Gyroscopic Investing

I have no debt and live responsibly. I may be purchasing a home in the next 2 years, though I am nervous about doing so because I believe that housing prices are approaching a peak.

Although I can pay for a home with cash, the idea of taking out a no- or low-money down mortgage interests me. The larger the mortgage the better. The way I see it, such a loan offers me a "heads I win, tails you lose" proposition. That is to say, if the value of the home continues to appreciate, I would pay my mortgage payments dilgently. But if the value of the home depreciates significantly, I would simply stop making mortgage payments, wait to be forclosed on, and then walk away. My credit score would collapse, but who cares. I don't need credit. As I said, I am debt free and I have plenty of money in the bank (and stocks, bonds, and gold).

Assuming a no- or low-money down mortgage exists, let us now consider the ethics of what I am proposing. Some would argue that it is dishonorable to walk away from a loan -- tantamount to breaking a promise. Those who hold this view perhaps view the bank as a friendly family-owned business that wants to make our communities better places, much like the Bailey Building and Loan Company in "It's a Wonderful Life." Others have a far less charitable view of banks and their contribution to society. According to the anti-bank viewpoint, banks are interested only in maximizing profits. They engage in risky investments and because they are "too big to fail" demand bailouts from the taxpayers when their investments turn sour. Thus the banks have their own "heads we win, tails you lose" investments. A number of large banks also have apparently begun banning customers whose political views they dislike -- views that by the way are perfectly legal.

https://nypost.com/2019/05/25/jpmorgan- ... activists/

"JPMorgan first landed in hot water soon after conservative activists Enrique Tarrio, Joe Biggs, Laura Loomer and Martina Markota discovered their accounts at Chase were closed within weeks of each other earlier this year — and without satisfactory explanations, they claim. Tarrio is a President Trump supporter and head of the Proud Boys organization. Several Chase managers could not give him a satisfactory reason for the account’s closure. One even called the closing “mind-boggling.”"

Some banks also refuse to do business with industries they find distasteful, such as gun manufacturers.
https://newspunch.com/chase-bank-service-conservative/

And at least one large bank reportedly handed over many innocent customers' transaction data to the FBI:
https://indeki.com/bank-of-america-scan ... -feds.html

Then there are the more prosaic bank scams, such as falsifying bank records and wrongly collecting millions of dollars in fees:
https://www.cnn.com/2020/02/21/business ... index.html

"Prosecutors slammed Wells Fargo for the "staggering size, scope and duration" of the unlawful conduct uncovered at one of America's largest and most powerful banks. As part of the deal, Wells Fargo admitted that between 2002 and 2016, it falsified bank records, harmed the credit ratings of customers, unlawfully misused their personal information and wrongfully collected millions of dollars in fees and interest."

According to the anti-bank view, walking away from a mortgage on an underwater property -- essentially transferring a capital loss from the borrower to the bank -- is not only morally acceptable but morally praiseworthy.

As you may have guessed, I fall into the anti-bank camp.

What are your views on this matter? And do no- or low-money down mortgages still exist?

So what happens if the Government moves the goal posts and the loans become full recourse?.......

Personally I wouldn't trust the Government to act in your interests

Tech was always an advocate of mortgage loans that are specifically no-recourse. I'm not sure whether your credit score still takes a hit if you walk away, but basically (in my understanding) it means the bank can't go after you for the money. It sounds to me like such a loan would resolve your moral dilemma.

Xan wrote: ↑Fri Feb 05, 2021 9:39 am Tech was always an advocate of mortgage loans that are specifically no-recourse. I'm not sure whether your credit score still takes a hit if you walk away, but basically (in my understanding) it means the bank can't go after you for the money. It sounds to me like such a loan would resolve your moral dilemma.

If I remember my mortgage banker training, there are states that are non-recourse states, and states that are not.

Here:

Home mortgages—though generally recourse—are non-recourse in 12 states: Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington. If a homeowner defaults in one of these states, the lender can foreclose on the collateralized home but cannot go after the borrower’s other assets. link

As a practical matter for Stinky, if you bought a house you wanted to live in for a price you found reasonable, why wouldn't you just keep paying your mortgage in order to live there? And forget about the market value?

