiful places to live. Like Julia’s friend, I will probably have to declare bankruptcy so that I get a fresh start. I went through a major depression when I lost everything I own, so don’t all think it’s about taking advantage. it was a horrible time in my life, and the consequences will be with me for a long time. I absolutely take responsibility for my decisions and now at 53, I am starting all over. I learned a lot and will certainly be more cautious next time around. But if you never take a chance you never can win, and when I am at the end I will look back at my life and be at rest that I played full out!