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Underwater? Go ahead, take a walk

Submitted by on Wednesday, 9 December 2009 One Comment

If you listened closely last winter, you could hear the soft drum beats in the background as Washington moved to help homeowners facing foreclosure.

“Unless we reduce the principal on loans, people will just walk away,” economists both left and right warned.

Not even a year down the road, the drum beats are back, except this time folks are banging on timpanis. “You must reduce the amounts of the loans or the housing crash will roar back and be even uglier this time,” they’re crying.

Oh, and we have to do something about second mortgages while we’re at it. That’s according to what the head of a securities group told Congress this week.

And what’s going to  happen if the millions of mortgages aren’t reduced from the original stratospherically inflated purchase price to the sane market price of today?

According to that same securities analyst, Laurie Goodman of Amherst Securities Group LP, it would take 1.35 years to sell the 7 million properties she says are likely to face foreclosure.

A year and a few months? Is that all? A little perspective here, people. Houses go underwater at the end of every housing boom. Just look back 10 years ago, when the same thing was happening. But this time everyone is supposed to get a get out of hock free card?

If  people really want to screw up their credit rating by walking away from a loan they could pay but just don’t want to because their home isn’t worth as much anymore, then let them. For some, that might well be a sound – albeit sleazy – financial decision. Why should we pay hundreds of thousands more for a house than the neighbors are, the thinking goes.

Well, because you agreed to the purchase price. Usually, those don’t come with reset buttons.

Wonder what Goodman’s take is on auto loans, because virtually every vehicle ever purchased is worth less than its loan value shortly after it’s driven off the lot. Should banks constantly renegotiate those loans just to make it nice for everyone?

That Goodman wants to include second mortgages is particularly galling. Many of those were taken out by people who wanted to use their houses as ATMs and spend their new-found “wealth” like drunken fools. Are they going to lose the SUVs and remodeling projects they bought with the money they won’t have to repay?

While we’re at it, let’s go back on every Realtor who took a commission on an inflated price, every loan officer who wrote a mortgage for an overvalued property and every appraiser who handed the Realtors and loan officers the numbers to justify the loans. They all made a pile of money on this mess, too.

Once there’s a plan to collect all that money, I’ll be 100 percent in favor of renegotiating principal and not just loan payments. Until then, you made the deal. Deal with it.

Copyright 2009 Debra Legg. All rights reserved.

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One Comment »

  • Lisa said:

    I have a second mortgage on our house. However, it was so we didn’t have to pay PMI not so we could use the house as our own personal piggy bank. That being said, even though my house has lost value, it doesn’t mean I want a government handout. Instead, we are fixing up the house so hopefully we can get some of our value back.