The 7 Words That Will Save America

"We expect you to repay your debts."

Those seven words could save America. Let me tell you why.

Heads, I win ...
Surely you've heard of the onslaught of people walking away from their homes because their property is worth less than the mortgage balance. Even borrowers who can afford their monthly mortgage payment are stopping, simply because it doesn't benefit them anymore.

This is entirely legal in many states. After the house is forfeited, "non-recourse" laws prevent lenders from going after these borrowers' assets or garnishing wages in an attempt to be made whole. It's a one-way ticket: If the housing market works in your favor, enjoy the ride. If it doesn't, that's the lenders' problem. Better luck next time.

Individual homeowners aren't the only ones walking out. In December, Morgan Stanley (NYSE: MS  ) abandoned ship on five San Francisco office buildings, turning the properties over to its lender. A Morgan Stanley spokesman got right to the point, saying, "This isn't a default or foreclosure situation. We are going to give them the properties to get out of the loan obligation." Not a bad deal -- for Morgan Stanley.

I support these walkers wholeheartedly. Why? Because they're following the law, and laws that help you shouldn't be ignored, even if you think they're outrageous. When someone offers you money, take it. And when the law allows you to walk away from a debt, do it. That's rational behavior.

But it's interesting to ask what the economy would look like if this weren't the law. For one thing, other debts like credit cards and student loans have at least some recourse. As anyone on the naughty list at Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , or American Express (NYSE: AXP  ) can attest, banks will shake you upside down for every penny you're worth if you default on these debts.

Second, non-recourse mortgages are unique to the U.S. Most industrialized nations have laws allowing lenders to garnish wages and seize assets when borrowers default and the mortgaged property doesn't cover the loan balance. You borrow, you pay. Tellingly, many of these countries didn't end up with a Chernobyl-style housing meltdown like we did.

Take Canada. Its housing problems look practically nonexistent compared with ours. One reason for this is that nearly every Canadian mortgage is full-recourse. As one recent article put it:

If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower's other assets and even take legal action to garnish the borrower's future wages ... The full recourse feature of Canadian mortgages results in more responsible borrowing, fewer delinquencies, and significantly fewer foreclosures than in the United States.

It's hard to know exactly how big a difference this makes. But take a look at this chart comparing Canadian mortgage delinquencies with those in the States. Enough said.

Ditto for Australia. As one Australian journalist wrote in The Wall Street Journal in 2008:

When Australians borrow money to buy a house, they know that if they default and the mortgaged property doesn't cover the debt, they will be responsible for the shortfall. And the lender will chase them for it. It's a neat way of reminding Australians to borrow responsibly.

Not surprisingly, Australia currently has one of the healthiest real estate markets in the world, with 11% growth last year after a barely noticeable 4% drop in 2008. Come hell or high water, Aussies find a way to pay their debts.

Still not sold?
Changing recourse laws would probably be about as popular as ending Social Security. You'd hurt a lot of people. Admittedly, I doubt it will ever happen. But anyone who actually supports the non-recourse system should have to explain the advantages it brings. Other than supercharging homebuyers' ability to speculate like frat brothers in Las Vegas, I can't think of many.

Do non-recourse home loans promote growth? Maybe the growth of mortgage brokers and derivative traders, but the real drivers of our economy -- the Microsofts (Nasdaq: MSFT  ) , Googles (Nasdaq: GOOG  ) , and Boeings (NYSE: BA  ) of the world -- gain nothing. 

Does it encourage entrepreneurship? Maybe in the business of flipping condos, but that isn't much to be proud of. Does it promote capitalism? If you believe that trust and a strong system of contract laws are two of capitalism's tenets, then no. 

Surely, though, it protects those who are down on their luck, right? Not really. Even with a full-recourse system, bankruptcy laws protect those in over their heads.

So could "we expect you to repay your debts" be the seven words that save America? They won't solve all of our problems, but they're certainly worth a shot.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. American Express and Microsoft are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool has a disclosure policy.


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  • Report this Comment On March 03, 2010, at 4:47 PM, jsj3 wrote:

    Really? We just blame the owner and it gets all better? Wow...thank God we don't have to do anything to those who helped people into mortgages they knew the people couldn't afford. Thank God we don't have to regulate an industry that got into trouble selling mortgage-backed securities. Let's just kick the consumer for not following the caveat of "buyer beware".

  • Report this Comment On March 03, 2010, at 4:49 PM, barneygrossman wrote:

    Non-recourse on mortgages vary by state. Not every state makes it so easy. That said, one result of changing this feature would be (modestly) lower mortgage loan costs. Recourse loans are inherently lower risk to the lender. Thus, they would have to price them accordingly.

  • Report this Comment On March 03, 2010, at 4:49 PM, TMFHousel wrote:

    jsj3,

    Don't take the wonderfully terrible tactic of concluding that I'm not for regulating the financial industry only because this article doesn't specifically state otherwise.

    The entire system is screwed up and needs to be overhauled top to bottom.

  • Report this Comment On March 03, 2010, at 5:03 PM, BruinAlum77 wrote:

    jsj3 summed up the real problem perfectly.

    How's this for six words that would have saved America from the current financial crisis:

    "Regulate and punish illegal corporate business practices."

  • Report this Comment On March 03, 2010, at 5:04 PM, NoFreeRide wrote:

    Eliminating "non-recourse" laws certainly puts more pressure on the borrower to pay up. It would seem by having those laws the lenders, knowing they could be stuck with a loss, would require more collateral from the borrowers. Obviously that did not happen either.

  • Report this Comment On March 03, 2010, at 5:05 PM, BruinAlum77 wrote:

    Seven words that would have saved America before the current financial crisis:

    "Regulate and punish illegal corporate businesss practices."

  • Report this Comment On March 03, 2010, at 5:11 PM, NotJesseL wrote:

    BruinAlum77 - why don't you count the 7th word? Was that interest that took it away, or a bank service charge? :-)

  • Report this Comment On March 03, 2010, at 5:14 PM, NotJesseL wrote:

    It is truly a stupid law that lets borrowers just default on a mortgage with no recourse. But then, America, has always been the country of the second chance, where you could just move west and leave a lot of debts behind and nobody would judge you for it. Maybe, since the frontier is closed now, we ought to revisit that policy....

  • Report this Comment On March 03, 2010, at 5:24 PM, BruinAlum77 wrote:

    Sorry about that, my original post didn't show up when I refreshed.

    To conclude that non-recourse loans are the basis of a sound real estate market is unsound logic because it ignores the fact that the Canadian banks didn't invest in all the derivative trading:

    http://seekingalpha.com/article/164766-o-canada-part-i-inves...

