[quote=davelj]However, it’s a totally different situation if you (a) have a decent net worth and savings, (b) have good job stability and the mortgage isn’t overly taxing, (c) have strong community ties, and (d) moving under duress would be an issue for family and reputation issues. Most of these folks will gut it out. And there’s a lot of them.
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Dave, would you feel the same if a person as you describe above buys $500k a stock before a crash of 25%. He is upside down in his stock purchase. Should he ‘gut it out’ possibly lose more or would it make more financial sense to cut his loses and put his money to work in a better investment.
My guess would be persons like the one you described would be more likely to walk away because it would be a ‘Business Decision’ and everyone would respect his past success. The person you describe would careless of his credit score. He does not carry outstanding balances on his credit cards. He pays for his vehicles in full. He ‘could’ pay for everything in full including a home.
If I could get it past my wife (I have good understanding how Scaredy feels – bro in arms) and we were upside down with no financial recourse or taxes, I would walk. But because of my understanding of the some dynamics involved with the recent past housing market and much ‘LUCK’, I could now repurchase my home in full (20%less)if I walked away. Of course, I won’t because of my 50% LTV. I owe my 2nd hand knowledge to my younger brother purchased his second home in ’89 when the ‘industry’ was saying house prices ‘never’ drop. I was the only one he knew that said ‘not to buy’. He walked away from that home. He went out and rented a bigger/better home for less than his past mortgage and saved his money. Since then, he has purchased a home that has positive LTV. I learned from his mistakes.
I deeply agree with CA Realtor and AN about luck and being prepared when luck comes your way. I experienced it first hand. After my 2700sf home purchase ’05, we closed our previous 1400sf home (purchased 1yr after the ’89 bottom) 1 week before the mortgage crash for a $27k less than our ’05 purchase. The 80/20 purchase loans for the previous home were with 21st Century. Had I not pushed my agent to close on time, I would have been stuck with two mortgages in a death spiral market.
