San Diego Housing Bubble News and Analysis

I don't get it, what do you mean by "dumping the heloc?" At this point he can't roll it into a single loan at the lower rate, that is evident by what he wrote and the advice. The advice to pay down the heloc faster, seems good advice to me, since rolling it is out of the question.

Do you mean for him to not pay the heloc? You said they wont foreclose, the hell they wont. Helocs can and will foreclose, even if the primary loan is current. That's the deal with helocs, it's collateral is the house. If they choose to not foreclose because it will wipe them out after the first is paid, then they can and will rack fees and interest and credit hits while you dont pay them. This guy was looking to maximize his situation, get a good rate, not take was isn't his, there's no mention of "I can't afford to pay."

Both answers are incorrect.

The correct answer is, refinance the first while it's still beneficial to do that (or don't - 5% 30-year fixed is quite good to begin with). Miss a payment on HELOC, then call them, inform them that you're upside down, inform them that they'll be wiped in the event of a foreclosure, and offer to settle for $5,000 cash.

Of course, this answer is not suitable to be printed in a real estate tips section of The Washington Post.

That's what I was aiming at.

The HELOC is utterly underwater, screw them, they have nothing.

What are they going to spend 50K on foreclosure?

Keep paying the first and ride out the wave.

or

Stop paying both, save the money and when the first comes
to foreclose string it out, and move into an apartment.

It makes no sense for someone in California who is -35% on equity
to pay into a mortgage that is never going to see the surface in
our lifetimes, unless you really expect the inflation rates to explode.

if we go into 100% inflation, then sure, he has a decent asset,
but, I kind of doubt that will happen.

Fifteen years. Not a lifetime.

Let's use a simple example.

Someone buys a home for $1M.

Let's say it goes down 50%, not just 35%.

So it is now worth $500K.

If inflation is just 5%, it will take that house fifteen years to reach $1M.

I can hear some ppl now:
"houses won't rise in value for a few years"
"today's dollars vs future dollars"

None of that holds much water. So tack on a few years to the 15 if you feel prices will be flat for awhile...maybe twenty years until it hits $1M. And I've used a worst-case scenario of 50% fall in value, and realistic inflation rate of 5%.

Last I checked, fifteen years is not a lifetime.

I see a very high horse and of course I have a step ladder so I'm gonna get on it. I'll loan you my step ladder if you like.

This is not a stock play, this is not about getting a good deal on priceline for a hotel room. This is a debt that someone took, someone promised to pay and from what we can tell, they can afford to pay back. They should honor their debt, keep their promise, learn from the lesson and think twice next time. There are a few pieces of advice, a few promises in life that you are supposed to keep, not because they make a profit, but becuase karma is a bitch and integrity cannot be re aquired. Monogomy is like that too. Lets say that you are in a monogomous relationship, that you promised to only have sex with one person, you are supposed to keep that promise, nothing can make you do it but yourself. If you are involved in a terrible hunting accident and your genitalia is removed, then through something beyond your control you will not be able to fullfill your obligation but you didn't break the promise (that is like losing your job). But if Beyonce hits on you in a bar, asks you to go home with her, well, it's decision time. Are you a man of your word?

The following commandments were never published in any religious text, I made them up, but they are far more relevent today.

1. Pay your debts, pay your tab, pay your own way.

2. Don't steal, good deals are permitted and encouraged.

3. Don't tell someone you love them unless you mean it, but if you do, tell them often and show it.

4. Take care of your children and at some point, your parents, even when it's inconvenient.

5. Drink good wine, eat good food, but avoid sugar.

That's it, sometimes you win, sometimes you lose, sometimes you have to lick your wounds, stand up and walk out of the room like a man, even if you limp a little.

I'm not here for ethics on this one. If the HELOC was taken out as the 20 on an 80/20 loan when he bought the place its a purchase money loan. If they foreclose on him they get nothing and have no recourse. He could stop paying the 2nd and may be able to negotiate a short pay settlement on the HELOC. A de facto loan mod/principal reduction if you will.

The great RE money machine will not do well unless people can write off large loans in this big downturn.

The whole process creates a nice illusion of wealth - RE prices rise and people pocket gains, then prices fall and people walk away and taxpayers pay their losses. No real wealth is created, but it is transferred, using taxes and inflation, from people who are not in RE and who have high incomes/savings, to those in RE (either as professionals or as investors).