    "While US bankers and brokerages were engaged in a headlong rush to get through the door marked “Stupid Banking” at the same time, their Canadian counterparts were protecting investor deposits, eschewing sub-prime mortgages and derivatives, and being regulated by regulators who actually believe their job is to protect depositors and the national economy rather than provide themselves with contacts so they can get a cushy high-paying job as soon as they leave government..."

  • Report this Comment On March 03, 2010, at 5:24 PM, strathroy wrote:

    Under normal circumstances, non-recourse laws would not have the downside they currently have. Lenders have been light on requiring reasonable down payments, thus making it easy for people to walk away. There is risk to both parties when a business transaction occurs. In contract law it's call detriment. You give up something and I give up something. You gain something and I gain something. Lending over the last decade has been an unbalanced proposition. Lenders just happened to be on the short end of the deal because they too were trying to make a fast buck. So consider it share and share alike.

  • Report this Comment On March 03, 2010, at 5:28 PM, TheOtherOnes wrote:

    Don't forget the lender can tell the IRS that they for gave the amount that you owed and then it will be considered income. This also happens when have the credit cards renegotiate you balance down. So walking away from loans can be (probably will) considered income and taxable.

  • Report this Comment On March 03, 2010, at 5:39 PM, WyattJunker wrote:

    Why punish corporations and banks? They weren't the problem. Government interference was. Last time I checked Fannie and Freddie were government institutions who lowered their standards which every other broker went off of.

    Punish government, not the banks. Punish government for the CFRA. Punish government for pushing home entitlement into the political rhetoric. Punish government for TBTF.

    Then, require people to put up 20% down and get some skin in the game. Problem solved without any so-called requisition.

  • Report this Comment On March 03, 2010, at 5:49 PM, Keal7 wrote:

    "But take a look at this chart http://www.american.com/graphics/2010/banks3.jpg comparing Canadian mortgage delinquencies with those in the States. Enough said."

    Really? A Canadian could have written an article in 2007 using the same graph to highlight why the US system is better and changes to the Canadian system in order (besides arent they supposed to be socialists there? untill they help us make a different point maybe). The US default rate was dropping throughout the chart until 2008. Could there be other stronger factors in play besides full recourse? Hmmm. Funny how we choose to see what we want.

  • Report this Comment On March 03, 2010, at 5:50 PM, fadler1 wrote:

    ACCEPT RESPONSIBILITY FOR YOUR OWN ACTIONS............................that works too.

  • Report this Comment On March 03, 2010, at 5:51 PM, LessGovernment wrote:

    Great article Morgan. I especially liked the graph of Canada vs. USA mortgage history. Once again, we can thank our great Congress for more stupid, Progressive, redistributive, legislation that is punitive to those that work and save and try to live by the rules.

    However, I offer a different set of seven words that could have saved America and protected a lot of borrowers from getting involved in a bad loan in the process.

    "You need 20% down for this mortgage"

  • Report this Comment On March 03, 2010, at 5:52 PM, cle86 wrote:

    I don't think this argument really makes sense. Since these loans are supposedly so risky for banks shouldn't they have been very careful about who they give money to? If you make mortgages like student loans that will just make another huge increase in housing prices we don't need. Why do you think college is so expensive? Banks will loan you basically any amount you want because they know they can come after you for your whole life and so colleges also know they can charge you any amount they want and they do.

  • Report this Comment On March 03, 2010, at 5:52 PM, TMFHousel wrote:

    "A Canadian could have written an article in 2007 using the same graph to highlight why the US system is better and changes to the Canadian system"

    How? Showing that our delinquencies were already 4x theirs, and have been consistently for decades?

  • Report this Comment On March 03, 2010, at 5:55 PM, TMFHousel wrote:

    "Since these loans are supposedly so risky for banks shouldn't they have been very careful about who they give money to?"

    Ah, good point. If the banks were actually holding the loans, then yes. Most went either to Fannie and Freddie, who could care less about losses, or private CDO securities, where investors were promised by the rating agencies that all was well.

  • Report this Comment On March 03, 2010, at 5:55 PM, neskolf wrote:

    No article that makes the simple proposition that measures encouraging increased individual and personal responsibility would be beneficial can be complete without commentary that equates to simple-minded fist shaking at the 'evil corporations'.

  • Report this Comment On March 03, 2010, at 5:55 PM, sapereaude1 wrote:

    Three word solution:

    "Lynch investment bankers." Canada is really a pseudorepublic owned by a handful of closely-held corporations. The Canadian government is a step-'n-fetchit of the Irving & TD Banknorth class of nation-owners. They merely have disarmed their population, and keep the plebes quiet with serious welfare subsidies. Anyone who has been paying his mortgage and finds himself out of work through no fault of his own is perfectly justified in shooting dead any banker who tries to throw him out of his house.

    En fin, no Republic in history has long survived the concentration of wealth or weaponry in few hands without acquiring the prefix "banana."

  • Report this Comment On March 03, 2010, at 5:56 PM, plange01 wrote:

    7 words? ....obama has been thrown out of office...

  • Report this Comment On March 03, 2010, at 5:59 PM, jssiegel wrote:

    How about five words? A Roadmap for America's Future

    http://www.roadmap.republicans.budget.house.gov/plan/

  • Report this Comment On March 03, 2010, at 6:00 PM, Keal7 wrote:

    Meanwhile its the American (libertarian) way. Untill its not. OUr laws were shaped by our foundations. The other day Housel could not see the need for responsiblity in folks being (mandated) to carry their own health coverage lest they continue to dump the costs on us all in emergency rooms (the real socialism). HSAs that carries no mandates as "wisely" suggested there will only lead to the same irresponsiblity - as in the housing situation. That is even assuming those who are struggling to feed themselves will save anything for an illness they are not planning for (the saving rate of Americans is best not even discussed here).

    A housing crash was just as unforseen to many people as an illness. Leads to the same kind of bankrupcy. And just like folks up and walk away from their homes - problem solved - they equally stroll or get wheeled into ERs. Your solutions sorry are too derived from the "upper class" "trickle down" school of thought.

  • Report this Comment On March 03, 2010, at 6:03 PM, Archipeligo wrote:

    Am I suppose to feel bad for a bank? Did they not earn interest and service fees during the course of the loan? It always a win for the bank.

  • Report this Comment On March 03, 2010, at 6:07 PM, Keal7 wrote:

    "How? Showing that our delinquencies were already 4x theirs, and have been consistently for decades?"

