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because some people have self respect and live up to their obligations
ChrisKolmar
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2012 Oct 29, 1:55am
because some people have self respect and live up to their obligations
I get that from a civilized, good person standpoint, but rationally, that makes no sense.
Banks aren't going to forgive loans, why should people keep paying ones that are not to their advantage.
BobMSN
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2012 Oct 29, 2:00am
Obama has created so many obstacles to prevent banks from foreclosure and encouraged people who can’t afford the house to either squat or modify the mortgage. Strategically defaulter would look like a fool compared to squatters.
Eman
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2012 Oct 29, 2:09am
Some people have businesses and lines of credit. A default will trigger all kinds of things such as a huge jump in interest rate, the line of credit being yanked, etc. Credit is extremely important when running a business.
If your monthly mortgage payment is about the same as rent or less, why default eventhough you're underwater. If your monthly mortgage payment is several hundred dollars above rental parity, it is worth to some people to stay put just from a comfort level.
I know people that are underwater over $100k-$150k on their house and are still current on their mortgage payments. Because they were not in default, they were able to acquire investment properties recently. Their recent RE investments have yielded returns more than enough to cover for their monthly mortgage shortfall. Being short-sighted can cost you.
And lastly to echo what theoakman said above, some people have self respect & live up to their obligations. :)
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Why isn't everyone underwater on their mortgage strategically defaulting?
1. It takes the average foreclosure 600 days to complete. Rounding, lets call it 2 years. (Source: http://allfinancialmatters.com/2011/12/02/the-average-foreclosure-length-631-days/)
2. By definition of being underwater, the owners have no equity left.
3. Median price of a home in '07 was $247,900 (Source: http://www.census.gov/const/uspriceann.pdf).
4. Assume they had a prime loan, for some reason, @ 5% (Source: http://www.bankrate.com/funnel/graph/default.aspx?cat=2&ids=1,-1&state=zz&d=1825&t=MSLine&eco=-1) with 20% down ($49,580).
5. Their monthly mortgage payment is ~$1,0000.
6. After the 2 years, they would have accumulated $24,000 in cash savings. Not to mention not paying for insurance & maintenance. (I assume you have to pay taxes still or face prison time?)
Why the heck wouldn't you default and squat? Am I missing something?
#housing