Of course the WaPo advice is dumb. Moral hazard has been thrown out the window by our own government (Congress and Admin), and those who still worry about doing what is selfishly immoral, but legal, are being played for suckers. People are being encouraged to be suckers because it leaves more to be gained by the rest. (There are still a few people who are genuinely motivated by the morality or ethics of borrowing money and not repaying it, but their genuine concerns are being misused by the decisionmakers).

PR: Not only has moral hazard been discarded by the Admin and the FED, but so has common sense and simple arithmetic. A quick read of the latest CBO assessment regarding spending and policies should chill your blood.

Of course, the Admin and the FED will discount it completely or try to undercut it with the usual doublespeak and sleight of hand, but we're essentially continuing to advance a Ponzi scheme of completely epic proportions. It's unsustainable and yet we continue blithely on, as though everything is fine. We're doing at all levels of society and government.

Depression? What depression?

Does Trump or my other mentors keep their honor and pay debts or do they use business loss provisions of BK, etc? Now you may want to take Trump's assets to pay his speculative RE plays and more power to you if you can stop my mentors. Otherwise, it's just capitalism my friend.

Do we really want people to spend all of their disposable income on their mortgage, HELOC, etc and nothing left for kids diapers, La Jolla Country day tuition? You guys know my answer, I'm the Yankee capitalist and I say again poor people get out of CA.

Ethics, honor, promise ... being a man of your word ... all that applies only to non-collateralized, verbal interactions between human beings.

There's no ethics and there's no honor in legal contracts. It's all based on cold logic. Especially true when the other party is not a human being but a soulless machine. The contract states that the bank will do A, and you will do B monthly for thirty years, and, should you fail to do so at some point before those thirty years are over, the bank is permitted to do C. In the event of a mutual agreement, both parties may discard the contract and sign a new one under different terms. Ethics does not enter.

TG:

I am saving that quote. That is not just the best of Temeculaguy, I think it is the best ever. And you have some done some excellent writing on Piggington. I like everything there except for the avoiding sugar part. Godiva has sugar in it and life is too short not to enjoy good chocolate!

I completely agree with Eugene.

These companies do not loan you money because they like you. If you do not pay, they will try and make your life hell. Now, once in a every 20 years YOU ARE IN CONTROL of this debt. They do not want you to walk.

They did not have your character in mind when they loaned it, they didn't measure your character and give you a discount.. they measured you unmercifully by your credit. Karma? It's the banks time for karma, not paying back a loan which was made for profit has nor karmic consequences in my mind. That will help prevent them from preying on people. If you need money, borrow it from friends or family - then yes you should pay it back.

Yes, a contract can be renegotiated between 2 parties. But these contracts are no longer between 2 parties. The tax payer is the involuntary 3rd party (bag holder). That is where ethics comes into play. In my opinion, your rights (to refuse to honor your agreements) should not trump my rights (to not have to pay for your mistakes through my higher taxes).

I'm not sure I agree here. The contract states what the banks recourse is if you fail to honor your promise. But when you enter into the contract you are promising to pay. The bank is making its financial decisions based your ability to pay. Not paying because you no longer have the ability is one thing... stuff happens. Not paying even though you still have the ability, because you no longer feel good about the investment, or because paying is no longer convenient, is BS. A paper contract does NOT remove ethics from the equation. You sign your name, you give your word. Your word is your bond, so some people claim. Not to mention, as someone mentioned above by JL, the fact that you are now sticking innocent 3rd parties (tax payers) with the bill. Its much easier to dismiss ethics, than to apply them even when its inconvenient.

We have no such right. Our elected (and unelected) leaders decided for us already.

Do we have the right not to pay for the SD employee pensions, even though the pension benefits were given out without the funding to back it up? No.

All we can do is get rid of the leaders. If we feel strongly enough, then we have to work to make it happen.

Read the mortgage note again. There are no special provisions for job losses, medical expense and other "stuff" that happen.

What if I would rather spend my money on a vacation to Tahiti rather than paying the mortgage? Does that apply?

Should you pay your doctor and hospital before your pay your mortgage? Or vice versa? What about your alimony or child support?

This is the problem with being upside down on a an expensive and highly leveraged asset that is continuing to reduce in value....it will challenge the average persons thought process about what's "right" and "wrong". Money seems to have a way of bringing out the cold logic in most people.