    Ever economist knows that there are several variables affecting a graph of a complex measurement such as default rate. The point would be that no matter the contribution of non-recourse to it - the combined set of variables was working favorably to reduce default rates consistently through the duration of the plot (from 1991 to 2007).

    There is a different economic argument for what level of default rate is most condusive to growth (although you and I will agree it is not close to 10%) - just like good policy makers try to be enablers of some level of risk taking in the society but not too much. It is a supposed to be a balance Maybe I am wasting my time on that subtlety since I am not perse arguing that wanton abandonment of responsiblities is a good thing - I just dont like dumbed down articles (And its nothing against the article: I also dislike dumbly simplified and patently wrong slogans such as that you can not borrow your way out of a recession).

  • Report this Comment On March 03, 2010, at 6:12 PM, futuretrade wrote:

    @jsj3,

    You said: "Wow...thank God we don't have to do anything to those who helped people into mortgages they knew the people couldn't afford."

    This article isn't talking about loans that the borrower cannot afford. Here is the quote "Even borrowers who can afford their monthly mortgage payment are stopping, simply because it doesn't benefit them anymore."

    The article is talking about borrowers who can pay their mortgage payments but choose not to because their house is not worth what they owe on it and they can probably rent a similar house in the same neigbhorhood for far less than they pay in mortgage payments.

    The borrowers have the ability to pay but not the willingness to pay.

  • Report this Comment On March 03, 2010, at 6:18 PM, Keal7 wrote:

    Ok let me be intellectually straightforward with you Housel. Look at your graph very closely. The US default rates was dropping consistently until the later part of 2008. Then massive default. Partial recourse? No! (surprisingly the default rate correlates with the unemployment rate!)

    Many folks did not walk away because of non recourse or full recourse but because they were between a rock and a hard place. RECOURSE OR NOT DID NOT CAUSE THE SPIKE. Massive economic failure and job losses did. Unbridled 40 fold leveraging did. Black art financial schemes and default swaps (betting leveraged against a bad deal you make yourself) did. Huge 750K a month job losses did. A Canadian WILL also walk away from a full recourse home if he has to eat. Any human will walk away from a home if they have to feed. Garnish what? Their unemployment? 20% IS USELESS WHEN THE PRICES HAVE DROPPED 30%.

    Stop identifying the wrong problems and pushing your ideologies. We will follow your solutions and it will more closely remember th chart of bo.gov from 2001 to 2008! Truth.

  • Report this Comment On March 03, 2010, at 6:27 PM, ChannelDunlap wrote:

    Implying one can punish government without punishing it's constituents.

  • Report this Comment On March 03, 2010, at 6:41 PM, Foolerish wrote:

    I just pulled up a list of recourse versus non-recourse states. There are 12 non-recourse states. There are an additional six states that limit the lender to one course of action, either foreclose or sue the borrower but not both. So that is a total of 18 states out of 50 that allow this type practice. That's 36% of the states. The rest of the states treat the borrower like the Canadians and the Aussies, so lets not get all in a dither over this.

  • Report this Comment On March 03, 2010, at 6:43 PM, BruinAlum77 wrote:

    "The article is talking about borrowers who can pay their mortgage payments but choose not to because their house is not worth what they owe on..." You're arguing about a claim made that is not backed up by any real data.

    The news recently reported that 5.1% of the houses in the country are more than 90 day late in payments but not in foreclosure. But what can we deduce from that data?

    How can anyone claim to know whether the people lost their jobs and simply couldn't pay, or decided to walk away? If we examined the number of interest-only loans in foreclosure versus the number of foreclosures where people put 10 or 20% down, we would have a much better idea concerning which economic forces are really at play.

    Everyone arguing for sticking it to the homeowner ignores the fact that when the U.S. enforced regulation (before the S & L crisis), there were serious underwriting criteria. We didn't have interest-only loans, which made up 49% of the new mortgage market in 2003.

    If government simply enforced existing regulation laws, we would not have had any of these financial crises.

  • Report this Comment On March 03, 2010, at 6:46 PM, bernbern0 wrote:

    Excellent article Morgan! I bought my house over 43 years ago, and the minimum down payment required in those days was 20%. It wasn't easy handling the mortgage payments each month, juggling the other responsibilities, raising a family. And more importantly, while we didn't buy it as an "investment", but a place to live in and raise a family, it paid off multi times over. I would like to make a point that I have never seen discussed regarding the value of a house. My mortgage was a 25 year one, and once I signed the papers, I realized that with my 25 year loan, I would be paying many, many times more than the price I paid for my house. Never once in all those years did I stop and calculate the "value" of my house each year. It served our family well, and today, I could proudly say, it was the best investment of my life! While I agree with your seven words that will save America, all it really takes is one word. "Responsibility!"

  • Report this Comment On March 03, 2010, at 6:57 PM, TMFHousel wrote:

    "Ok let me be intellectually straightforward with you Housel. Look at your graph very closely. The US default rates was dropping consistently until the later part of 2008."

    But still 4 times higher than Canada.

    "Stop identifying the wrong problems and pushing your ideologies."

    Stop reading it if it bothers you.

    "So that is a total of 18 states out of 50 that allow this type practice. That's 36% of the states."

    But what states are those? They're the ones that did all the damage.

    Thanks for the comments, all.

  • Report this Comment On March 03, 2010, at 6:57 PM, JesFoolin wrote:

    How about this? Don't follow the lead of the federal government. Use some common sense, use restraint and take some personal responsibility. Old-fashioned? Yes. Ever goes out of style? Absolutely not.

  • Report this Comment On March 03, 2010, at 6:58 PM, TMFHousel wrote:

  • Report this Comment On March 03, 2010, at 7:02 PM, Chexi wrote:

    There is little risk to banks if they make a risky (perhaps fraudulent) loan and sell it to Fannie or Freddie under false pretenses, who then package and sell them as securities (again under false pretenses) to our pension funds, mutual funds, etc. The reasons the banks got killed was because they bought back the crap they were selling, just in securitized form.

    And yes, the government and CRA do share some of the blame. Having represented more than a few banks when dealing with their regulators, there was a lot of pressure brought on them to lend to those who could not afford it.

  • Report this Comment On March 03, 2010, at 7:06 PM, stan8331 wrote:

    I'm generally in favor of promoting personal responsibility, but full-recourse loans would not have done anything to prevent this crisis. If anything, the extra margin of safety provided by full-recourse loans would have encouraged banks to ramp up EVEN MORE extreme leverage ratios.

