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Getting Personal: Housing and savings conundrums
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On tap this week: A woman approaching retirement age wants to know what to do with an underwater house, a twenty-something weighs the pros and cons of saving for the short- and long-terms, a commercial real estate agent wonders whether to put money towards retirement or his underwater house.
Given that the caller had given the numbers, it was derelict of the "expert" to not comment on the cash-out. Not only does it have a moral implication, but that portion becomes taxable income in the event of foreclosure or short-sale. She also did not mention the hugely important issue of whether the loan is recourse. As for the prior comments made here, particularly with many homeowners owing 150-200% of their homes' values, we should not criticize them of commentators for considering options that are legal. However, it is obviously difficult to touch all the bases on the radio, so why not find a thorough, competent written disucssion on the subject to which callers can be referred.
This economic advice is rooted in a fair, honest, and rational perspective. We have this long history of sucking it all up and assuming whatever comes along as “a personal problem.†Loan sharks, financiers, and profiteers know this and mean to capitalize on it, lobbying Congress for more stringent bankruptcy laws to incentivize the less than honorable. This notion of honor, however, has become a one-way street in America—from homeowner to banker, renter to landlord, employer to employee, soldier to country; ultimately, wage-earner to Wall Street—and people feel it. Honor and sacrifice has been and continues to be repaid with debt, indifference, arrogance, blame, lies, and even disparagement. Of course there were homeowners who took advantage—who bought into this culture of corruption with refis they didn’t need, or two or three homes they hoped to rent out to suckers who would carry the load; not to mention speculative corporate developers, who even now want to start working on the next bubble—I do not mean to defend them. But there is evidence that most were just trying to keep up with flat wages and declining living standards. If there is to be a villain here, it would have to be the Wall Street driven securitization process, and we should not lose sight of that—acknowledging it at all would be a first step toward creating a two way street for honorable service in America.
When JFK made his famous “Ask not . . .†speech, he surely wasn’t intent on creating a subordinate class of underlings rendered powerless in the service of a rentier regime, as he himself made clear in a news conference in ‘62. To quote: “. . . the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans.†But that’s where we’ve come, when it comes to housing and other securitized lending, and until we admit it and reverse it, there can be no real recovery.
I cannot believe that Marketplace Money would so nonchalantly suggest that people should be considering walking away from their mortgages. Put aside the fact of the moral failure of not living up to the contracts people have made, or the negative impacts walking away has on neighbors and community, walking away from a mortgage is fundamentally a bad financial move. Yes some people appeared to have gotten away with this irresponsible act in 2009 and 2010, but increasingly the consequences of this move are being felt. Most states have deficiency judgments, and now lenders (or their successors) are coming back to sue for the balance due on the mortgages people have walked away from. In 2013 the IRS will once again be charging imputed income on the unpaid part of the mortgage. And, the hit to people’s credit rating from walking will impact their ability to get credit, insurance, an apartment, and even their chances of getting another job. Walking away from a mortgage is a fundamentally a bad financial move. Marketplace Money should simply stop even bringing the topic up.
In 2004 the woman from Georgia had $150K (including closing costs) into a house the appraised value of which was not stated. In 2006 the house appraised at $260K. Two refinancings later she owes $200K. On the surface it looks like she did a cash out refi of more than $50K. Am I missing something? Why is this not taken into consideration? Anyone who took cash out should not be able to walk away.
