Trying to Figure out What to do with our Mortgage

[mountainsun]

I am seeing that it is true what so many people have told us - the banks will not work with you until you have stopped paying them.

In April, my husband's (who is in sales) salary was cut by almost 40%. We decided it was time to try and get our mortgage modified. This pay cut put us in the red in our very slim budget.

While doing the paperwork for the modification, I also started working part-time.

Well, we have been getting the run-around from the bank since then and last night was the tipping point. After stringing us along about the application "being reviewed, please call back in a week," she said they will not be reviewing our application and that we can re-apply if we would like.

We did receive a letter about a month ago stating that we did not qualify for one program because we have too much in savings.

We have approx 7K in savings - about 4K in our checking. Our house is upside down about 100K. The sad thing is, we really didn't overspend, we have a small, older house - we live in an area where the house values have PLUMMETED. So it is insane right now.

We really want to keep our house - and have been trying to work with our bank, but to no avail.

Dh wants to take our money out of savings and hold it in cash. Then re-apply for the modification. Then if they still do not work with us, he would like to stop paying the mortgage Honestly, this terrifies me. But at this point, I am at a loss. With our house being worth so little, it seems like it is the only option.

Any been there/ done that - any advice? I could really use something. thanks for reading....

[Caneel]

NPR has a great site with podcasts called Planet Money. Recently, there was a podcast with an attorney talking about people who intentionally stop paying their mortgages.

It was very interesting. She said banks, in general, do not want to take possession of houses and are not only delaying true foreclosure for 12-18 months (meaning one could feasibly live in their home rent/mortgage free during that time) but are also offering people cash to remain in the house so the house doesn't sit vacant.

In case my link doesn't work, the podcast was on Jan 29, 2010 - http://www.npr.org/blogs/money/2010/...y_or_stay.html

The attorney discusses the emotional vs. economic issues surrounding the decision to stop paying one's mortgage.

[mountainsun]

Thanks for the link I remember hearing part of that story on NPR when it was on, I am going to check it out.

This is the thing that is killing me, though. I guess we are naive - we have been trying to do the "right" thing by paying the mortgage even though it has been hard - we talked several months back about stopping paying it (after my dh's first paycut) but decided we would trudge on through. So many people told us to not pay, including both of my brothers who work in the financial sector. But we just decided we wanted to be responsible, that it was our debt, etc. And now, it seems the only people getting help are people who stop paying, I know some people HAVE to stop, as they have no other choice, but I think there is a good amount that stop paying, even when they can still pay on their mortgages.

Frustrated.

[Turquesa]

Where do you bank? You don't have to be specific, but is it with one of the Big Goliath banks? If so, before you do anything that desperate, I strongly suggest that you move your money to a smaller community bank or (better yet) a credit union. Then try again for a loan. Good luck. How scary for you.

[VisionaryMom]

Okay...are you talking about stopping paying as in get 30-60 days behind and see if the bank will offer a modification? Or do you mean stop paying and go into foreclosure? On the former, yes it sometimes does seem like the only way to go. A few years ago, I was in way over my head with credit cards, and I had to do that with a couple. Once I was behind, they dropped the interest rate, and I could afford the payments. Many financial gurus, esp. Dave Ramsey, talk about speaking with creditors before things get bad, but they really aren't set up to help you unless you're a "problem" case for them.

With the latter, I personally think it's highly unethical and would not stop paying my mortgage just because I was mad at the housing values, job prospects, etc. You have $7,000 in savings. How long will that last to help cover your mortgage? I personally know of people who've gone into foreclosure by choice, and I just find it a dishonest decision. If you're choosing between feeding your kids and paying your mortgage, feed your kids, but if you just are caught in the economic downturn, then there are myriad options out there that don't involve walking away from an obligation you made.

[mountainsun]

Okay...are you talking about stopping paying as in get 30-60 days behind and see if the bank will offer a modification? Or do you mean stop paying and go into foreclosure?

Yes, we are desperately trying to get a modification. We really believe that because we are current on our payments, they are not working with us.

