Thursday, February 11, 2010

Accounting Dude's Thoughts on Forclosures

The housing market had 300,000 foreclosures in January and more keep coming every month. Some foreclosures are due to unforeseen problems, but many are due to irresponsible and immature people.

On our street there are three houses that have been or are in the process of being foreclosed. I keep hearing about people being under water and simply quit paying of their mortgage. This is so short sighted; people give up their homes and relocate their children simply because they owe more on their homes than they are worth. Think about a new car, it is under water as soon as it rolls of the lot. The value of real estate will eventually come back unless of course the property has been defaulted in that case everything that was put into it would be lost.

This problem is threefold:

1.Individuals sought loans with such high monthly mortgage payments that they simply could not sustain paying the rate over a long period of time.

2.Banks issued loans to individuals they certainly should have known could not ever repay the mortgages. The banks then sliced up the bad mortgages and packaged them with good mortgages, insurance instruments, and other assets and poisoned the entire financial market.

3.The government encouraged issuing mortgages to low income individuals, many of whom were not capable of paying off the mortgages.

I feel like if you sign a contract you should do your level best to honor it. One of our neighbors simply quit paying their mortgage and left town, they even left the leased vehicle in the yard. I think one of the biggest problems in our society today is everyone is looking to blame someone for their problems and are also looking for someone to bail them out. Personal responsibility and self reliance are both lost on entirely too many people. Stay responsible, stay honest and stay frugal.

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