    The extreme leveraging of derivatives by supposedly judicious AAA companies is what caused this economic downturn to reach near-Depression levels.

  • Report this Comment On March 03, 2010, at 7:12 PM, watchwhatheydo wrote:

    And 3 words which are killing our country-No New Taxes.

    Hanndiego

  • Report this Comment On March 03, 2010, at 7:46 PM, bernbern0 wrote:

    Just a little addition to my comment above. My wife, who has a better memory than I do, reminds me that on our mortgage, one third was the required down payment not 20 % which was even tougher on us. To the folks who are critical of Morgan's article, stop blaming Morgan, and start blaming the lack of individual responsibility as well as the lack of corporate responsibility for our problems.

  • Report this Comment On March 03, 2010, at 7:59 PM, TomBooker wrote:

    Housel.. of all people. You're thinking too much. The honorable solution has always been for the counter-parties to share in the loss of the value and principal.

    The lenders saw no sense in even talking to somebody with negative equity and missing a payment, they just took the house.

    The mortgage papers are a contract correct? In that contract, which the lender wrote themselves, they provided a very precisely written boilerplate for non-payment. The house is the collateral.

    Depending upon the state, either the prospective homeowner or the lender has the asset appraised. In either case, at the settlement table, the lender accepts the house as full/most collateral for the loan. In writing the contract, their lawyers were fully aware of any additional recourse statute in the state.

    The lenders accepted both the appraiser and the appraisal. They initial the appraisal sheet, as part of the mortgage agreement..

    In the banking business, that is called making a bad loan. For 40 yrs which I know of, you got fired if you repeatedly made loans based on mis-valued or insufficient collateral. There is not a market within the US which has not had a bubblish spell. Lenders went out of their way to keep aware of that, and they would toughen the mortgage deal to reflect the risk in the price, or denied the mortgage.

    But there was no reason for them to be careful with their lending, and everybody who understands secondary markets and securitization knows why.

    The Lender freely wrote and signed the contract and HE is expected to face the consequences of HIS actions.

    (As a side note, I don't know what Real Estate Industry porn you are reading, but it is slowly coming into focus that people who can still pay, but are walking away, are (investors or) more affluent and better educated than the ones still paying and homesteading.)

    Now where would they have gotten this idea that you can be irresponsible and held totally unaccountable for your greed, outsized risky behavior, and arrogance? And that it is a moral justice?

    How about the Primary Dealers, who weren't really banks? Plus the Major Banks?

    The "Moral Hazzard" is not the perceived invincibility of the Banks being forceably indemnified by the American People....

    It is the destruction of the morality of just and rightful consequences for your actions.

    If the Big Lenders (4 banks, someway in on 2/3 of active mortgages) didn't have political clout to get off scott free for their share of the responsibility, they would have quickly figured out it was better to reduce half of the loss in principal, rather than take the entire loss. The shareholders and bondholders would have taken the hit. And that is to whom it belonged.

    Be sure to let us know how your job at Citi or BoA is working out. ;)

  • Report this Comment On March 03, 2010, at 8:19 PM, OPTIONNUT wrote:

    Seven Words for the next electios:

    Lets dump Congress and the President!

  • Report this Comment On March 03, 2010, at 8:49 PM, egstern wrote:

    Unlike student loans and credit card loans, mortgages are SECURED loans. Secured by the value of the mortgaged property to protect the lender. Any argument comparing those different kinds of loans is totally fallacious. If the lender chooses to engage in risky loans, that is his problem if they go sour. Rather than point fingers at homeowners who are at the bottom of the food chain here, lets start at the top with perverse compensation standards for bank officials that created incentives to package toxic loans that they knew would explode eventually and conflicts of interest in the bond rating agencies who were really supposed to be the last backstop preventing the toxic junk from infecting the rest of economy.

  • Report this Comment On March 03, 2010, at 9:02 PM, tonedeafdave wrote:

    TomBrooker seems to make the most sense to me.

    The American (in some states) mortgage says "Pay back the loan or we'll take your house." The Canadian contract says "pay back the loan or we will take your house, sell it as quickly as we can for a low price, and you will owe us the difference."

    Each kind of mortgage is a contract, and it is the concern of the two sides what they agree to. If the American mortgage is more favorable to the borrower, then it is the responsibility of the lender to mitigate risk by charging more for the loan. If the whole thing is being regulated to where things don't pay for one of the sides, then the deals won't be made. Either the electorate or the lobbyists will then take a hand and the regulators will be sorted out.

    The mathmatics of walking away from a property which is 'underwater' are indeed reasonable for people with somewhere to move to, or for whom the property is an investment. An individual who has enough to pay for the mortgage on his single home and who probably selected it for a reason (school, commute, low crime, whatever) is (IMHO) not likely to leave the bank holding the baby.

    .

  • Report this Comment On March 03, 2010, at 9:27 PM, majakblue wrote:

    In my county the developers built megamansions that were totally inappropriate for the neighborhoods, paid themselves and then walked off when these white elephants didn't sell. The banks should never have financed the loans for these subdivisions and should suffer the consequences. The banks repeat this performance again and again, and meanwhile the homes sit empty and unsalable while there is a lack of affordable housing. It should be obvious that in a county where the median income is about 37,000 that 500 thousand - 2 million dollar homes will be hard to sell. The banks bring it on themselves.

  • Report this Comment On March 03, 2010, at 10:50 PM, drkazmd65 wrote:

    Here's a whacky idea,... how about holding corporations to the same standards as individual mortgage holders?

    If you are going to try and grind the individuals into the dust to cover underwater mortgages,... hold the corporate & commercial mortgage holders to exactly the same standard.

    Same underwriting and payback rules should apply to all since corporations apparenlty have Constituional Rights - they should have the same Liabilities as us peons.

  • Report this Comment On March 03, 2010, at 10:52 PM, a2gsg wrote:

    or how about the deus-ex machina power elite's plan to paying off the debt with gold at $5,000 as anonymously received and published by the legendary Richard Russell of http://DowTheoryLetters.com/ via http://goldtent.net/wp_gold/2010/01/11/the-evergreen-richard... -or-

    http://ragingbull.quote.com/mboard/boards.cgi?board=CLB01229...

  • Report this Comment On March 03, 2010, at 10:54 PM, Cressida wrote:

    You gotta love sapereaude1 for his direct solution,(Shoot 'Em !!)

    However, (IMHO), if you signed the paper (read debt) for whatever item, house, car, case of ______, it's pay up or take the consequences, bankruptcy, or incarceration.

