Did The Banks Force You To Sign Your Mortgage?

My Two Dollars posted an article last week that made me see red.  In the article, David (the author) said that he’s changed his mind and that he now thinks that it’s OK to walk away from your mortgage if your property value has declined to where you’re underwater on your mortgage.

Even if you can afford to pay.

Huh?

His argument (and he links back to another article in the NY Times that advocates the entire thing) is that the banks have been unwilling to help the borrowers out who they know are underwater, so turning around and ‘sticking’ it back to the banks is fair play.

I think that’s baloney.  I actually think it’s a lot more than that, but the words I’d like to use are ones that I try to stay away from in a public blog.

First, two wrongs don’t make a right.  Just because the banks are being ‘big meanies’ doesn’t mean that walking away will somehow wrong that right.  There are other ways to go about dealing with this issue.  Keep working with your bank.  Try to sell your house.  Or, keep making the payments.  I mean, to act all flabbergasted that the banks are not jumping up and down to work with you, are you serious?

If anybody really thought that the banks were their buddies just because they acted all buddy-buddy to get a mortgage deal signed, well, give me a break.  Banks are in the business to make money, and they do so largely in part by signing loans.  Why do you think that the bank owes it to you?  Let me ask this of anybody who thinks that it’s OK to walk away: If the value of your home had continued to go up and you sold it for a nice profit, would you have ‘shared’ that profit with the bank?  Didn’t think so, but how is anybody throwing a tantrum because the bank won’t ‘work with them’ any different?

Second, nobody forced you to sign the papers in the first place, did they?  As far as I know, a lot of people signed a lot of papers agreeing to pay a lot of money for houses that, as it turns out, were not going to hold their value.  While I agree that this is bad news, the fact is that there was nobody from the banks or the mortgage company holding a gun to anybody’s head (except maybe on the Sopranos).

Let’s face it, many of the same people that bought houses inflated in value was because they saw it as an investment.  Just like any investment, a stock, a bond, whatever…there’s a risk.  But, instead of these people dealing with their losses like they would in any other investment, they would now rather  leave someone else to deal with their losses.

That’s baloney.

Third, the short-sightedness is unbelievable in the logic that David uses. Why? Because banks aren’t the only ones that lose here.  Yes, you might be ‘sticking it to the bank, but let’s think for a minute of all the other people, real people that aren’t hiding behind corporations or skyscrapers, that get screwed every time someone walks away that could afford to keep paying:

  • Neighbors – Anybody around the vacant home now has to deal with an empty house that will, more often than not, turn into an eyesore as the lawn goes uncut, the snow doesn’t get shoveled, and gets open to all sorts of problems such as infestation, scavenging, broken pipes, or any other number of things that even a few months of neglect can bring on.  And usually these sit for more than just a few months.
  • Neighbors – Yes, I’ll mention the neighbors again because now what happens is that the bank will have to foreclose and this will usually lead to lower values in the neighborhood.  So, every one of your neighbors watches their own home value drop when you walk away.  You think the bank is the one eating your loss, but chances are your neighbors are even more.
  • The municipality you live in – I’m guessing that when you walk away, you’re going to stop paying the property taxes.  Since most municipalities rely on property tax collections to fund their operations, you’re leaving them with less for as long as the foreclosure process goes on.  That means less money to provide police and fire safety, less money to keep up infrastructure such as roads and other essential services in a time when many cities are barely scraping by as it is.
  • The kids in your school district – Where I come from, property taxes also fund the public school system.  You leave, and there’s less money to fund the schools.  At least here in Michigan, educational spending has already been cut a few times, largely in part because of declining property values AND less property taxes collected because of people who enter foreclosure.  To think that there are people contributing to this willingly is simply nauseating to me.

I wonder if anybody that walks away simply to screw the bank  looks in their rearview mirror as they’re driving away and sees all the rest that they’re leaving behind.  Because, there are a lot of other people affected by that selfish decision, not just the bank.

