[ltokuda]

“Underwriters aren’t stupid and are looking for people who are committing loan fraud. Once they catch a few of these “smart” people and prosecute them, fewer people will be considering it.”

That’s going to be an interesting development. In a strict sense, I don’t think this is loan fraud. The borrower bought the first house with the intent of paying off the loan. He buys the second house with the intent of paying off the second loan. The lender for the first house will get screwed by the default. But if it was a no recourse loan, what can the first lender do?

Also, it seems to make financial sense for the lender of the second home to approve the loan (assuming 25% downpayment or so). The second lender will see a borrower with good credit, a large downpayment, and have as collateral a “rental” unit that is probably cash flow positive. Even if the second lender suspected that the first lender would get screwed, would it matter? As long as the second lender believed that it would make money on the deal, I think the deal would go through.

Of course, most people won’t be in the position to be able to do this. But some definitely will and it’ll be interesting to see how it all plays out.

[ltokuda]

“Underwriters aren’t stupid and are looking for people who are committing loan fraud. Once they catch a few of these “smart” people and prosecute them, fewer people will be considering it.”

That’s going to be an interesting development. In a strict sense, I don’t think this is loan fraud. The borrower bought the first house with the intent of paying off the loan. He buys the second house with the intent of paying off the second loan. The lender for the first house will get screwed by the default. But if it was a no recourse loan, what can the first lender do?

Also, it seems to make financial sense for the lender of the second home to approve the loan (assuming 25% downpayment or so). The second lender will see a borrower with good credit, a large downpayment, and have as collateral a “rental” unit that is probably cash flow positive. Even if the second lender suspected that the first lender would get screwed, would it matter? As long as the second lender believed that it would make money on the deal, I think the deal would go through.

Of course, most people won’t be in the position to be able to do this. But some definitely will and it’ll be interesting to see how it all plays out.

[ltokuda]

It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.

My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.

Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:

http://calculatedrisk.blogspot.com/2008/01/financial-times-walking-away-becoming.html

CR gives a very detailed explaination of the situation here:

http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html

Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:

http://calculatedrisk.blogspot.com/2008/01/more-on-homeowners-walking-away.html

I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.

[ltokuda]

It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.

My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.

Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:

http://calculatedrisk.blogspot.com/2008/01/financial-times-walking-away-becoming.html

CR gives a very detailed explaination of the situation here:

http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html

Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:

http://calculatedrisk.blogspot.com/2008/01/more-on-homeowners-walking-away.html

I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.

[ltokuda]

It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.

My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.

Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:

http://calculatedrisk.blogspot.com/2008/01/financial-times-walking-away-becoming.html

CR gives a very detailed explaination of the situation here:

http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html

Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:

http://calculatedrisk.blogspot.com/2008/01/more-on-homeowners-walking-away.html

I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.

[ltokuda]

It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.

My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.

Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:

http://calculatedrisk.blogspot.com/2008/01/financial-times-walking-away-becoming.html

CR gives a very detailed explaination of the situation here:

http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html

Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:

http://calculatedrisk.blogspot.com/2008/01/more-on-homeowners-walking-away.html

I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.

[ltokuda]

It is possible for rental prices to go down if there’s an oversupply of rentals in your area. This could happen if there’s a recession, jobs are lost, and people start moving away. I don’t think rental prices are going to get cut in half, though.

My brother lives near San Jose. After the dot com bust, his rent actually went down. I think it dropped from about $1800 to $1400.

Regarding walking away from your house: that might be a good option. CalculatedRisk had some discussion about that. More and more, it looks like people are taking that option:

http://calculatedrisk.blogspot.com/2008/01/financial-times-walking-away-becoming.html

CR gives a very detailed explaination of the situation here:

http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html

Instead of walking away from your house and renting, there is another option. Let’s say prices drop 40% and you are heavily under water. You could opt to buy a second house just like your first house, but for 40% less. Then, you can move into the second house and stop making payments on your first house. You’ll lose your first house and your credit will ruined for a while. But it won’t matter that much because you already bought the new house while your credit was good. CR talks about that here:

http://calculatedrisk.blogspot.com/2008/01/more-on-homeowners-walking-away.html

I can’t say whether you “should” walk away or not. My personal opinion is that you should look at the legal ramifications fisrt. If that’s okay, then consider the financial ramifications (both present and future). If it still makes a lot of sense, then do it. Ultimately, you have to look out for yourself and your family.

[ltokuda]

esmith, thanks for the info. Those are some alarming numbers.

[ltokuda]

esmith, thanks for the info. Those are some alarming numbers.

[ltokuda]

esmith, thanks for the info. Those are some alarming numbers.

[ltokuda]

esmith, thanks for the info. Those are some alarming numbers.

[ltokuda]

esmith, thanks for the info. Those are some alarming numbers.

[ltokuda]

Are there any statistics for how many distressed non-recourse loans are out there? It seems like walking away while you’re underwater can be a very logical option. But I wonder how many people really have that option.

[ltokuda]

Are there any statistics for how many distressed non-recourse loans are out there? It seems like walking away while you’re underwater can be a very logical option. But I wonder how many people really have that option.

[ltokuda]

Are there any statistics for how many distressed non-recourse loans are out there? It seems like walking away while you’re underwater can be a very logical option. But I wonder how many people really have that option.

[Author]

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