    Honesty still works., and so does Truth. May take some time, but works.

  • Report this Comment On March 03, 2010, at 11:07 PM, madhat007 wrote:

    ok let's get real..honor the debt? you just don't get it I guess that is the way we used to think before glass steagal was interupted, wall street satarted pedaling loans securitization came in to apply high tech chicanery with contributions from the rating agencies to give bogus ratings to toxic pools...I think everyone should just give the homes back to the government and then stay in them for free after all the bogus stuff we have seen in the bailouts...support ron Paul kill the fed they are the ones that set this whole thing up and are destroying the long established tradiions of what home ownership means...jeff hoping for a miricle...

  • Report this Comment On March 03, 2010, at 11:09 PM, yamsicash wrote:

    It would seem both the lender and the home owners in this situation have very little skin in the game. The owner can walk away due to the recourse laws, and the lenders can "spread the risk" with the derivatives. I would think both are to blame. The contracts need to hold both sides accountable when they agree to something, otherwise they're not really worth much. So homeowners can't just walk off, and lenders can't just push the loans off on someone else. Just my two cents

  • Report this Comment On March 04, 2010, at 12:23 AM, mikecart1 wrote:

    I like those 7 words. Too many Americans think credit cards are toys. I find zero reason to build up the debt amounts I hear all the time. No excuse. Make them pay!

  • Report this Comment On March 04, 2010, at 12:32 AM, sheltonclan wrote:

    My personal favorite words...but I'm on a budget so there's only 6:

    Pass a balanced budget ammendment immediately!

  • Report this Comment On March 04, 2010, at 8:30 AM, GLZW wrote:

    You make a good point, NONE of this works without personal responsibility.

    BUT the solution is to give the banks more power? The same institutions who made loans irresponsibly - only to be bailed out by the US taxpayer??? Where is the incentive for the banks to behave responsibly? The people walking away from their homes no longer have the dwelling to live in - their credit ratings are toast. They go from homeowners to permanent renters. Certainly a quality of life hit. But the banks - the professional loan makers who SHOULD know better, get bailed out only to continue to pay their CEOs obscene compensation. Oh yeah, once they found out the gov was going to limit their compensation they very quickly payed back the TARP.

    What a joke!

    I am a capitalist, through and through (a Regan Republican) - private companies should be able to pay their employees whatever they want. But what is going on with the bank bailouts is far from capitalism - if it were they banks would have failed - the FDIC would have come in and do what they do for all the other banks BUT it was the POWER and influence of the "too big to fail" banks that overnight, in back room deals, the system in place was thrown out the window and a special good deal was created just for the "too big to fail" crowd. And you want to give these same institutions more ability to take from people? WOW!!!

    No sir. Do not give these banks anymore power - they have too much already. Do not reward bad behavior and incompetence, particularly to the detriment of the working person.

  • Report this Comment On March 04, 2010, at 8:57 AM, Superdrol wrote:

    lol, i love the title of this blog post and 7 words.

    You know what song Miley Cyrus should make next ? "There's a debt party in the USA".

  • Report this Comment On March 04, 2010, at 9:11 AM, BMFPitt wrote:

    Non-recourse secured debt would be perfectly fine if we could count on the government to not bail out the banks when they made poor choices.

    They knew the law when they made the loans. They priced the interest rate as such (recourse states have lower rates than non-recourse states.) The problem here is that we haven't allowed the failed lenders to fail, and we have propped up the deadbeat borrowers as to encourage repeats in the future.

  • Report this Comment On March 04, 2010, at 10:40 AM, ed1007 wrote:

    >>>Why do you think college is so expensive?<<<<

    Because the government is so helpful?

  • Report this Comment On March 04, 2010, at 11:21 AM, DirOfTheObv wrote:

    "Non-Recourse Home Loans"???

    Really?

    How about...Loans given based upon J-O-B-S's?

    Or, I know, better yet, How About Loans based on DOCUMENTATION?

    Ya Reckon that could help?

    BANKERS...BANKERS KNOW THAT people without jobs can't pay...but they created a crapload of vehicles that gave out loans to folks THEY KNEW were the ultimate of RISK.

    Take the lumps and quit whinning! THAT'S the difference between Australians and Americans...between the Chinese and Americans. It wasn't FIRST CAUSE in the little guy...it was the BANKERS. If THEY don't create and offer the vehicles...no crisis.

  • Report this Comment On March 04, 2010, at 12:46 PM, BMFPitt wrote:

    I don't blame the banks for creating them, I blame the people who bought them without looking under the hood.

    And I think that the bailouts were an act of treason.

  • Report this Comment On March 04, 2010, at 12:58 PM, sycodon wrote:

    While I have no problem with the idea that you should pay your debts, I do have a problem being lectured to take care of my business while at the same time paying to bail out giant businesses that failed to do the same.

  • Report this Comment On March 04, 2010, at 3:52 PM, Stephreg wrote:

    Thank you all for posting the many diverse ideas and for engaging in a vigorous and (mostly) intelligent debate.

    My two cents:

    1. The moral concept is to honor your contracts. For homeowners, whether you are obligated to pay a debt is a contractual issue, not a moral issue.

    2. Placing blame is not productive. Looking for effective corrections to the system is productive, but it is hard work. To the few who took this opportunity to sling mud at banks, government, political parties, or homeowners: shame on you. To the remainder: thank you.

  • Report this Comment On March 04, 2010, at 4:47 PM, McCrikey wrote:

    Just because it's legal doesn't mean it's ethical. Isn't that how we got in this mess in the first place?

  • Report this Comment On March 04, 2010, at 5:01 PM, PALH wrote:

    The argument that changing full recourse laws would be as unpopular as ending Social Security is just sophomoric. If someone is turned down for a loan because they can't promise full recourse -- as I assume they would have to if the industry were actually, y'know, regulated -- they don't LOSE anything. They just can't buy a home until they can make the promise. The only resistance you'd get from moving to a full-recourse world would come from the banks and their lobbyists.

    Ending Social Security would make millions of people destitute in a blink (and think of the housing stock flooding the market if Republicans ever make good on their desire to kill Social Security). The two scenarios aren't even close. It doesn't even work as the simplistic straw-man argument you were trying for.

  • Report this Comment On March 04, 2010, at 6:13 PM, TMFHousel wrote:

    Deep breath and count to 10, palh. I was comparing the popularity, not the outcome.

