House vs. Home
We understand that you probably have an emotional attachment to your home, but is it time to start looking at your home as a house or an investment?
Webster's Dictionary defines a house as “a building that serves as living quarters or a shelter or refuge.” Let's compare that to Webster's definition of a home, “A home is the social unit formed by a family living together.” Your family dictates where your home is, not your house. The point is that you need to treat your house as the investment that it is. How often have you heard the advice “You'll never lose money investing in a house?” We all grew up hearing that. Well guess what? In some cases it's not only our biggest debt, it can be a bad investment.
You might be thinking, like many people, that only people with a bad credit history would decide to walk away from their mortgage. You may be thinking that only people who can't pay their bills on time are the ones falling behind in their mortgage.
There's compelling information with some astounding facts regarding consumers who make a plan to walk away from their house. Studies show that people who decide to abruptly and intentionally stop making their mortgage payments often have very high credit scores. There is one study of 24 million homeowners which discovered that responsible homeowners with credit scores over 700 are very likely to consider “walking away,” not only abruptly, but intentionally.
Is it a Moral Issue?
You've most likely been hearing government officials and bankers state, “Homeowners should continue to pay their mortgages simply because its morally right to do so.” Of course, we must take into consideration our family values with every decision we make. Let's look at this “moral issue” a little closer. An article published in CNN in May, 2012, states that “nearly 40% of all properties with mortgages in the United States are underwater” (Underwater means that you owe more on a house than the house is worth. People also call this "upside-down"). If you can't afford your mortgage and your lender/servicer just hasn't cooperated with you, then what? This question has been asked of Henry M. Paulson, Jr., a former Treasury Secretary, and his reply was, “Any homeowner who can afford his mortgage payment but wishes to walk away from an underwater property is simply a speculator and one who is not honoring his obligation.” In a presidential speech in 2010, President Barack Obama stated to the American people that homeowners should follow “the responsible course.”
Yes, we all should have a sense of responsibility and morality, but I also would like to ask those same people this question: “Where was this sense of responsibility and morality when banks and Wall Street were approving high-risk loans for the American people?” Who was pointing their finger at mortgage lenders for enticing borrowers into loans that they could not afford by encouraging appraisers to appraise properties at inflated values, offering mortgage loans at "teaser rates," 100% financing, and requiring no proof of income? Where was this moral issue when banks and mortgage lenders didn't thoroughly research inflating property values and approved loans they could barely afford? Where was the “responsibility” then? Wall Street made the guidelines for bad loans and the banks simply beefed up their portfolios. This is not the fault of the American homeowner. Let's put the morality test to corporate America, Wall Street and mortgage lenders!
Of course, when it comes to a sense of morality, you must decide what the proper course is for you and your family and by no means should you ignore your responsibilities. If you're in a situation where you really can't afford your mortgage payment, due to hardship or the economy, perhaps walking away may make sense to help you maximize the best of a bad situation. If you find yourself in a situation where your property is “upside down,” then you might decide, as many other people have, that a strategic default is what's best for you and your family.
In summary, remember, home is where you make it. Review all your options and weigh the cost-benefit of continuing to invest in your house. Make your decisions based on what the best investment is for you and your family. Remember that you're not the only one going through this. It is a nationwide problem and you should never feel ashamed to do what you must to protect your family's financial future. Don't let the pressures of the government and so-called financial (lending) experts pressure you into a decision that's not in your best interest.
The decision to walk away is not easy, but in some cases it is the responsible decision toward you and your family's future.
photo credit: New York Post, "I'm Walking From my Underwater Mortgage", http://www.nypost.com/p/news/business/walking_from_my_underwater_mortgage_9ZrbOV91v4EUGbJYD2ashO