Yeah just like George Chowderhead is saying how now is a great time to buy and that his buddy Maron Retard is right

It's interesting to see the variety of opinions here on repaying debts.

Some people think that borrowing money from other people must be followed by earnest best efforts to repay the debt. At the other extreme, some people think that repaying borrowed money is something that should be avoided without consequence by using any available loopholes in the legal contract.

I think what the legalistic types are missing is that ethics come before the law. The law is just our primitive best efforts to make rules out of our a fundamental drive for ethical social treatment of ourselves and others. The law is crude and often wrong. Driving our behavior from the law when it conflicts with ethics leads to a less civilized world.

But, in the case of this mortgage madness in the USA of 2009, I'd say that 2/3 of the population, and the majority of Congress and our financial and other political leaders, have embraced what is essentially theft - the taking from others for personal enrichment. This is accomplished by borrowing with no intent of repaying, or greasing the skids that make such a process normal. In such circumstances, I think the few people who stick to ethical behavior are being taken to the cleaners, and will not be recompensed.

One person in a hundred acting ethically/altruistically cannot offset 99 people acting unethically/selfishly. Hell, one person in two acting ethically cannot offset the damage done by the other person acting legally but unethically. For society to function, you need 99 people acting ethically for every one person acting unethically. Consider the typical borrower in So Cal who didn't intend to repay their home loan (unless someone else gave them the money to repay it). The typical loss they walk away from is probably around $200,000. To make the losses passed on to the rest of us tolerable, let's say $2,000 on average, you'd literally need 99 people bearing the burden fro every person walking away from theirs. There were too many people involved who borrowed way more than they planned to pay back out of their net pay for that ratio to work.

I take the contrary view. Law are what make us civilized and ethics are derived from laws (perhaps a chicken and egg question).

If ethics were so superior, then we wouldn't need laws.

Contracts and laws are what allowed us to advance.

The penalties of the enforcement of laws are what prevent people from behaving badly.

Our fundamental drive is the law of nature. The big animal will eat the little animal.

Money, guns, tanks and the like allow little human animals to become big animals.

Without financial laws (and the penalties of enforcement) the loan sharks would rule the land.

Without labor laws, children will again be working in coal mines.

Without environmental laws, people and industry will be dumping waste in rivers.

I'm not really sure if you're agreeing with me, or with Eugene on this? To answer your hypothetical questions, you should pay them both, even if you have to be late and make smaller payments for a longer time.

My point is, if you lose your job through no fault of your own, and simply cannot pay your mortgage, then the provisions in your contract let the bank take the house back. That's unfortunate but at times unavoidable. In cases where unforeseen medical issues force a person into an untenable financial situation, bankruptcy allows them a fresh start without them losing their home. I have a feeling that's not the dilemma you are referring to though.

However if you make stupid investment decisions or simply spend unwisely and decide that you want to pay for your vacations instead of your mortgage, then I say you are acting in an unethical manner. The contract that gives the bank the right to repossess your house doesn't mean your selfish and irresponsible behavior is some how "OK" or "ethical". Its not.

People make choices all the time. Getting laid off isn't a choice one makes voluntarily. Spending irresponsibly is. In some cases a person does everything within their power to pay for their home. In other cases people walk away simply because the economics of keeping it at their agreed upon payment isn't pleasant anymore. That's just unethical behavior in my opinion, and its a symptom of the overall decay in American society. Decay that manifests itself in many ways. But thinking that its ok to shirk ones legitimate debts is one of those ways.

/end moral rant

It sounds like this guy is just whining.

"The lender offered me a first mortgage refinance at a rate of 4.65 percent plus one point for 30 years, with no PMI, and no income or asset verification."

Are you for real?

Take the refi and then pay your mortgage. Your 2nd mortgage is probably at 3%. What are you whining about?

You made a choice and now your lender is bending over backwards to help you out? They usually aren't that anxious to help. Be grateful and move on with your life. What is the problem?

P.S. I get the 155% LTV. That is a risk you take when you don't use a down payment.

briansd, it sounds like you are assuming that we are purely selfish unsocial creatures with no altruistic tendencies.

You and I and any student of human nature know that is not true. Whether you characterize it in flattering terms like altruism or ethics, or less flattering like "pack-like", we are inherently and instinctually social creatures that strive to work cooperatively in groups. Yes, we do some antisocial cheating and all in between, but if the downsides of that were not outweighed by the upsides of the cooperation, we'd never congregate in social groups, and we always do.

