Another reason why foreclosures will rise in America

Well... not ALL parts of America... but certainly in states like Arizona and California.

"Some states have laws that may specifically prohibit lenders from pursuing borrowers for the balance of many mortgage loans after foreclosure, though the particulars vary. Arizona and California are among these states, according to Steven Bender, a professor at the University of Oregon School of Law. It’s best to talk to a lawyer to determine your state’s rules."

In other words, for those who bought a house and do not live in it, who are underwater, they can go through foreclosure and are DEBT FREE at the end of it. The only damage they take will be mental and also a hit to their credit rating. But overall, this will EASILY be their best choice from a financial standpoint.

And even the credit rating might not be strongly affected:

http://www.nytimes.com/2009/03/14/your-money/mortgages/14money.html?_r=1

Turns out FICO has decided to discount the affect of foreclosures in 2008 and 2009 in their credit ratings... the logic is fair enough, in short: it's not that these guys are deadbeats, it was the bubble bursting that did it.

Some lenders aren’t waiting that long to initiate their own foreclosure destigmatization programs. The Golden 1, one of the nation’s largest credit unions, now has a mortgage repair loan for people who have lost a home to foreclosure but want to buy a new one.

That's massive. In other words, you can put your home into foreclosure, which you bought for $500,000 and is currently worth $300,000 market price, which you are paying say $3000 a month on mortage. You make no further loss on this, and immediately turn around get a mortage and buy a house JUST LIKE THE ONE YOU JUST FORECLOSED for $300,000. If you're really sneaky, you might even be able to buy back your newly foreclosed house, thus moving back into your own home! and... wow, your new mortage payments have dropped to $2000 a month, since your total mortage just dropped from $500,000 to $300,000.

In other words, the bank just ate almost the entire fall in value of your home (you still lose any payments you made to date). And in fact, this means that EVEN IF YOU WERE NOT IN TROUBLE IN THE FIRST PLACE, aka even if you didn't lose your job, even if you CAN STILL AFFORD TO MAKE PAYMENTS.... it is financially the best choice to foreclose your house.

In affect, If you bought a house at the top of the market in California, and you paid $500,000.... and it has now dropped in value to $300,000... you should REJOICE and CELEBRATE.

No, I'm serious.

In effect, this current situation means that those fellas who bought when the market was too high can in affect basically wipe their slate clean, and just buy a similiar house for the much cheaper current prices.

...

Now I'm thinking of Malaysia and Bukit Antarabangsa. Ha. In comparison, in Malaysia, those who lost their homes in the landslide were informed that they "would be given 3 months grace from housing instalments" by the banks.

If they were under california laws, they could just foreclose, and the banks would have to eat the ENTIRE LOSS, since after foreclosure in California and Arizona, the banks can't chase after you for any balance after foreclosure.

Under Malaysian law though, I think those poor fellas are having to still pay for a RM1 million housing loan despite the fact that the house is now non-existant aka worth ZERO.

Comments, please.