  • Report this Comment On March 04, 2010, at 7:07 PM, schneck36 wrote:

    this all sounds good till the lender files a forgivness of debt with the IRS and you owe the taxes on the diffrence

  • Report this Comment On March 04, 2010, at 11:00 PM, bert111 wrote:

    Housel,

    Perhaps a different perspective, appropriate to an investment site ... .

    With stocks and bonds, valuation is fundamental to investing. With bonds, you value revenue streams, assess the risk of default based on the solvency of the issuing entity, and value any underlying collateral. With equities the process is different but the intent of identifying intrinsic value is the same -- using PE, PS, PB, DCF, P/NAV, etc..

    With real estate investing, identifying intrinsic value is typically beyond the expertise of the average home buyer, if factoring the costs of construction materials, labor, builder profit, land values and taxes, building and inspection fees, location premiums, etc., etc., etc.

    This is why, by law, homes are valued by professional inspectors prior to purchase, and, indeed, all the parties to the transaction rely on these legally-required home valuations. In most locations, valuation is required to protect the buyer from egregiously over-paying without prior warning. It protects the property and mortgage insurer from arson-arbitrage fraud (setting fire to an over-valued property and benefiting from the inflated insurance value). And it protects the lender from the no-recourse problem of being stuck with collateral of insufficient value to cover the lender's costs and obligations during default.

    This is the same logic and effect as when a pawn broker offers you $80 for an item worth $100 on the open market. The $20 difference is the pawn broker's margin-of-safety and the interest charged generates the profit. With a home loan, the interest provides the lender's profit and the margin of safety is the home as collateral plus any required down-payment. More recently, mortgage insurance often covered the down-payment (under 80/20 arrangements), and higher interest rates on loans in lieu of down-payments served to provide insurance against default by higher-risk clients (those with insufficient savings to cover required down-payments and, thereby, avoid paying mortgage insurance).

    In normal times, this would have been sufficient to generate reasonable profits for lenders managing a diversified pool of loans … even with the higher than normal number of loans made to less qualified buyers. Get the actuarial figures right, and you can profitably sell life insurance at a Russian Roulette club by charging an appropriate level of interest to compensate for the known risks and produce a profit sufficient to cover outlier contingencies (i.e., catastrophic risks).

    If viewed in this light, the job of valuation needed to avoid the fiscal motivation leading to underwater defaults was the home valuation inspector, and it is to them that the lender should seek recourse.

    Recall that many lenders were not local to the property purchased and did not conduct their own inspections. They relied on the valuation. The same holds for many insurers. And, as mentioned, the buyer is presumed unqualified to value the property; otherwise, lawmakers would not have required professional valuation to protect buyers from unscrupulous sellers (the original motivation behind the law).

    So, the established system relied on valuators to serve as the warning trip-wire to sound the alarm, and even went so far as to provide protective redundancy by requiring the bonding of valuators. Despite this, the argument primarily focuses on charges that buyers lack character and that lenders are greedy. Well, of course they are ... name a time since antiquity when this hasn't been the case. Christ sought to, BOTH, reform sinners and evict lenders from the temple, so, as a matter of recorded history, we know this set of human failings goes back at least 2 thousand years.

    That is why we have the system of checks, where the valuator serves as honest-broker -- the one segregated and expert party to the transaction, whose legitimacy relies on a firewall of independence. If the valuation inspector became co-opted by self-interest or failed to provide a reasonably accurate valuation (on which each of the other parties relied), then go after the inspector and the company that bonded him. If memory serves, an accurate valuation was what I paid for when, as a home buyer, I purchased the services of a home valuation inspector. In fact, my lender and insurance company insisted on it.

  • Report this Comment On March 04, 2010, at 11:09 PM, hardmanc wrote:

    Non-recourse is not a major problem. There are only 7 states that allow non-recourse. Two of those in worse shape, California and Nevada...only allow non-recourse "on the first mortgage". There is still recourse on the subordinate mortgages. Thus while you can walk away on the first mortgage, the holder typically gets the house. The second, third mortgagors, etc. still have full recourse on deficiency judgments, unless you go through a formal bankruptcy.

  • Report this Comment On March 05, 2010, at 4:56 AM, BruinAlum77 wrote:

    Appraisers base their valuation on both the location, size and features of a property and by analyzing the current market through the use of comparables. In a hot real estate market, it was easy to find three comps to justify an appraisal which allowed a deal to close.

    My uncle was a loan broker for 30 years during which underwriters followed tough criteria, and we never faced financial crises in the real estate market. After he retired, underwriting requirements were relaxed and he expressed his concern for the market. There are three reasons why underwriting standards were relaxed: 1) pressure from corporate executives to increase profits; 2) lack of enforcement of government regulation; and 3) a derivatives market which allowed lenders to walk away with short term profits at no risk, regardless of how bad a loan funded.

    To put the responsibility for keeping the system in check on the appraisers would be like saying the referees at a sporting event should be responsible for preventing players from shaving points.

  • Report this Comment On March 05, 2010, at 9:38 AM, bert111 wrote:

    No, putting responsibility on the brokers to perform professionally is like saying that referees at a sporting event should call 'em like they see 'em and that they have been trained to call 'em with greater accuracy than the novice or the non-professional.

    Recall that the brokers took and cashed the check I provided when I received the report attesting to the value of my home. The exchange of money for services rendered implies those service were generated by a professional, and the definition of a professional is the presence of established conventions and standards of behavior/ethics, performance, and product reliability/quality. They failed on each account and get no easy pass from me.

    In fact, the buyer did not shave points, nor did the banker or the insurance firm. Each may have applied pressure, but the valuation broker who bowed that pressure is the one who did the actual shaving. Unlike normal shaving, however, it was not the one with a beard who was nicked in the process.

    [PS. This is not a case of a buyer who is dissatisfied with the way things turned out. While our broker over-valued the home, we bought it at a significant discount to its actual value, and the home is still well above water today.]

  • Report this Comment On March 05, 2010, at 10:54 AM, mainelegal wrote:

    This article corrollating defaults to recourse does not take into account all the states in the USA - there are many - where there is recourse.

    Recourse is not a magic bullet - people without the means to pay their mortgage fiule bankruptcy and the recourse disappears.

    This seems more like a political screed than an "analysis."

