Charles Mills can barely afford to stay here. But he also can't afford to move.I have an ex-girlfriend in the same position. Last I talked to her, I think she was underwater on a house to the tune of $150,000. (Hey, don't blame me. I warned her.) She won't walk away from the property because just like the Las Vegas homeowners, she doesn't want her credit ruined.
That's why the 44-year-old heavy-equipment operator was preparing to leave his wife and young daughter here and go where he could find work — the Oklahoma oil fields. Mills has a mortgage to pay, even if its size pains him.
He purchased his house in 2006 for $308,500. Current value: $105,797.
"We talked about it: What can we do with the house?" Mills said. "Nobody's going to buy it. Nobody's going to rent it. If we walk away, my credit's shot. We're stuck."
In some parts of North Las Vegas, more than 80% of homeowners have plunged "underwater," meaning they owe more on their mortgages than their properties are worth — a stunning concentration of aborted plans and upended lives.
These are the people that do everything right. They don't lie, cheat or steal. They aren't Austrian economists, so they don't understand the business cycle. When house prices were going up, the conservative thing, in their eyes, was to buy a house, since houses "always go up in value." They didn't understand it was a Federal Reserve manipulated scam.
And now, when the mantra, "houses always go up in value", sounds like a bad scratchy record, played on an old Victrola, they are stuck because they don't want their credit ruined. They won't just walk away from an obligation they took on.
Thanks to the Federal Reserve and their mad manipulations of the money supply, it is very difficult to make long-term plans the way conservative people would like to do. They are the ones that get screwed.
Instead of long-term conservative planners ruling the roost, it is the Age of the Hustlers.
An acquaintance of mine, a lawyer, with some friends, doctors and such, put together some money during the boom and bought huge vacation properties on the coastline of South Carolina. The properties are mostly intended as investment properties that are rented out by the week. After the real estate market crashed, this lawyer, though all the investors in his group had plenty of cash, decided it was time to spin the banksters for a major reduction in the mortgage payment. So he called a meeting of the partners and advised them that they should stop making the mortgage payments. Some raised concerns about damage to their credit ratings but the lawyer explained how he would handle the negotiations and why it wouldn't damage their credit ratings and so the group stopped paying the mortgage. After some months of this, the bank finally agreed to a major reduction in the mortgage payment. The hustlers won. They pulled a mini-Goldman Sachs play, of a sort, and came out on top.
The world is becoming much more of this hustlers game. The conservative folk, who survive by playing it straight, see rules change and bend before their eyes. They are the ones that get stuck. It is almost impossible to make sound long-term plans when Fed Chairman Bernanke plays the long-term like a fiddle, sometimes hitting high notes by lowering interest rates and at other times low notes by raising interest rates.
But, there is one investment that is currently real tough for the Fed to manipulate, the good old nickel. The nickel has roughly 6.3 cents of metal, if it were to be melted down (25% nickel and 75% copper). If Bernanke continues to print dollars like a Zimbabwe's Robert Mugabe once did, the value of the nickel will keep pace with the inflation and possibly even exceed it. At some point, if the value of the metal climbs high enough the nickel will disappear from general circulation just like the old silver dimes and quarters have. The old 1946-1964 Roosevelt dime now has $2.77 worth of silver metal value, the 1932-1964 Washington quarter has $6.99 worth of silver value in it. Kitco offers a $100 bag of silver coins for $ 2,800.
Admittedly, because of the bulkiness of handling nickels you will need a strong back to accumulate a sizable investment, but it can be done. One investor is known to have purchased a million dollars worth of nickels.
When gold was trading around $250 an ounce, gold was my top investment recommendation, because I felt there was little downside. It's different at $1,500 an ounce. I still think it is a great investment, but there can from time-to-time be short-term downside, especially if Bernanke slams on the money printing brakes short-term, at some point. However, it is hard to find a better investment than nickles. Literally, if we somehow end up in a period of price deflation instead of inflation, your nickels will still be worth 5 cents, and, if there is deflation, your buying power will have increased. No downside! Go out and spend them at any time.
The one thing that those, who do everything right, do wrong is put their faith in government and all government's mad schemes. The right thing to do is bet that those schemes will go very wrong. Gold and silver are ways to make such a bet, but also nickels. And not because government says the nickel is worth five cents, but because the government is screwing this up already, with the value of the metal at six cents,and someday, likely a lot more, just like the old silver dimes and quarters.
The homeowner in Vegas and your ex-girlfriend need to ask themselves how much they feel their credit score is worth. Would they pay $150,000 or more for a good credit score? That's essentially what they're doing by sticking with their underwater mortgages. And why? So they can borrow more money?
