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Better Credit Rating = Higher Default

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September 19, 2009 – Comments (9)

Mish has linked a report that found people with prime credit rates are more likely to default on a negative equity home then subprime borrowers.

One the facts that I found interesting was that subprime borrowers keep making sparodic payments whereas the prime defaulters just stop making payments altogether.

That really makes sense to me.   People who have prime scores likely have better income and better life skills overall.  They have to have better skills for weighing out the pros and cons.  I suppose there was a time when moral responsibility would have affected my decision should I have found myself in such circumstances, however, the degree of unfairness and dropping other people's responsibility through government on tax payers and the total lack of fiscal responsibility and grand incompetence has changed my perspective that you need to look after yourself first. Being financially morally responsible in a highly financially corrupt environment is like trying to swim in deeper and deeper water when more and more rocks are being tied to your ankles.

I think people in some regions when they work out the numbers simply find that staying the course means being a debt slave and the best way to provide for their future is to start over.

9 Comments – Post Your Own

#1) On September 19, 2009 at 8:25 PM, bullnada (< 20) wrote:

 This blog is so true. +10

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#2) On September 19, 2009 at 9:27 PM, jason2713 (< 20) wrote:

I am one of these people...I hate to admit.

I am so underwater in my home, I am attempting to short sale my home, and finally got over the 90 days it needs to be on the market for me to file for deed in lieu.  That can take months, so I figured get it in asap, while keeping the home on the market.

If I get an offer, take that to the bank as an option, with deed in lieu as antoher option, but if all else fails, forclosure is happening.

I make decent living, and pay all my bills, never been late with a mortgage payment, but the DTI on my original loan was 65%..meaning my mortgage was approved with the payment being 65% of my net income.   That's predatory lending practices in my opinoin.

Even now that I make 20K more, its still 52% of my income.  I do not qualify for the home affordability because I'm 35% underwater.  Awesome!

So walk a day in my shoes right now with the stress of 100k+ underwater in my home, it'll take me 15yrs to BREAK EVEN, and the entire neighborhood is going to hell with foreclosures and high crime.   I dare anyone tell me I don't have a good case to walk away.

 

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#3) On September 19, 2009 at 10:50 PM, swank9 (< 20) wrote:

so where in california do you live? 

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#4) On September 20, 2009 at 7:20 AM, dbjella (< 20) wrote:

I make decent living, and pay all my bills, never been late with a mortgage payment, but the DTI on my original loan was 65%..meaning my mortgage was approved with the payment being 65% of my net income.   That's predatory lending practices in my opinoin.

I feel bad for your situation and I would be doing the same thing (short sale) that you are doing now, but please don't pin your situation on the lender.  What if the lender was your parents?  Please don't blame the lender for you taking the loan.  

A fool and his money are soon parted.

From one fool to another :)  

 

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#5) On September 20, 2009 at 9:38 AM, bullnada (< 20) wrote:

(what if the lender was your parents).

 

He would be sipping coctails on his 5 million dollar boat.

 

If the lenders didnt cry to the govt. for my tax $ Im sure alot more people would buckle down and not say f.u. to the lender. Lets see bail out the banks  and give my kids and I the tax bill for it.

Its a sad situation when the gov.,banks, are so shady. I dont blame people for doing what he is doing. The leaders are taking us down this path.

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#6) On September 20, 2009 at 11:21 AM, dwot (61.44) wrote:

The US has massive preditory lending practices.  I have a friend whose mother was bilked out of her life savings by preditors.  She was an old lady who had never managed the finances and when her husband died was left with plently to look after herself.  I don't know the details, but somehow she was scammed out of what she had and scammed to a level of unmanageable debt.  When she was dying of cancer the debt collectors were call almost around the clock, preditory lending practices and preditory collecting practices. 

Governments have no business granting favortism to one group over all others, yet that is what government has been doing for a very long time.

I am in a challenging age group for where I am from because I am at the start of where lifestyles have been declining and my older peers just a little ahead of me had it better then any group before them and perhaps any group to come.  Add to that that when I was in school my teachers constantly stated as fact that every generation has a better lifestyle then the previous generation.   So, just as accepting the value of your home has declined is difficult, so is accepting that wages are coming down. 