Anyway, if we didn't have inherent drives to cooperate (and adopt supporting common standards of behavior, aka ethics) then we'd have no one pushing the laws. All those laws would be there, unsupported by human nature. Do you think people would obey them after they began to notice that no one else supported the laws?

I don't think it's even close to chicken and egg. That's like saying that people educate their kids because there are schools. People make sure there are schools so they can educate their kids.

in law school academic circles, the professional term sometimes bandied about is "efficient breach". Some academics describe contractual breaches in terms of efficiency and argue that contract law should encourage efficient breaching.

In other words, i think, the argument goes, people shouldnt be held to contracts any longer where it doesn't maximize the utility of both partiesbecause the ultimate goal of contract law isn't the enforcemt of some sort of unwritten moral code in our dna, but instead, maximizing the utilitya nd happiness of all of us here in the actual world.

. Where it is more efficient to breach -- when the sum total of happiness and utility increases with breach -- the contract should be breached, and the gains if any divided among the parties.

I don't remember enough to apply it to the issue at hand, but the overwhelming sense from a lawyering point of view is that contracts are not moral bonds, but agreements for mutual benefit that may not suit the parties at a later date, and that breach is a good thing, like divorce, an expected possible outcome, necessarily always built in as an escape hatch, not for just unforeseen bad things, but for good things as well.

For instance, if a doctor is making 100k serving middle class people whilst living in l.a. and is upside down on his mortgage, but could get out and go to another state and make 300k serving the underserved population, it would be more efficient for society if the contract is breached, people would get healthc are theyotherwise wouldnt get, doc is out from an oppressive mortgage in an underpaying state, and the gains divided up according to the previous agreement, contract terminated.

in that case there are gains to be divided; in most mtgs there are not. but that doesn't mean the pricniple is any different. where the mortgage owner will be ahppier withoutt he mortgage, better able to look for work elsewhere, or just have more money available for going to dinner and for stuff, then the parties should act to maximize that utility and split the gains, if any according tot he contract they agreed on.

i never much liked this theory, but it pervades thinking about contracts. the problem i think, is that this is not really a contract beween a bank a nd a debtor. this is a contract we all have to pay out on. that's different. there is of course a cost for efficient breaching, in that is business people may not trust you, but if you've truly breached efficiently, you work your way through it.

but in any event it's pretty clear the law doesn't try to codify some ethical impulse. it assume a bad dude, and tries to circumscribe his behavior and scare him into compliance with some bare minimum of decency. See, e.g., the 10 commandments.

lookit, if you applied TG's advice to marriage, no one would ever get divorced, since you "gave your word". pretty clearly, that is a dumb idea in absolute terms. there are lots of times where efficiency ismaximized by breaching the marriage contract. he beats the hell out of her every night, med bills mount up, it's cheaper and happier to break the contract, divide the gains if any, and move on. same as any contract. there is no 'word" one gives ina contract. The ultimate underlying premise is that when the agreement doesn't work anymore, and one or mroe party is better off out of te deal, then the deal should be able to be broken in such a way that everyoneis better off, at least under the terms of the contract.

I understand TG talk about a promise of 'monogamy" which doesn't seem like much of a promise at all. i promise not to have sex with anyone else whiel i'm with you until i no longer want to.") in fact, the promise of monogamy seems liek the pperfect example of efficient breach;

Many men marry for sex and women for security. If a man loses his job (no security for wife) and the wife refuses to have sex (with said husband),should they get a divorce? I say no, because no matter how bleak things seem they can always be worse. Man gets divorced,he's still not getting any and may have to pay (even though he has no job)child support/alimony.
I think it is interesting that women typically file for divorce first and it's usually men that stop paying bills first.Men that cheat on their wives are probably also the same ones that will cheat their fellow man out of money.Here;s the real question-Do women that shirk their debts often end up cheating on their husbands? Probably no relation, just food for thought.

some recent study in a more primitive culture foudn that men actually marry for reg. food prep...

So that's why I've always had a thing for waitresses,they represent the security of having food to eat. http://images.google.com/imgres?imgurl=h...

maybe it's restaurants that have screed up the institution of marriage.

in this culture study, men tended to marry post-menopausal women for food prep, slept with younger women.

no restaurants, no good food.