Stop Paying Mortgage Payments!
If you haven't already listened to it, do listen to the LRC podcast where Lew Rockwell interviews Peter Schiff. As usual with Peter Schiff, he provides a lot of valuable insight, but what I actually found most interesting is how he reveals that with the bailout package, it is economically rational to stop paying off your mortgage. Because if you do, your lender will sell the mortgage to the government who under the package must do everything they can to prevent foreclosure, which will mean that they will have to offer you a sweeter deal. So when Rockwell asked Schiff what an ordinary person can do to save themselves in the ongoing economic meltdown Schiff replied that the most obvious and best thing to do is stop paying your mortgage. I spontaneously laughed when I heard that as I figured he was only ridiculing the irrationality of the bailout plan. But maybe Schiff is right, maybe it would be rational (at least for some people) to stop paying your mortgage with this bailout plan. Can anyone find any reason why Schiff is wrong on that?
posted by stefankarlsson at 11:13 AM
7 Comments:
... but it would be unethical for the individual mortgage holder to do so : breach of contract.
besides, i am sure there would be other bad consequences for the person(s) involved such as diminished credit rating.
Cheers...
Ho gives a crap about credit rating when there is no credit to be had?
The one problem I see is that the government will be buying securities, not individual mortgages. If your individual mortgage delinquency doesn't push the security into a status (or if it wasn't already there) you face real eviction.
"...when there is no credit to be had?"
that's precisely the time when a good credit rating is most important.
Following anonymous above: if you have a 'non-subprime' mortgage, is it bundled with the securities that will be eligible for government purchase?
I actually find myself considering getting behind on payments on purpose. The qualifications as I understand them include a >90 day delinquency and a <90% equity.
The drop in appraised prices takes care of the equity. The $800 stipend to mortgage companies will motivate low appraisals as surely as bundled sales motivated high ones.
My income has been halved since I financed my home. I knew this was coming; I'm in school and switched jobs to gain experience in my profession. The payment is still affordable, but just barely. Currently stands at ~50% of my income. Upon graduation as an RN it should drop relative to my income to ~15%. I planned on a few lean months but now seem to have a perverse opportunity.
A payment set to 38% of my current income would drop by a quarter. Upon graduation and subsequent employment, I could pay down principle that much faster. I'm not worried about the bruising my credit score would take as, aside from the mortgage, I don't use credit. My vehicles have always been paid for in cash. Less vehicle but no payment.
Should I go against my principles and take the pragmatic route? I think that a lot of folks might be running the same math. Only fly in the ointment is the reset of mortgage rates to "fair market value" in five years. Isn't this just another ARM? It's hard to predict where rates will be in five years but isn't it possible that today's 3% refinances could adjust up to 10% and beyond? Many ARMs reset in 2010-12. What then?
Maybe I'll just keep paying steadily on the 30y/7% that I have...
Thoughts?
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