We’ve all heard about people walking away from homes worth less than the mortgage, but until recently I did not know anyone in this situation. Then my girlfriend told me she and her partner were stopping mortgage payments. WHAT???
My friend paid $470,000 for her home in 2004. Now it it worth $300,000, according to Zillow. My girlfriend and her partner bought the home with two loans totaling 100 percent of the home’s purchase price. The intended to sell it before their main loan reset. When things got sticky no one would refinance because they lacked equity. The market crashed and, well, you know the rest.
In January they stopped paying their $3,100 mortgage. She feels guilty, but then her partner lost his job so she reasons they would not have been able to keep up with the payments anyway.
Her father, who stopped paying his mortgage in August, just received a letter from his bank saying they were willing to work with him. She hopes the same thing will happen to her.
“You can’t have a nation of people with s—y credit,” she said to me recently over coffee. “There’s got to be a forgiveness program.”
Maybe, I thought. But why in the heck did she buy the home, which she did not even really like, in the first place? She and her partner were making interest-only payments that added up to more than 30 percent of their monthly income. Come on, girlfriend!
“We believed in two years the market was going to be great,” she said. “We would sell the home, make a few thousand, and buy a home we really wanted.”
As an outsider, I can’t help but think she should have been smarter about buying the home in the first place. But then again, Hubby and I also bought a home just before the market peaked that stretched us financially. The main difference between my friend and me is that my mortgage was 30-year fixed and we sold the place before the bubble deflated.
I wished my friend had not made a decision that, in hindsight, was a bad one. If her bank will not modify her payment, she will have to file for bankruptcy.
On the other hand, if she negotiates a lower rate and can stay in her home, I will not feel like she has unfairly gotten ahead of folks like Hubby and I, who played our cards conservatively. My friend has a huge ordeal ahead of her (read: stress and paperwork) and if things work out well, she will still be living in a home she does not really like.