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Posted by Mark Bole on June 12, 2008, 12:15 pm
I read an interesting article from the WSJ about homeowners who are
under water on their mortgage. While their payments are still current
and their credit record unblemished, they get a decent mortgage on a new
house, at today's much more reasonable prices, and *then* bail on the
old house (short sale, foreclosure, whatever).
Lenders are trying to block this by requiring evidence that mortgage and
tax payments can be made on both properties before granting the loan, so
if you were legitimately trying to turn you old house into a rental, I
suppose you would have to have a signed lease agreement in place before
moving out -- not very practical.
I wonder when we are going to see a similar strategy from owners of
late-model SUV's and other gas-guzzler vehicles. Buy an economical car
first, then walk away from the old one.
-Mark Bole
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Posted by Elle on June 12, 2008, 12:48 pm
Sometimes the free market is darned entertaining. Home
lenders let visions of wealth overwhelm the reality that
sizable downpayments tend to keep people from walking out on
mortgages. Now they get their comeuppance. Ha ha, re car
financiers! With their typically ridiculous interest rates,
they too may get their comeuppance. Though I am thinking
that car loans have "preventive measures" in them to ensure
payment or at least getting every cent possible out of the
borrower, including going after assets.
OTOH, this all tends to promotes chaos, and that's not good
for the economy as a whole. Hurting these businesses hurts
many a stock portfolio.
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Posted by Ron Peterson on June 12, 2008, 11:55 pm
> I wonder when we are going to see a similar strategy from owners of
> late-model SUV's and other gas-guzzler vehicles. Buy an economical car
> first, then walk away from the old one.
Walking away doesn't discharge your debt.
--
Ron
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Posted by Mark Bole on June 13, 2008, 11:30 am
Ron Peterson wrote:
>
>> I wonder when we are going to see a similar strategy from owners of
>> late-model SUV's and other gas-guzzler vehicles. Buy an economical car
>> first, then walk away from the old one.
>
> Walking away doesn't discharge your debt.
True, unless it's a non-recourse loan, or maybe a lease (I'm not
familiar with the terms of most car loans). Also, depending on the
amount, the lender may find it cheaper to write off the bad debt instead
of leaving it on the books, this happens often enough.
The real point was, since the borrower knows ahead of time they are
about to trash their credit record, they can take advantage of that
knowledge.
-Mark Bole
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Posted by Don on June 13, 2008, 4:23 pm
>> Walking away doesn't discharge your debt.
>
> True, unless it's a non-recourse loan, or maybe a lease (I'm not
> familiar with the terms of most car loans). Also, depending on the
> amount, the lender may find it cheaper to write off the bad debt
> instead of leaving it on the books, this happens often enough.
>
> The real point was, since the borrower knows ahead of time they are
> about to trash their credit record, they can take advantage of that
> knowledge.
Corporations and other businesses do stunts like this all the time.
Somehow when an individual person takes advantage of loopholes in the
law or the tax code or whatever, it is viewed as a terrible, unethical,
immoral thing, but when a big company does it it is O.K., just business.
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