  • Report this Comment On March 05, 2010, at 12:31 PM, fool425 wrote:

    WyattJunker sez "Why punish corporations and banks? They weren't the problem. Government interference was. Last time I checked Fannie and Freddie were government institutions who lowered their standards which every other broker went off of." You're spewing GOP talking points. If you honestly believe the GSEs invented MBSs and CDSs, I have a bridge to sell you over the East River. No it was JPM with the "Bistro" product to bundle and sell toxic securities. The Shadow banking system and Wall Street made use of these tools to sell and bundle far too many with reduced standards. Shadow because they had no concept of the risk associated with non-conforming loans. Fannie and Freddie were very late to the party and, then, only to make what seemed like easy money. If your theory were true, most of the foreclosures would be from poor, minority borrowers due to the pressure on lenders to prevent redlining and lend to these souls. Those were very few and very early in this process. Actually, we're way past those failures and well into prime loans now if you haven't noticed.

  • Report this Comment On March 05, 2010, at 3:31 PM, done4nau wrote:

    Upside down economics. Put the blame on those who sold mortgages, bundled them and sold to all of the now VERY rich at the Wall Street club of Screw the little guy. The TARP funds were supposed to provide relief from the bottom up, instead they went to banks and big bonuses to the operators that caused the problem in the first place and made those in the middle class become poor. I pray every day that they get what's coming to them--prostrate cancer and a pitchfork, because it has become apparent that the government is on the side of the havemores. I resent my tax dollars going to them

  • Report this Comment On March 05, 2010, at 4:44 PM, jfrankh57 wrote:

    How about apply this to deadbeat corporations and maybe even our government...

  • Report this Comment On March 05, 2010, at 11:35 PM, TBeagle wrote:

    Wow! I didn't get it! We should just blame the consumer and that will fix everything! Well look here, I took out a second mortgage from Nationstar Mortgage and toward the end of the closing I had to leave to take care of my 93 year old grandma. The interest rate got higher the closer we got toward closing and the officer that wrote the documents put an early payoff penalty of 20% of the accrued interest on $55,000 over a 30 year period after lying to my face telling me there was no prepayment penalty! Is that my fault or was I deceived and taken advantage of???? My interest rate shot up to 12.5% and I got screwed! Somebody please tell me how I deserved that!

  • Report this Comment On March 06, 2010, at 11:05 AM, Gerlitz wrote:

    Morgan, I haven't read them all, but that has to be one of the worst, if not THE worst post you've ever published.

    That's why it's a RE secured loan. If bankers could come after your personal assets everytime they made a bad loan, then almost everyone would be in perpetual servitude (not that they're not already).

    Foreclosure benefits the banks. First they create credit out of thin air (thanks to sovereign debt), then through deflation they are able to take the assets. Through recourse loans they can take the assets AND everything else. Horrible, horrible idea.

  • Report this Comment On March 06, 2010, at 1:48 PM, bcchamp wrote:

    It's too late-America can't be saved--see Alstry

  • Report this Comment On March 06, 2010, at 4:16 PM, Howard1ii wrote:

    Those seven words will NEVER cross the lips of this administration

  • Report this Comment On March 06, 2010, at 4:19 PM, Howard1ii wrote:

    Those 7 words will NEVER cross the lips of this administration.

  • Report this Comment On March 06, 2010, at 4:56 PM, MJ500 wrote:

    Non recourse, or anti-deficiency statutes are not quite as simple as presented here. First, they are state specific -- there is no "norm". California is a good example. Here, anti-deficiency laws only apply to original "purchase money" loans made on ones "primary residence". That is, the original loan to buy the home where you live. If you refinance, get a second, have a vacation home, a rental, etc -- they do not apply. The intent of the laws is to promote responsible lending. For example, heaven forbid, actually verify what someone's wages or income is and their ability to repay is, or what a house is actually worth. Novel concept.

    Comparing the US to the British Commonwealth countries in this instance is like comparing apples to oranges -- in particular because they also have quite different bankruptcy laws. Ours are edging closer -- for example, nowadays if you have a decent job, you may not be able to go with a Chapter 7, but rather be forced into a years long Chapter 13 pay back proceeding. Also, in the English common law countries, a bankruptcy stays with you for much, much longer that here -- basically, forget ever buying another house or getting much of any kind of credit. I know of Brits, Canadians and Aussies who moved to the US because they were effectively blacklisted for life at home due to debt problems.

  • Report this Comment On March 07, 2010, at 7:09 AM, Chindokae wrote:

    Here are the six words needed to actually fix America:

    "Corporations aren't people. Money isn't speech."

  • Report this Comment On March 07, 2010, at 7:49 AM, JakeRichard wrote:

    Chindokae business culture is far from perfect but if you don't like it your stuck with either moving to a more noble country or trying to fix it.

    And BruinAlum77 are you proud that you've proved you can count to seven?

    Why try to ruin a very good specific point with a general one?

    This is a very good article.

    Hits the nail on the head in regards to one of the most degenerating problems in this country. Amongst most baby boomers this kind of loophole is common knowledge and openly joked about.

    The article makes a great point: how does a free shot for anyone who wants to take a stab at getting rich quicl help the 20-30 giant corporations (and God help us any possible future ones) keeping this country from a real depression?

    And I'll add to that: how does it help responsible home and property owners who don't abandon their loans?

    The only people it helps are infomercial jockeys like the skinny guy with glasses who drives around talking on a Bluetooth to convince you that buying any property you can with money you don't have is something you should pay him $350 to teach you how to do.

    We should figure out a way to put more kids in jails with violent criminals and then get more outraged when they come out violent criminals. That way we'll have more jobs building and staffing more prisons, and whoever doesn't end up in the clink can earn $12 an hour taking care of aging baby boomers. I mean that's why we were born anyway right..to service aging drug addicts who either neglected us or were too selfish to have children?

    :)

  • Report this Comment On March 07, 2010, at 9:13 AM, mickeybh wrote:

    This is pretty simple Wall Street supplied money under the assumption that housing would not fail. the more money the higher the price, No underwriting so these people that went in at the top brought down the house of cards. Now housing is at a low, so we need to loosen up the credit, but not stupidly. FHA is needed in ou society and with the insurance premiums they charge and underwriting they do we should be fine with low down payments. That said, however we need to tweak the rules as prices rise. The price affordibility index could play a part in this. It is hitting all time highs now, but as it goes lower we tighten credit. Right now we need to lossen not tighten to get the market stablized, so the housing industry can add the needed jobs and get this economy going.

  • Report this Comment On March 07, 2010, at 10:47 PM, NoRebound wrote:

    Fail.

    Perhaps the worst article ever to appear on this website.

    How is rewriting present lending laws in favor of a morally bankrupt industry going to help dig us out of the Great Depression of 2009? We've seen what a complete and utter disaster it has been to allow the banking and lending industry to sidestep even basic usury laws with regard to credit cards and other financial vehicles. How would this stabilize a housing industry that is barely registering a pulse?

