Cheat Sheet Q & A:
Today’s topic: Walking away from a mortgage when you can afford to pay
Brian, just a follow up to your (recent) discussion on foreclosures. I had a person I used to work with who walked away from their house when they could afford to make the payments. They were current on the mortgage but since they bought at the absolute top of the market, they felt they were getting screwed when the economy took a dive. I reminded them that they signed the papers and were legally obliged to continue their agreement. Well they say they tried to work with the bank and no go so they just left. (House was later short sailed for half of the original purchase price.) Now they rent and still are in the area. You can't convince them that we ALL are paying for this!
Bottom Line: I understand the frustration of some who suffered through the housing crisis making payments on homes that were seriously underwater while watching some find a way out and
seemingly finding a way to game the system. Here’s the thing… I don’t think it’s so cut and dry and I don’t necessarily begrudge people who made the calculated decision to away provide they were honest in the process.
For people who did choose to walk away from their homes we’re talking about two different considerations. One is moral and the other is business. Here’s where I’d draw the line.
If your former co-worker lied and deliberately misled the lender and/or other related parties to try to exact the outcome they desired. I’d agree with you that they did the wrong thing. Integrity is really all any of us have. If one lacks integrity and deceives for personal gain I’d be upset as well. However… If they were honest and it came down to a business decision then perhaps you should take a second look.
A mortgage loan is a contractual agreement. But it’s a business agreement, not a moral one inherently. Yes market conditions determine part of the process but clearly your history and viability are being estimated and you’re being underwritten based on how much risk the company view you as being. Your final interest rate, money required to be put down, whether you must purchase mortgage insurance are all affected in part by your risk assessment by the lender. So you’re paying for your relative risk to the lender. The lender also clearly builds in serious consequences should the contract be breached.
Obviously the consequences of breaching a mortgage agreement are severe. The home is the collateral to be redeem if the obligation isn’t met. Any money put down on the house is lost. Any principal paid in monthly payments is lost. Being forced to move is a serious life event. There is significant credit impairment that can make other expenses cost more (like rental costs, insurance products and future loans if they are issued). Many employers even check credit as a term of employment, so future employment opportunities can even be limited as a result of breaking the contract.
In summation there is no free lunch either way. The lender didn’t originate the loan out of a place of moral righteousness. It was all business. Provided that an individual is honest and acts with integrity making a calculated business decision doesn’t in my view make them an immoral person. It makes them as calculated as the lender was in issuing the loan.
Hopefully that helps you in your consideration.
If you have a question or topic you’d like me to address email me: firstname.lastname@example.org
Florida’s Job growth continues to outpace the rest of the country:
Bottom Line: Here are the results of the ADP private sector jobs report for Florida in February:
- By Sector *
· Goods-producing 1,580
· Service-providing 9,260
· By Select Industries
· Natural Resources/Mining and Construction 560
· Manufacturing 1,030
· Professional and Business Services 2,330
· Trade, Transportation and Utilities 3,530
We grew 10,840 private sector jobs in Florida. The total nationally was 139,000. So to put it another way…
- Florida accounted for 7.8% of all private sector job growth while we have just 6.1% of the population.
It's not just food. If you're planning on home projects get them done ASAP:
Bottom Line: Food inflation has been a huge issue in the early part of 2014. If food prices continued to rise at the pace of the first ten weeks of year, food prices would be 57% more expensive at the end of 2014 vs. the start of the year. It’s not just food though.
The CEO of Mohawk Industries made this statement to CNBC yesterday:
- “it’s difficult to raise prices fast enough"... That caught my attention. Mohawk is one of the leading companies producing materials used in home improvements and construction. The CEO said that raw material costs have risen so fast thus far in 2014, that they are having problems with pricing at a profitable level for future orders. For example lumber is 2.5% more expensive than two months ago. Basic composite material costs are 7%+ higher. This means higher prices are coming at the retail level for us. So… If you have home improvement projects you were planning for future months, you’ll likely be better served by doing them sooner than later. It’s possible that costs could increase by 5-10% on home improvement projects based on this info.
Do some of your full time employees work more than 40 hours per week without overtime? Standby...:
Bottom Line: Most likely at some point today the President will sign an executive order than could have enormous consequences for employers who have employees that work more than 40 hours per week without earning overtime compensation. It’s unclear what the exact language will be and just as importantly how the Labor Department will read and enforce it, but it’s clear that some classes of employees who currently are classified as exempt will no longer be. The classifications that are most likely to be impacted will be:
- Executive titles
- Administrative titles
- Professional titles
It appears as those who manage three or more employees will still be exempt but again we’ll have to see how this plays out. More to come…
How to get the best price on airfare:
Bottom Line: Cheapairfare.com has studied millions of airfare rates over the past year and has determined the following:
- You will obtain the cheapest airfare on average if you book 54 days in advance
- The best day to book on is still Tuesday
- For last minute deals Priceline.com is the best option for the cheapest fare