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I am one of the millions of Americans whose house is now worth less than the amount of my mortgage. My condominium continues to decline in value each month, at least according to Zillow. There are plenty of units in the development for sale and not many closings, so it is hard to get a true value, but I am sure that I am about $15,000 underwater. I made a hefty down payment when I bought my home, otherwise I would be drowning in even deeper water. People now ask why I do not cut my loss, default on the mortgage and rent somewhere.
My monthly mortgage payment, real estate taxes and condominium fees total maybe $200 more than what I would pay in rent. There would not be a huge savings, on a monthly basis, if I did walk away and rent. Furthermore, my credit score is around 800 would take a major blow for seven years if I were to walk away, and that is something that I would not like to see happen. I have worked hard to maintain those high scores.
My personal finances are OK. My income has been somewhat stagnant but I manage my expenses. I am grounded in a reality that excludes extravagances and that is fine by me.
However, there is something more fundamental keeping me from walking away: I promised to repay the loan. Pure and simple. I know that there are remedies in the documentation that state if a borrower does not pay then the lender seizes the property, but that may not absolve me, or anyone else, of the debt.
I spent over a third of my life as a professional trader. In that realm, your word was sacred. No one really looked at the fine print looking for a way out of a bad trade. You dealt with the consequences. That has guided me in my personal life. I have made some bad investments, sold them and moved on. When I bought the condominium, I knew that it was not liquid like a stock or bond, and I knew that real estate values might decline. I just did not think that they could decline this much.
I chuckle when people state that their financial planner tells them that it is acceptable behavior to walk away. They do a future value of the differential that you may save by defaulting and then renting at a lower monthly rate advise you that you will have saved "x" amount of money. What they have not factored in is the higher cost of credit that you may incur, if granted for an extended period plus the fact that your word means nothing.
To set the record straight, we are speaking here of strategic defaults which are by definition, people defaulting on a debt solely because the collateral is worth less than the mortgage. We are not referring to the hard working people who for whatever reasons are unable to pay their mortgage.
My heart goes out to people in that situation and I believe that each segment of our society can share some of the responsibility for the economic cesspool that was created. Personally, as long as I can work, I expect to honor all my commitments, even if some of them may be unprofitable.
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