Let’s also mention the circular effect. As I mentioned, walking away typically leads to a foreclosure, which more often than not leads to a decline in the home value on the abandoned property and all the properties around this.  These declining values will then lower values so that someone else goes underwater.  Then, they walk away and that depresses the value even further, which leads to someone else walking away, and so on and so forth.

When does it end?  Are we supposed to become a nation of renters because if things kept going and going, that’s the end game.

I think I’ll pass on that one, thanks.

If we want this real estate mess to stop, there has to be personal responsibility.  There has to be sacrifice in order for this cycle to stop and for us to start the process of stabilizing the real estate market for good.  It amazes me when I see blog posts and news stories like David’s who either want to delay this process, or want to make it someone else’s problem.  In the end, that’s all it’s doing every time someone walks away is making it someone else’s problem.

Let me put a disclaimer or clarification on all this.  If there are circumstances where you can’t afford your house, say you lost your job or you have a medical expense, or something else that’s put your finances in the tank, none of what I said applies to you.  I understand there are thousands of people who had to walk away from their homes because they had no other choice.  I’m not chastising you in this article.  What my comments and my anger are centered around are those people who still have their jobs, who can still afford the payments, but choose to consider not making them simply because things didn’t work out like they planned.

One of my favorite bloggers is Funny About Money.  Funny lives in Arizona and until the end of 2009, she worked for Arizona State University, but found herself out of a job due to budget cuts, and is now effectively retired.  She now lives on her banked time and unemployment, and will soon be living on Social Security and a small-to-modest retirement account.  She will be scraping by.

She also has a house that is worth a lot less than she paid for it a few years ago.  Yet, she plans on staying there and in all the months that I’ve read her blog, she’s never once seriously considered walking away.  It would be the easy thing to do.  It would probably help her out.  But, she’s never considered it because she knows it would be the wrong thing to do.  I feel bad because she’s definitely feeling a big impact in her life as a result of the real estate declines.  But, I’m proud of her because she makes the right choice, even if it’s the difficult one.

If someone in her position can make the right decision, even though it puts her in a tough circumstance, why is it so hard for others to comprehend doing the right thing even if it means sacrificing?  People in generations past made a lot of sacrifices that, while they were tough, led to opportunity.  Now, people want the opportunity without the sacrifice, and there are way too many people encouraging this mentality.

So, please, can we stop already with the sympathy to those who choose to walk away from their mortgages even though they can afford them? OK?  It’s baloney!

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Loving Store Brand Yogurt

One of the bigger ways that more people have come around to over the past couple of years is purchasing store brand items instead of the national brand items.  In many cases, the store brand items are just as good as the national brand, and it’s also been shown that many times, they’re the exact same product just in different packaging.

One item that we purchase regularly are yogurt cups.  Both my wife and I eat at least one yogurt cup per day, so we tend to purchase quite a few.  Our local store, Meijer, usually carried three brands that we varied between:

  • Yoplait – Very good in taste and there were often coupons which made it a very good deal.
  • Dannon – Our least favorite taste so we would usually only buy this when the sales were too good to pass up.
  • Meijer (store) brand – Was pretty good price and they also gave you two extra ounces (8 oz total) versus the national brands.  The taste was OK, maybe a tad preferrable to Dannon but nowhere near Yoplait.

Then, a couple of weeks ago, everything changed.

My wife noted that Meijer had shrunk their containers to the same six ounce size as the national brands.  I immediately rolled my eyes thinking that they were effectively raising their prices by shrinking the packaging size.  Still, since they were basically matching the size of the national brand, I couldn’t begrudge them too much, and that I wouldn’t miss the extra couple of ounces anyways.

I figured that the purchase habits would be about the same, but then my wife got some and we both noticed that….

The taste had gotten better.  A lot better, in fact.

