I’ve previously blogged in favor of toughing it out and not walking away from your upside down/underwater mortgage if you could afford to maintain your payment. Been there, done that. In my scenario, it was a hurricane that drove prices down for about five years, but they did come back to original levels and more.
An article in New York Times Magazine in the last few days somewhat said for some it was o.k. to abandon their mortgage commitment. I posted a good bit of that article yesterday because I agree that everyone is unfairly putting this decision burden entirely and unfairly on the shoulders of the Borrower. If Lenders have been given a big slice of the Stimulus Package Pie, why can’t they meet Borrowers half way or more, and modify their mortgages, specifically lower their interest rates ?
Why do Borrowers have to go to war with their Lenders, hire attorneys to modify mortgages, and other adversarial confrontations ? Why can’t Lenders take a preemptive step and lower interest rates for anyone who can’t afford their original mortgage obligation ? The lower interest amount collected from the Borrower would be offset by Stimulus funds, plus the Lender would get that upfront rather than waiting over the life of the mortgage.
The NYTM article suggests that in some situations it’s o.k. and a strategic default strategy to walk away from your mortgage obligations. That indirectly puts the Lenders on notice that they stand to have a lot of properties on their asset sheets. You’d think Lenders would like to forgo that by helping the borrower/homeowner afford and stay in their home, which would also offset the consequences of property devaluations resulting in underwater-upside down mortgages.
In a simple example :
Existing scenario :
Mortgage amount : $150,000
Mortgage terms : 6.5 % for 30 years
Monthly payment : $948.10
Total payments over 30 years : $341,316.73
Of which this amount is interest : $191,316.73
___________
Monthly payments over 30 yrs to equity : $150,000.00
* * * * * * * * * *
Mortgage modification : $150,000
New terms : 1% for 30 years
Monthly payment now : $482.46
Total payments over 30 years : $173,685.60
Of which this amount is interest : $ 23,685.60
___________
Monthly payments over 30 yrs to equity : $150,000.00
The Borrower pays $167,631 less in interest over the 30 years. They have a mortgage payment that’s almost half of their original obligation. They will build up equity and achieve their home ownership sooner and paying less monthly in addition to over the full mortgage term.
Seems like a no-brainer to me.
What’s stopping the Lenders from working with the Borrowers to this end ? Greed ?
Someone convince me why Lenders should make 6.5 per cent on their money on the backs of people trying to achieve the American Dream ? Why not a nominal rate of 1 per cent, especially since the Lender isn’t losing this money, rather just making less, on top of which the “making less” is offset by Stimulus Funds ?
Tags: mortgages, strategic walk-away, underwater, upside down
where to begin…is this part of the ‘dialogue” Obama wants to avoid from Republicans? Is there a “we told you so” he smells is ready on their breath? Certainly he has a dose coming… Is there some admission that this was BS from the get-go? Not likely on any of the aforementioned scores, but we do know that the rhetoric isn’t about to stop, nor the finger pointing to the GOP (and as eagerly back at ‘em) or the ceaseless blaming of Bush. To his credit it only exemplified his point–they’re deaf from birth (please a November-after pill effective in January). Until then it is pretty clear the words dripping from Bayh’s remorse are too far a cry from reality for liberals to grip. If only the GOP could find some leadership amongst these ashes and DO something fruitful with it other than add to the nonsense afoul in D.C.