ReplyDeleteI get that they don't want to welch on their debts. It's not easy for someone who has poured themselves into hard work and "doing things right" to walk away. But at some point, it's a business deal, and the government has colluded with the banks to make sure that these people don't win this deal.
I made the very hard decision two years ago to walk away from a property that I had poured into for 10 years, only to see it lose half it's value in the financial crisis. It's not easy to walk away or live with the consequences, but I remind myself that I have a family to feed and they take precedence over the bankers. And you know what? I actually haven't looked at my credit score in two years. It used to be 780+, but I'm sure I'd have a hard time borrowing a nickel these days. Speaking of nickels...
The BANKS(wall street and the government)are holding most of these upside down notes. More and more people are walking away or just not paying their mortgages. I guess we will keep printing phoney money until one of our creditors calls our bluff and forces a implosion. How can their not be a qe3?
ReplyDeleteAnd more ordinary folks getting screwed by powerful predators
ReplyDeletehttp://www.ibtimes.com/articles/155075/20110531/egyptian-banker-egyptian-assault-dominique-strauss-kahn.htm
I guess it depends on the borrowers situation, but if his wife has a good credit score I would just walk away and use her credit the next time you need to finance something.
ReplyDeleteSeems silly to sit on a $150k loss just for a number that can go back up with time.
He's only 44...time is on his side
Show them Karen De Coster's articles (LRC archives) about how defaulting on your underwater mortgage is the right thing to do.
ReplyDeleteRe: "I warned her" link. Awesomely prescient. Now I just wonder if she will marry the .250 hitter...
ReplyDeleteIt is not your fault that the real estate market has tanked and you are upside down on your home. What you need to realize is that your worth as a human being is not based on some credit score. The banks have conditioned you to believe that unless you have a high score, you are some how worth less in our society.
ReplyDeleteWAKE UP! Walk away from that liability, the noose around your neck and get your life back in order. Many people have already walked away from their debt and are glad they did. Otherwise, so will forever be a slave to the banking cartel. Again - WALK AWAY AND START OVER. You have no idea the peace you will find in this. Do not allow these thugs to control your life any longer.
Learn from this experience. Stay away from loans and banksters for your health.
you gotta lotta nerve writing that someone who paid $308K for a house should be characterized as "These are the people that do everything right. "
ReplyDeleteSince when did you become an opponent of free will, Wenzel?
So be it that the bankers and rating agencies manipulated the MBS market. But that was the back half of the transaction, and had zero, repeat zero, to do with the front half of the transaction, which was people buying stuff they didn’t need with money they didn’t have.
I have gotten so sick of obtuse and mainstream comments like this and Lila Rajiva’s comment above about the poor, swindled homeowner.
Newsflash: Lloyd Blankenfein did not force anyone with a gun to sign a mortgage contract.
It. Was. Free. Will.
Good post. It reminded me of this passage from Garet Garret's 1935 article "Pieces of Money".
ReplyDelete"Those who trust the Government not to print false signs of value, who trust it to mean what it says and to uphold the integrity of money--they are victimized. Those who are cynical and believe nothing, will find ways to save themselves. Faith is folly and cunning is wise. But how ugly!"
Say I wanted to spend my nickels and get 6.3¢ worth of stuff per nickel (or whatever value it might climb to in the future). How would I go about doing that? It's illegal to melt them (and I wouldn't know how to do it anyway) and when I spend them currently, people only accept them at face value. I understand the concept of melt value but how do I benefit from it?
ReplyDelete@Jhonsun
ReplyDeleteAs the value of the metal content climbs, nickels will disappear from general circulation (Gresham's Law) and coin dealers will pay you close to their metal value, just like they do now for silver dimes and quarters.
How many articles have you read complaining that crap stinks? How many have you read telling you how to clean up the crap. While the first large number is large, the second number is, at least in my experience, ZERO. I described housing being a la brea tar pit over 3 years ago, with people being unable to move to better jobs. It is part of a free market solution to the current housing mess. Go here to see it. www.dnusbaum.com/fix.html
ReplyDeleteEven the banks would benefit.
@Anonymous
ReplyDeleteOf course, there was predation. And I will point it out when I see it. But on the whole, I have not been sympathetic to homeowners...Check my blog and articles.
Many of them were involved in flipping and speculating on their homes. And they are now walking away from their obligations at the cost of savers.
I know that. I'm one of the savers.
However, to say the homeowners were the prime culprits is simply wrong. None of this would have happened if the interest rate was set by the market and if the government, in cahoots with the real estate industry, hadn't deliberately egged on people to buy homes and investors to buy housing-backed bonds, even when the market was topping.
Read my comments in context.