The Meijer brand containers now have yogurt that I think is tastier than even Yoplait.  I’ve let my wife know that unless Yoplait is on sale and can be purchased cheaper, to just get me the Meijer brand as often as possible.

It’s that good to me.

So, even though they did effectively raise the price by lowering their packaging size, they also seemed to have improved their flavor.  Was the trade off worth it?

Absolutely.

Anybody that has Meijer stores near them (I think it’s mainly Michigan and Illinois) and happens to like yogurt, I would highly recommend that you give their smaller sized but improved tasting yogurt a try!

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Net Worth Review: February 2010

Blah is about all you can say after a month like this.  Nothing really exciting happened, and because of the down market, the four month winning streak is over (and erasing the last two month’s gains on top of it)

Assets:

  •  Property – Zillow and CyberHomes is what I use to track this, with a modification based on ‘gut feel’.  For the first time since I started tracking our value this way, the two sites finally came to a pretty close number.  Overall it went up slightly for the month, which is about the only thing that went in the right direction, go figure!
  • Autos – Kelly Blue Book went down quite a bit for the second month on both of our vehicles.   The first one is a Pontiac, and I’m wondering if because they’re discontinuing the brand, it’s causing a more rapid decline in value than normal.  The second car, I have no idea. 
  • Investment Accounts – We saw a modest 6.75% loss for the month, which shows maybe the bears are back on Wall Street after taking a break.  BOOOOO!!!!!
  • Cash – Cash was pretty much the same as before.  In actuality, we went up by a little bit higher than expected, but I wrote off some cash in preparation for the planned purchase in the next couple of months of installing a second water meter to lower our water bill.
  • Retirement – Our retirement account went down 6%….ugh.   

Debt:

  • Property – We made our standard mortgage payment.
  • Student loans – Minimum payments here for the month as has been the usual lately.  We will be paying a little bit extra on these coming up.
  • Credit cards – We carry no credit card balances!
  • Auto – We’ve paid off both cars outright so we have no auto loans!

We actually had lower monthly outflows than normal by staying frugal and being a little tighter with our spending than normal.  Unfortunately, that gets lost when you have so much invested in the stock market and the market has an ugly month.  This was definitely a month I’d rather forget!

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Getting Our Tax Information Ready

I think this is the earliest I’ve gotten everything together.  We have an accountant that does our stuff, so it’s all packaged and ready to get dropped off.

This is the earliest I think I have it all ready.  I know this because every year when I finish things off, I create a little Word document that has miscellaneous information that doesn’t have documentation, and the ‘Save’ date was five days earlier than I’ve had in years past!

It was pretty easy to get everything together.  Here’s the process we used:

  • Get a file folder for tax stuff – As soon as the first piece of information came in the mail, I grabbed a file folder and started putting everything into that
  • Create a checklist of old stuff – There are certain things that happen every year that I know we need before we have all the information.  W-2’s, interest statements, investment statements, student loan statements, etc.  It’s pretty easy to gather a list of everything you had in years past especially if you peruse last year’s returns.
  • Create a checklist of new stuff – If you opened any new accounts or had anything life-changing, make sure this is accounted for.  We had to add Baby Beagle’s information to our recordkeeping, as well as information about our 529 plan that we opened for him, since we’ll get to write those contributions off against our state taxes.  I also reviewed our car transactions (selling a car, purchasing a new one) to make sure that there wouldn’t be any possible tax implications. 
  • Use online resources – More and more access is available online, including year-end tax statements.  In year’s past, some stuff would get sent out on January 31st, but I found that the statements were available online well in advance of that, so I was able to print out the couple of items that hadn’t yet arrived.
  • Estimate – I plugged in our numbers on a couple of the websites that let you estimate your return, so I have a general idea of what to expect for our refund this year.  It’s always helpful to know that.  Although I could probably do it myself, I find that I’m just more comfortable having a professional do it, just to make sure that everything is squared away.

Happy taxes!

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