Doing The Right Thing?
by NYCityBoy
This is the latest in the series of the “Regular Guy” interviews. This is my attempt to hear from people in a way that the MSM would never allow.
We talk about FBs all the time. Most of the time, we talk about them with laughter and ridicule. I do not claim to be above that fray. But I think we have also admitted that many of the people that find themselves upside down, underwater, whatever you want to call it, are also just good, honest people. They bought houses thinking that this was what they should do in life. They were not looking to buy the house, slap on a coat of paint and put in some stainless steel appliances and “flip” it to the next guy.
In this world where house flippers are portrayed as rock stars it seems that it was easy to get caught up in the housing mania. But many people did not know they were getting caught up in the housing mania. They planned to live in the house they were buying. They believed house prices rising on a consistent basis, the way they did in 2002 – 2005, seemed like the new normal. They did not understand the workings of Fannie and Freddie or the process of assembly line securitization. They were being bombarded with tales of “the American dream”. It was easy to see why so many people got caught up in this mess.
As the housing bubble burst it became obvious that many people paid a price that is much higher than what their house would now fetch on the open market. For many of us that might not seem like a big deal. We say things like, “pay the mortgage. You signed it.” Or we go the other route and say, “walk away” like the house was some kind of one night stand. The question of what to do for many is a moral, financial and even spiritual question. It can impact a person’s credit score and we have been told that we are basically only as good as our credit score. It affects our monthly budget. To pay hundreds of dollars more per month than is necessary for housing seems like a huge drag on a person or family. For many it is a question of, “do good people really walk away from their commitments?” I know how I was brought up to answer that question.
The issue is not as simple as black and white for most people. I have an old friend that is underwater. He has wrestled with this very question the past few years. After getting divorced he decided to keep the house that he and his wife had bought. At the time there was no reason to believe that he would get caught up in the biggest housing bust in history. He figured he would have a brother or two move in. They would help him with his monthly expenses. If things did not work out then he could decide to sell and move on with his life.
But as we know the option of selling has been removed for many people. The only options left are to continue to pay or to walk away. For my friend there is not the option to sell since the house is underwater to the point where he would have to show up with a check that is larger than what he could come up with from his savings.
Some people would tell him to do a short sale. That is not much different from walking away. Typically to get a short sale done you have to stop making payments. That will destroy a person’s credit score, almost like walking away. Like a foreclosure, the short sale decision will hang over a person’s head for several years.
With all of this in mind I asked my friend John (not his real name) a few questions about his situation. I think it gives a good insight into the thoughts, and conflicts, that anybody that is underwater is going through.
What is the main reason that you continue to pay your mortgage?
The sense of obligation. I signed a loan. I signed an agreement. I signed a contract. I’m not the type that signs something and then just forks it over because it’s upside down. It’s probably kind of stupid. I borrowed on it. I’m not going to just walk away.
Have you given any thought to walking away?
Absolutely. I think about it every time I sign off on that mortgage payment. I think, “what is keeping me here?” I think about what my dollar could go towards in an apartment. It’s on my conscience a lot. It’s hard to shake that, especially since it’s become fashionable.
Do you worry about the negative hit to your reputation?
Yes. I do. And I know credit is recoverable. But I don’t even know what the hell I need credit for. I’m in such a different mindset. Truthfully, credit means less to me than it used to. If I ever go to another job it’s a factor. I don’t know I want that hanging over my head. It’s definitely a factor in your reputation. I guess I’d like to keep that in tact as much as anything. Probably more that than the credit hit.
What do you think about the people that still have the resources to pay but walk away?
I just think it’s irresponsible. I have the resources. I could walk away but I don’t. I know it goes through my mind. Some would argue it is smart business. It is the thing to do. I guess I see it as irresponsible.
Do you feel that the lenders are playing by the same rules as the borrowers?
No. I don’t. They are certainly out for themselves. They don’t care about people being in homes, building communities or people building wealth. Certainly with government backing and bailouts they have even more advantage. They are taking anything that benefits them. They want to get people in the house to get interest and make money selling loans.
Do you think the government should be bailing out mortgagees or lenders?
That’s a tricky question. I don’t think so. I’m of the mindset of “let things fail” instead of artificially holding them up. It doesn’t fix fundamental issues. But there’s the argument of, if you see your neighbor’s house burning you need to put it out. Letting the financial system fail would have been a catastrophic event but if things aren’t let go I don’t think we will learn our lessons.
Where do you believe real estate prices are headed in your area?
I would not be surprised if they continue to fall. I have taken the approach that they will continue to fall. There’s nothing I can do about it. There’s certainly a lot available to buy. I have no reason to believe they are miraculously going to start increasing without some fundamental change. The frustrating thing is with values dropping my taxes go down but the local government doesn’t want to give up that revenue. At this point I can only expect it to drop.
What are your thoughts on renting?
I think it’s a great thing. In this particular state of things it’s great. Until housing is fixed and stable again when people can build value at a steady pace I think you are better off renting. It gives you the flexibility of going where you want, staying where you want. I envy renters. If I was not in this situation with this mortgage I would absolutely be renting. I would probably be paying half what I’m paying with this house.
Has your attitude toward renting changed the past few years?
Prior to the housing bubble burst I was completely sold on owning. The way things were, the way home values were shooting up, it was incredibly easy to get into a mortgage. There were just so many advantages to getting into a home and owning. I was completely sold on owning. I would say since the bubble burst my opinion has definitely changed. I don’t care about making the landlord money. People say, “you’re throwing your money away”. No. You are just paying for shelter. To be able to call the landlord and say, “this is broken” is a luxury. I don’t get that luxury. I could probably rent a house similar to mine and save $500 to $600 a month. Renting I see completely differently.
What would you tell a young guy that wants to buy just because of a government tax credit?
I’d tell him to walk away. No, run away. I guess it’s going to be different scenario. When I bought in, it was the emotional piece that really drove me. (Now) I would really question it. A mortgage is a big ass commitment. It’s almost like having a marriage. It’s not something to take lightly. It is a 30 year commitment. Some people are okay with that. If you want to keep flexibility and don’t know where you’re headed, home owning is not that great. I’ve had family help to pay for marriage. Without them I don’t know…it would have been tough, by myself. I maybe would have walked.