Or was your idea to hop from one short-term living arraingment to another, and socialize the losses that you incur?

Also, you may be aware that Trump's Office of the Comptroller of the Currency put in a last minute rule that would punish banks for refusing to service a client based on anything but financial reasons. It remains to be seen if it will last.

When the value of the home I bought in 2006 was cut in less than half by 2008 I gave some thought to the ethics of this question because I knew some people who were strategically walking away from their mortgages on the advice of lawyers and not just their mortgages. Florida is not a non-recourse state so the strategy was to declare bankruptcy and not pay any bills while dragging proceedings out as long as possible while you saved the money from not paying your bills in preparation for your new beginning. The people I knew did this for about a year.

I would have never done this because it seemed unethical to me but if it was just the mortgage we were talking about and I lived in a non-recourse state I might very well have considered it after seeing how banks who made risky loans got bailed out by the government leaving the homeowners high and dry to keep making the payments.

P.S. - My mortgage was NOT low-money down. It was 20% so I would have taken a loss of my own by walking away.

Kriegsspiel wrote: ↑Fri Feb 05, 2021 9:49 am
As a practical matter for Stinky, if you bought a house you wanted to live in for a price you found reasonable, why wouldn't you just keep paying your mortgage in order to live there? And forget about the market value?

Or was your idea to hop from one short-term living arraingment to another, and socialize the losses that you incur?

Yes, my idea is to drag out foreclosure proceedings for as long as possible (living rent-free in the meantime), then switch from one house to another (maybe buy the house next door) and stick the bank with the loss on the initial home. Because screw the banks!

StinkyToes wrote: ↑Sat Feb 06, 2021 9:28 pm

Kriegsspiel wrote: ↑Fri Feb 05, 2021 9:49 am
As a practical matter for Stinky, if you bought a house you wanted to live in for a price you found reasonable, why wouldn't you just keep paying your mortgage in order to live there? And forget about the market value?

Or was your idea to hop from one short-term living arraingment to another, and socialize the losses that you incur?

Yes, my idea is to drag out foreclosure proceedings for as long as possible (living rent-free in the meantime), then switch from one house to another (maybe buy the house next door) and stick the bank with the loss on the initial home. Because screw the banks!

Okay, now it screams deadbeat to me.

StinkyToes wrote: ↑Sat Feb 06, 2021 9:28 pm Yes, my idea is to drag out foreclosure proceedings for as long as possible (living rent-free in the meantime), then switch from one house to another (maybe buy the house next door) and stick the bank with the loss on the initial home. Because screw the banks!

A few initial reactions:

1) If you truly distrust the banks and hate how they treat their customers, I see that as an argument for buying a house in cash. Not getting a mortgage and handing over all of your personal information to a bank in the process.

2) Do you really think you're hurting the banks more than you hurt yourself when they get to keep the house as collateral?

3) In theory you could pull this off once, but I can't imagine you'll ever be able to get another mortgage. And frankly most landlords will avoid you like the plague as well. Would you ever rent to someone who not only skipped out on payment but also explained how righteous they are for doing so?

4) I get your point about how the laws might be stacked in your favor in the case of a house dropping in value. But declaring your desire ahead of time to intentionally screw over a bank could be pushing the limits of those legal protections.

5) Making personal financial decisions driven primarily by malice for an outside entity probably isn't the most constructive mindset for a happy life. You deserve better than that.

Tyler wrote: ↑Sun Feb 07, 2021 12:47 pm 2) Do you really think you're hurting the banks more than you hurt yourself when they get to keep the house as collateral?

It's a bit of a catch-22. The banks that Stinky probably wants to hurt are the ones who would be able to extract a bailout.

3) In theory you could pull this off once, but I can't imagine you'll ever be able to get another mortgage. And frankly most landlords will avoid you like the plague as well. Would you ever rent to someone who not only skipped out on payment but also explained how righteous they are for doing so?

That, or, if you can do this over and over again it's because the lenders are passing on the negative effects after taking any value they can.

5) Making personal financial decisions driven primarily by malice for an outside entity probably isn't the most constructive mindset for a happy life. You deserve better than that.

Yes, exactly! Find a house that you want to buy, for price you think is fair, and buy it. Live honorably, don't be a leach.