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you think people are going to pay mortgages they are massively underwater on? This also ignores the fact that the Fed's stated goal with raising interests rate

you think people are going to pay mortgages they are massively underwater on? This also ignores the fact that the Fed's stated goal with raising interests rates is to increase unemployment to slow inflation. You are already seeing the results in quarterly financials. Once layoffs start happening people won't have an option but to sell when they can't make payments

kotlin2 4y ago
In most states, lenders have recourse. So if you stop paying your mortgage, the bank will foreclose on your home and then come after your other assets to make up the difference in what you owe vs. what the home is currently worth.
- toomuchtodo 4y ago
  I’ve defaulted on two mortgages in a recourse state, one primary residence, one investment property. Neither was pursued. While extreme, you can always move to Texas or Florida; they have incredibly strong creditor protections making you mostly judgement proof. Depends on your threat model, exposure, and risk tolerance. (not legal advice, educational purposes only)
  - kotlin2 4y ago
    How much did you owe after the properties were sold?
    - toomuchtodo 4y ago
      Zero. And I was eligible for a new FHA mortgage 3 years after.
      - kotlin2 4y ago
        I mean what was the difference between your outstanding mortgage principal and the value of the homes at the time of default?
        toomuchtodo 4y ago
        Roughly $300k in aggregate
- bushbaba 4y ago
  Always thought this was predatory. California does it right in being a no recourse state. CA mortgages cost the same as elsewhere.
- bxparks 4y ago
  Recourse versus non-recourse mortgages is an interesting difference that most people seem to be unaware of. I do not recall reading about it in any of the disclosures (running hundreds of pages) that I had to read. I only found out about it while researching on the internet. Apparently, there are only 10 non-recourse states as of 2009: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington, and Nevada. The tricky thing is that only the initial mortgage is non-recourse. A refinanced mortgage becomes recourse, but interestingly, they don't seem to be required to disclose that in the disclosures.
  - toast0 4y ago
    Refinance in California remains non-recourse as of maybe 10 years ago. Washington isn't really non-recourse, lenders have the option of recourse or non when pursuing foreclosure, non-recourse is significantly faster and is predominantly chosen; but if it was known you had assets, they might choose to go recourse.
    - bxparks 4y ago
      According to https://www.bankruptcysoapbox.com/california-extends-protection-for-home-loan-borrowers/ https://www.bankruptcysoapbox.com/california-extends-protect..., you are correct for loans after Jan 1, 2013. The relevant statute SB-1069 is here: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1069 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml...
rossdavidh 4y ago
Good point, and I wonder if the term "jingle mail" (mailing the bank your house keys instead of a monthly mortgage check) is going to make a comeback.
- deleted 4y ago
  [deleted]
Sohcahtoa82 4y ago
> you think people are going to pay mortgages they are massively underwater on? Yes? Why wouldn't you? It seems pretty short-sighted to just put your arms in the air, give up, get foreclosed on, lose your home, and have your credit be absolutely wrecked for the next 7 years. Just keep making your payments and ride it out. The market will eventually recover. I think the only reason to give up is if you fell for the scam that is an adjustable-rate mortgage and your payments are skyrocketing and you can't afford it anymore.
- Turing_Machine 4y ago
  > Why wouldn't you? Well, you could ask the very large number of people who defaulted on their underwater mortgages in previous housing crashes. Does everyone do it? No. Do a significant number of people do it? Absolutely.
- andsoitis 4y ago
  Concur. As a relatively new first-time homeowner (a year), do you know whether a mortgage lender requires higher or additional insurance coverage for an underwater property?
  - avgDev 4y ago
    No. Why would they? You are required to have insurance when you have a loan on a property. The insurance rates could actually drop due to lower cost to replace your house. Underwater property just means you owe more than it is worth. However, if your interest rate is low, you might be paying less than someone who is not underwater.
  - toast0 4y ago
    I don't think so. The time for requirements is when the loan is originated. I think it's typical to require mortgage insurance when the loan is more than 80% of the value, and it's very uncommon to loan more than 95% of the value. If the loan goes underwater later, usually because of market conditions, maybe because of creative loan features, then the lender has no leverage to require anything.
- 4y ago
irrational 4y ago
> you think people are going to pay mortgages they are massively underwater on? Yes? Our home keeps the rain off our heads. I’m not going to risk that by not paying my mortgage just because I couldn’t sell my house right now for enough to cover the mortgage.
toast0 4y ago
> you think people are going to pay mortgages they are massively underwater on? The payments might be comparable to if they got a current rate mortgage at the current value. There's reasons it would be nicer to have a lower loan balance at a higher rate and the same stream of payments, but it's probably not worth the cost of moving and a foreclosure on your record.

