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Foreclosure can be an acceptable outcome to homeownership. We’ve stunningly come to that realization in the past week, my husband and I.
Earlier this year we wanted to refinance, to take advantage of lower interest rates, and also lock in a fixed rate, because my existing interest-only mortgage will eventually convert to variable rate. We were shocked to find that my house appraised one third lower than it had a few years ago. And that it was valued lower than what I owe. That’s called negative equity.
We’ve all heard and read of the housing crisis, and of underwater mortgages. It really hits home when it’s your house on which you owe more than what you could get for selling the property. And that consequently the bank will not refinance. Mind you, we have not missed a payment, and the mortgage has been in place for 5 years. But the lender would not approve us for a lower (hence more affordable) interest rate!
A little backstory: I fought to keep this house as part of my divorce 6 years ago. It cost me dearly in all other respects, except I was successful in ensuring that my teenage children be able to live in their home until they finished High School. The expense of the new mortgage I was required to take out in my own name was really outside of recommended guidelines as a proportion of my income. From a purely financial standpoint it was not advisable. That wasn’t my priority. My children’s well-being came first. (Just don’t call me a mama grizzly; I’m a mama tiger.)
It’s been challenging enough to keep up with the monthly payments. But while seen being awarded the house didn’t amount to a financial “windfall” (as my ex characterized it), I certainly hadn’t anticipated finding myself in my current predicament. Now planning a move to another city, knowing the disparity between the likely sale price of my home and what the bank expects will force me to take on debt that will threaten our future solvency.
This is just one variation on a theme afflicting many, I know. Nationally the share of mortgages that are underwater is estimated at 23.2%. Some localities have close to double that rate. In Las Vegas the proportion is said to be four out five!
Just like politics, the effect is local -- and personal. I’m no tea partier, but I feel anger. How is it that my mortgagee, one of the institutions among the biggest offenders in the financial debacle, gets a bailout (paid for by taxpayer dollars) – yet I can’t get an adjustment on what I owe? Seeing as the mortgage disaster, and consequent loss of house values, was caused by them?!
According to Brent White of the University of Arizona College of Law (Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis) government and other “social control agents” actively cultivate consumers shame and guilt. There is a “norm asymmetry”, where individuals are urged to “do the right thing”, for the sake of the common good, even if doing so puts their family at risk, but where corporations maintain “capitalism” and put market considerations and profit first. When business is bad they cut their losses. They are supposed to do what’s right for their stockholders.
Of the large number of Americans who would be better off if they walked away from their homes, White says“They don't because we have a double standard...individuals are told they have a moral obligation to pay their mortgages and corporations understand that contracts are to be breached when it's not economically efficient."
It’s fascinating, and infuriating, to read of the hypocrisy, for example, of Former Secretary Paulson, who urged homeowners to be responsible, even though Goldman Sachs (of which he was previously the CEO) defaulted on several office buildings that had been bought at the top of the California market.
Articles and blogs sizzle with forceful rants about “walking away”. To some, there is no justification for doing so; your word is your honor, and credit is a privilege. Others claim, with increasing authority, that such sensitivity is misplaced. When you take out our fear and guilt, what sense does it make to drain your monthly budget with big mortgage payments for a home whose value will take years to return, if ever, when less expensive alternatives are available for rent? Why does the homeowner bear all the risk?
I've spent hours and days reading online about this. Here is one of the helpful and enlightening sources I came across. (http://v2.silobreaker.com/how-to-strategically-default-on-your-mortgage-and-make-life-miserable-for-your-bank)
What are your thoughts on this ethical life dilemma?