There is no question that there are jobs that pay less today then they did in the early 80s.  We have had destruction of unions and with that we have seen tons of jobs go from living wages to slave wages.  When I was evaluating whether to go to university or not I had a friend that had done a two year technology course and when she left her job in 78 she was making $36k per year after 10 years.  My mother's two bedroom condo bought in 75 was $32k.  This is what I knew.  So, in the 90s I was seeing companies that only wanted to pay $20-30k for people with university degrees and that same 2 bedroom condo cost about 10 times more.  Other costs had at least doubled and some tripled.  And my 10 year older then me peer, she left in 78 to start a family in the house that was already paid off by age 30.  It was a small, new house, but I'd estimate it is a half million dollar home in Vancouver's market today.

I don't think many of the people who bought homes in this bubble really had the experience or knowledge to understand and appreciate how different the market forces were and popular opinion around them was still that home ownership was a ticket to a better future.  I have been a strong nay sayer and have been fairly aggressive about giving unasked for advice to family members regarding the housing market.  No one listened to my advice despite the hours I put into sending fact and graphs and articles and data.  All are in trouble now.  One even said, as I bit my lip and drew blood, "who could have know...".

It is human nature to look at what has been happening and to continue with trying to follow the same path, but unfortunately, being a single correct voice in a mass of lemmings simply isn't enough until people have made their own mistakes and suffered the consequences of having to live with them.

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#7) On September 20, 2009 at 1:03 PM, uclayoda87 (29.34) wrote:

"who could have know...".

 Peter Schiff - Crash Proof - 2006.

He now has Crash Proof 2.0 - September 2009, which contains the old book plus 80 additional pages of updates.  In the book he mentions his plans to run for the Senate, so he knew back in April, not just a few days ago.  I suspect that he chose the September release date to help with his book sales.  If the market starts to correct in October, then he will likely have a best-seller on his hands.  Market timing, what a wonderful thing.

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#8) On September 20, 2009 at 1:54 PM, melayarbrough (< 20) wrote:

Not only do I agree with many of the previous posts but my husband & I are also "one of these people".  Accepting the fact that we need to short sale our home because it has decreased in value by $825,000 (!) was made easier when we were explained what the real penalty for a foreclosure or short sale is.  The average hit for a short sale is 160 points and near 200 points for foreclosure.  I have a 840 FICO, the resulted lower FICO of 680-640 is not ideal, but not that bad.  I always thought that there was a predetermined length of time that needed to pass before one could buy a house after foreclosure or SS, but thats not true.  What I was told is that the "ineligibility" is based on how long it takes for one to qualify for a decent rate.  Since that will be the only ding to my credit the recovery time; ie when rates make sense again, should only be 18 - 24 months.  To me, that is better than paying more market value.

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#9) On September 20, 2009 at 2:12 PM, jason2713 (< 20) wrote:

I make decent living, and pay all my bills, never been late with a mortgage payment, but the DTI on my original loan was 65%..meaning my mortgage was approved with the payment being 65% of my net income.   That's predatory lending practices in my opinoin.

I feel bad for your situation and I would be doing the same thing (short sale) that you are doing now, but please don't pin your situation on the lender.  What if the lender was your parents?  Please don't blame the lender for you taking the loan. 

I agree with you about taking the loan, but this being my first home and I'm pretty young, not knowing better than to allow myself take on a loan of this size, with 0 down (100% loan) I think it was my lack of experience with a home that lulled me into this mortgage. 

I hadn't even rented before, always lived at home with the parents, so my inexperience led me into trouble and the bank allowed it.  My loan being among the riskiest seeing that I was allowed to borrow so much with $0 down, I don't understand how it was approved at all.  Even my credit score at that point was low (around 600).  It's now a bit over 700 and I haven't missed a bill since 1999.

Anyways These are my options, for better or worse.  I dont feel like a victim per se', but a victim of circumstances I supposed would be more appropriate.  If my home wasn't so far underwater, I'd gut it out and work that 2 jobs I have taken on to pay my mortgage comfortably.  

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