kotlin2 4y ago

In most states, lenders have recourse. So if you stop paying your mortgage, the bank will foreclose on your home and then come after your other assets to make up the difference in what you owe vs. what the home is currently worth.

toomuchtodo 4y ago
I’ve defaulted on two mortgages in a recourse state, one primary residence, one investment property. Neither was pursued. While extreme, you can always move to Texas or Florida; they have incredibly strong creditor protections making you mostly judgement proof. Depends on your threat model, exposure, and risk tolerance. (not legal advice, educational purposes only)
- kotlin2 4y ago
  How much did you owe after the properties were sold?
  - toomuchtodo 4y ago
    Zero. And I was eligible for a new FHA mortgage 3 years after.
    - kotlin2 4y ago
      I mean what was the difference between your outstanding mortgage principal and the value of the homes at the time of default?
      - toomuchtodo 4y ago
        Roughly $300k in aggregate
bushbaba 4y ago
Always thought this was predatory. California does it right in being a no recourse state. CA mortgages cost the same as elsewhere.
bxparks 4y ago
Recourse versus non-recourse mortgages is an interesting difference that most people seem to be unaware of. I do not recall reading about it in any of the disclosures (running hundreds of pages) that I had to read. I only found out about it while researching on the internet. Apparently, there are only 10 non-recourse states as of 2009: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington, and Nevada. The tricky thing is that only the initial mortgage is non-recourse. A refinanced mortgage becomes recourse, but interestingly, they don't seem to be required to disclose that in the disclosures.
- toast0 4y ago
  Refinance in California remains non-recourse as of maybe 10 years ago. Washington isn't really non-recourse, lenders have the option of recourse or non when pursuing foreclosure, non-recourse is significantly faster and is predominantly chosen; but if it was known you had assets, they might choose to go recourse.
  - bxparks 4y ago
    According to https://www.bankruptcysoapbox.com/california-extends-protection-for-home-loan-borrowers/ https://www.bankruptcysoapbox.com/california-extends-protect..., you are correct for loans after Jan 1, 2013. The relevant statute SB-1069 is here: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1069 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml...

rossdavidh 4y ago

Good point, and I wonder if the term "jingle mail" (mailing the bank your house keys instead of a monthly mortgage check) is going to make a comeback.

deleted 4y ago
[deleted]

Sohcahtoa82 4y ago

> you think people are going to pay mortgages they are massively underwater on? Yes? Why wouldn't you? It seems pretty short-sighted to just put your arms in the air, give up, get foreclosed on, lose your home, and have your credit be absolutely wrecked for the next 7 years. Just keep making your payments and ride it out. The market will eventually recover. I think the only reason to give up is if you fell for the scam that is an adjustable-rate mortgage and your payments are skyrocketing and you can't afford it anymore.

Turing_Machine 4y ago
> Why wouldn't you? Well, you could ask the very large number of people who defaulted on their underwater mortgages in previous housing crashes. Does everyone do it? No. Do a significant number of people do it? Absolutely.
andsoitis 4y ago
Concur. As a relatively new first-time homeowner (a year), do you know whether a mortgage lender requires higher or additional insurance coverage for an underwater property?
- avgDev 4y ago
  No. Why would they? You are required to have insurance when you have a loan on a property. The insurance rates could actually drop due to lower cost to replace your house. Underwater property just means you owe more than it is worth. However, if your interest rate is low, you might be paying less than someone who is not underwater.
- toast0 4y ago
  I don't think so. The time for requirements is when the loan is originated. I think it's typical to require mortgage insurance when the loan is more than 80% of the value, and it's very uncommon to loan more than 95% of the value. If the loan goes underwater later, usually because of market conditions, maybe because of creative loan features, then the lender has no leverage to require anything.
4y ago

irrational 4y ago

> you think people are going to pay mortgages they are massively underwater on? Yes? Our home keeps the rain off our heads. I’m not going to risk that by not paying my mortgage just because I couldn’t sell my house right now for enough to cover the mortgage.

toast0 4y ago

> you think people are going to pay mortgages they are massively underwater on? The payments might be comparable to if they got a current rate mortgage at the current value. There's reasons it would be nicer to have a lower loan balance at a higher rate and the same stream of payments, but it's probably not worth the cost of moving and a foreclosure on your record.