One of the most interesting and controversial effects of the economic crisis is the growing number of Americans who are choosing to walk away from their homes and mortgages to wait for the foreclosure to take place. The reasons are many:
1. Underlying anger at financial institutions for creating the mortgage crisis.
2. Personal frustration at a banks unwillingness to work with the home owner to find reasonable solutions.
3. Viewing the home as a losing investment in the current market conditions. Dumping the home like you would dump a losing stock.
4. My credit is messed up anyway so what difference does it make?
5. Others are doing it, why not me?
6. They view it as a necessary step for their own survival as it has come down to a choice between food and the mortgage payment though income reductions brought on by job loss and then when calling to work out payment arrangements reaching a customer service representative overseas.
7. Those not behind may view it as a step to their living under their means strategy.
8. Some view the move as a step of consumer solidarity in protest of the strong arm tactics they feel banks have usedin mortgage repayments, credit cards, and overdraft fees.
The opposing argument is:
1. The view that if you signed on the dotted line it is your moral obligation to pay.
2. The more people that abandon their homes the greater it will impact the entire economy.
Joe Plemon at Personal Finance By The Book has written a very good post making a number of thoughtful points as to why walking away is not a good idea. His readers have also provided some lively comments. The link is at the bottom if you would like more information.
The fact is that whether you personally agree or disagree, whether you feel you need to take this step or not, it is happening all over the country and is the next big wave to redefine the American Economy. The effects will impact the housing market for years. Personally, I'm not so sure that the issue is even about housing anymore as much as it is about consumers saying "no" to the banking industry. The American people are going on strike.
Am I offering any advice? No, I'm just watching along with the rest of the country and trying to maneuver through my own In The Trenches experience. What do I think will happen? I'm not sure but a couple of things seem evident:
1. The number of foreclosed houses will continue to grow and effect the value of all homes.
2. With this fall in prices the local governments should lower property taxes to the new lower assessed value. But, that is unlikely and so we need to be watchful of other new inventive ways in which county governments will try to make up for lost revenue.
3. The lost revenue from mortgage payments and no bailout can put the large banks in big trouble so watch where you put your money especially if you invest in mutual funds that are comprised of mortgages.
4. Those that have saved money and kept their credit rating decent will be in a position to invest in real estate at lower prices though it may take years to see the value go back up.
I am not and do not profess to be an economist. These are my understandings and opinions and should not be used for making your decisions. All we can do is pay attention and be very prudent.
In a post I wrote on June 3, 2009 called the future of the American Economy I stated that I believed that what we were experiencing was just the first wave. This is the beginning of the second. Government resources for assistance are being exhausted and many families are still not where they need to be to weather the storm but the sirens are still sounding. Save money, get out of debt, live within your means. It only sounds dramatic because it is.
I hope you will take a few minutes to read some of the posts in the American Economy category and continue to read whatever you feel is valid and trustworthy. There are many excellent blogs and websites to give tips on everything economic and the latest news and commentary on changing events. Staying away from all the political hype can be difficult but by listening to a number of different sources and then comparing what you see with your own eyes things become more clear. And, then just keep working your plan. In God We Trust....
Be it ever so humble, there's no place like home.
Link to Personal Finance By The Book:
http://personalfinancebythebook.com/what-is-%E2%80%9Cstrategic-default%E2%80%9D-and-should-you-consider-it/
Link to Owners Stop Paying Mortage... And Stop Fretting About it - Yahoo! Finance
http://finance.yahoo.com/news/Owners-Stop-Paying-Mortgage-nytimes-4276925797.html?x=0
2 comments:
Carol,
First: Thanks for referencing my post.
Second: I, like you, am not an economist. But our nation is a composite of individuals, and the fiber of our nation is nothing less than the collective integrity of the individuals. When we as individuals can do what is right simply because it is right, our nation has a chance to survive.
These strategic defaults, in my opinion, are only symptoms of a bigger problem: doing what is expedient instead of what is right.
Thank you for sharing your thoughts Joe, they are always insightful and there are many people making tough decisions right now about their financial future.
For those who have not checked out Personal Finance By The Book I hope you will do so. Joe and his wife have taken on their first rehab project and it will be fun to watch the progress.
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