    Maybe regulations like this work in other countries because lenders aren't working 24/7 on new and creative ways to abuse customers. Maybe it works because there is some mutual respect in the process and maybe it works only because its the only way institutions and borrowers have ever been able to do business in these countries.

    I don't trust the system as far as I can throw it right now and this regulation would not change that at all.

  • Report this Comment On March 08, 2010, at 1:04 AM, TMFHousel wrote:

    "Wow! I didn't get it! We should just blame the consumer and that will fix everything!"

    You didn't get it, that's for sure.

    "If bankers could come after your personal assets everytime they made a bad loan, then almost everyone would be in perpetual servitude (not that they're not already)."

    Well, you're assuming "almost everyone" defaults on their loans, and "almost all of them" purposely default when they can in fact repay these debts. Substitute "almost everyone" with, "a very slim minority," and you might be on to something. To re-quote the Australian journalist, full-recourse is "a neat way of reminding Australians to borrow responsibly."

    "How is rewriting present lending laws in favor of a morally bankrupt industry going to help dig us out of the Great Depression of 2009?"

    It's one small part of creating a system that discourages speculation -- which believe it or not is done by both consumers and banks. Done.

    I'm glad this article created a good debate.

  • Report this Comment On March 08, 2010, at 1:04 AM, TMFHousel wrote:

  • Report this Comment On March 08, 2010, at 4:43 AM, bigo3810 wrote:

    I thought the seven words were, "Thank you sir, may i have another."

  • Report this Comment On March 08, 2010, at 8:40 AM, iamamartin wrote:

    So how many people do the banks seek recourse against in those states with recourse. Not many, why ? because people that don't pay mortagages typically don't have money, and the ones that do don't normally have very much so.... "it's not cost effective".

    The bankers are so cheap they have forgotten the need to make an example "pour encourage les autres".

    Of course, if you lend money to people without regard to their capacity and willingness to repay, you can't really complain.... "c'est la vie"

  • Report this Comment On March 08, 2010, at 5:43 PM, AlmightyTim wrote:

    I think walking away from contacts without any recourse is a good idea. I should be able to buy anything I want then back out if the value goes down. Imagine buying a new car for 30k, only paying 3.5% down ($1,000), then walking away 5 years later when the car has 100,000 miles on it.

  • Report this Comment On March 08, 2010, at 5:55 PM, TMFHousel wrote:

  • Report this Comment On March 09, 2010, at 11:06 AM, aleax wrote:

    A fatal flaw in this article is that it doesn't even consider the many countries which had big housing bubbles and busts despite full-recourse mortgages, such as Spain, Ireland, and Britain, nor try any analysis of how the bubble-and-bust variation by US State correlates with the State's mortgage law (recourse vs non-recourse). E.g., in California, a first mortgage is non-recourse, but a _refinancing_ is full recourse -- yet refinanced properties crashed about as badly as ones never refinanced, worse in some counties. Picking a few carefully chosen samples is NOT a sensible way to prove anything, merely a very dubious rhetorical device. "The plural of 'anecdote' is NOT 'data'".

  • Report this Comment On March 09, 2010, at 12:08 PM, emilevid wrote:

    'Love of money is root of evil' is far more appropriate to our problems.

    You would like to punish the small consumer who walks away and leave the banks who walk away, the real culprits go free. Interesting!

    Banks make billions upon billions on closing costs for sales and refinancing and they turned around and packaged the mortgages into bond baskets and sold them to Fannie Mae--the taxpayers. To top it all, they charged to Fannie Mae for their packaging expertise. These mammonite criminals then got trillions from the taxpayers to bail them out of their financial troubles after they walked away from their packaged mortgage obligations. They were the culprits who created the real estate bubble. Your solution?

    Go after the small consumer who got caught in their nets. It like going after the little drug users on the street instead of those packaging and selling the drugs. Weak idea!

  • Report this Comment On March 09, 2010, at 12:22 PM, TMFHousel wrote:

    "You would like to punish the small consumer who walks away and leave the banks who walk away, the real culprits go free. Interesting!"

    Please show where this article says that I'd like the banks to "go free." It doesn't. You made that part up. Everyone seems to assume that we can only regulate one party -- banks, or consumers. Both need to be overhauled.

  • Report this Comment On March 09, 2010, at 3:22 PM, badnicolez wrote:

    Those of you who recommend requiring 20% down to solve the problem of people walking away don't have a good grasp of the situation in states where the market has been crushed since the collapse.

    We put 20% down (over $100k) on a $509,000 house, then compounded the cash loss by paying down an additional $25k in principal. We also have a second mortgage ($42k) for the pool and landscaping that was used to avoid a jumbo first mortgage, which will have to be settled for yet more cash, because it wasn't purchase money and they'll undoubtedly come after us for the balance.

    A $25k pay cut has made the payment decidedly uncomfortable (despite the "great rate"), yet we don't qualify for a modification because the only debt we have is the house, and are more than 25% underwater, so don't qualify for a refi either, which would be at the same rate we currently have anyway.

    We're walking away despite the large down because we still owe almost $400k and the house is worth only around $260k on a good day (in Arizona) and we're simply not willing to pay more than $800k over the next 20 years (including interest) for something worth so much less (and still losing more than 1% a month in value) with no hope in the future of it even being worth what we owe. What would you do?

    We will honor the mortgage contract and give them back the house, so the bank will foreclose and be reimbursed by the government (using our tax dollars) and the person who buys our dream home will probably pay about $240k, while our formerly perfect credit will be annihilated for years to come. Our only sin was in bad timing.

    Those of us choosing to walk away are heartbroken and will pay the price long-term with horrible credit, while the banks post profits courtesy of our tax dollars and continue to refuse to work with us to bring some balance by reducing principal amounts at all, let alone even remotely close to market value, with the government as an accomplice.

    We will never take out another mortgage (even after our credit improves) and will continue voting against those who are responsible for bailing out the banks at the expense of homeowners.

    Lesson learned.

  • Report this Comment On March 10, 2010, at 9:08 AM, DesertDad wrote:

    The 7 Words That Will Save America:

    "Elected Representatives will Abide by the Constitution"

    or

    "Obama, Pelosi, and Reid are rendered powerless"

  • Report this Comment On March 25, 2011, at 3:32 PM, uaku wrote:

    how about these 7 letters.

    can't afford, Then don't make the purchase

  • Report this Comment On March 25, 2011, at 3:33 PM, uaku wrote:

    Or how about this

    cut your coat according to your cloth

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