The reason that we want to move our savings out of the bank is because we also feel that this is hurting our chance for a modification. The 7K is our emergency fund - we have a high deductible health insurance plan, and we really do not want to drain that unless it becomes absolutely necessary.

I agree with ya about the ethical dilemma - that is why we have stayed current on the mortgage and in no way are trying to get out of our obligation - feeling like we are between a rock and a hard place. ugh.

Turquesa - thanks for the bank links.

thanks for the thoughts, ladies

[bstandlee]

We stopped paying our mortgage 8 months ago. It was a very hard decision but the financial system is very messed up and to be responsible and ethical to our commitment meant financial suicide. By stopping payments and playing the game the bank's way they immediately started talking with us. We found it to be 100% true that they won't even talk to you unless you are 2-3 months behind on your payments. It is a very tough decision, and I don't think anyone who has not genuinely had to consider doing this should offer any advice.

In your case, I would think about how long you are planning to stay in the house. Longer than 10 years? Less than 5 years? Think about how long it will take for your house to regain it's value vs. how long it would take for your credit to get back to normal if (worse case scenario) you ended up having to foreclose (about 10 years).

Also, (again, worse case scenario) what are your options if the bank ends up kicking you out after 12-18 months...are there decent places to rent where you live? Do you have family members that could help you with a place to live?

I know you're hoping for a loan modification, but I wouldn't put all your eggs in that basket...as you've already seen, the banks don't seem to want to work with people. And once you stop payments (even 1 month behind) your credit is shot for approximately 3 years.

I feel like this has been a gloom and doom response! I didn't mean it that way. But we ultimately found that with a system as messed up as the mortgage system is changed the rules for what we considered ethical. What about the ethical responsibility to provide for your family? Are you willing to sacrifice that just to fulfill your "ethical" responsibility towards a lending institution? Food for thought

[sweetjasmine]

Originally Posted by VisionaryMom

<snip>
With the latter, I personally think it's highly unethical and would not stop paying my mortgage just because I was mad at the housing values, job prospects, etc.

Originally Posted by mountainsun

<snip>
I agree with ya about the ethical dilemma - that is why we have stayed current on the mortgage and in no way are trying to get out of our obligation - feeling like we are between a rock and a hard place. ugh.

Here's a snippet from the link following, bolding mine:

White said his primary aim is to give borrowers a rational alternative to the rhetoric of guilt and shame coming from financial leaders and politicians, which labels a practice that is perfectly acceptable in the business world as immoral and irresponsible if tried at home.

His discussion paper, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis," points out that lenders and other businesses are not saddled with the same moral constraints that would prevent most individuals from defaulting by choice.

"It's a double standard that says corporations can look out for their best interests, but individuals can't," White said in an interview Thursday.


Read more: http://www.azcentral.com/arizonarepu...#ixzz0s5WgwWsG

This article isn't necessarily recommending walking away as a first choice and presents competing positions but it's just food for thought. There have been at least two highly publicized cases involving large companies handing over property to the banks because they couldn't keep up with them anymore, one in California, one in NY. No moral dilemma involved. They couldn't fulfill their end of the contract so they turned the keys over. Happens in commercial industry all the time and they're not morally stigmatized.

[mountainsun]

Originally Posted by bstandlee

I feel like this has been a gloom and doom response! I didn't mean it that way. But we ultimately found that with a system as messed up as the mortgage system is changed the rules for what we considered ethical. What about the ethical responsibility to provide for your family? Are you willing to sacrifice that just to fulfill your "ethical" responsibility towards a lending institution? Food for thought

No, thank you for your honesty and sharing your situation The "system' is messed up. I am glad that it ended up working for you. Although we do not want to lose our house, I suppose if we stop paying the mortgage, we have to get to a place where we are OK if we do. I guess everything happens for a reason. Luckily, there is a HUGE backlog of rental houses where we live, as well. It's nuts. We have noticed in our neighborhood, so many houses that were previously for sale are currently for rent. But still empty.

sweetjasmine - thank you so much for the food for thought. You just provided me with an almost paradigm shift, lol. I will check out the link and pass it on to hubby, as well.

Again, thanks for your htoughts, I truly appreciate them