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151 comments on DrumBeat: July 23, 2006

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NeverLNG on July 23, 2006 - 12:09pm Permalink | Subthread | Parent | Comments top
I have heard of people in the late 1920's and 30's who lost their farms and homes only a few payments shy of paying off their mortgage.

If this is true, then paying on a mortgage is really the same as rent -- you can be evicted at any time -- then it would make sense to treat a mortgage that way and postpone the day of reckoning -- either mortgage payoff or eviction, depending on the twists of fate, not excellent financial planning.

Dealing with the present economic situation (from the individual's point of view) would seem to be like cancer chemotherapy -- the best you can hope for is to prolong life a little and to hope for quality remaining time.  In any case, what would it mean to "pay off your mortgage" if the government causes hyperinflation and then raises property taxes to unsustainable levels?  You lose your property anyway.

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TechGuy on July 23, 2006 - 12:45pm Permalink | Subthread | Parent | Comments top
>I have heard of people in the late 1920's and 30's who lost their farms and homes only a few payments shy of paying off their mortgage.

Most people don't understand that a bank or mortgage lender can forclose on you at anytime, even if all your payments are on time. If the lender feels that the risks are rising, such as a substantial rise in unemployment in your area, they might just forclose your home. This is because the fear that home prices in your area may become depressed and they don't want to be stuck with the home if you lose your job in the future.

>If this is true, then paying on a mortgage is really the same as rent -- you can be evicted at any time -- then it would make sense to treat a mortgage that way and postpone the day of reckoning

Absolutely. When you have a mortgage, the lender owns the home until you pay off the mortgage. I find it ironic that most people consider their home, their biggest asset that they don't really own.

> In any case, what would it mean to "pay off your mortgage" if the government causes hyperinflation and then raises property taxes to unsustainable levels?  You lose your property anyway.

In hyperinflation, wages rise on a daily basis to adjust for it. If property taxes or other taxes are impossed to the extent that people can't afford it, then it would trigger deflation. Imagine what happens when millions of home owners turn in their keys to the lender. It would cause massive unemployment and cripple the economy.

However I don't subscribed that hyperinflation will happen. If the gov't was to start printing money, every lender would immediate impose draconan interest rates. Japan for instance has tried a similar tactic and they still  remained in a state of deflation for about 20 years.

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AlanfromBigEasy on July 23, 2006 - 1:29pm Permalink | Subthread | Parent | Comments top
If your mortgage payments, as outlined in the mortgage contract, are on-time, and every other contract covenant (property taxes paid, insurance in force) you cannot be foreclosed upon.
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TechGuy on July 23, 2006 - 4:14pm Permalink | Subthread | Parent | Comments top
>f your mortgage payments, as outlined in the mortgage contract, are on-time, and every other contract covenant (property taxes paid, insurance in force) you cannot be foreclosed upon.

This is incorrect. A Mortgage lender can forclose at anytime. They are lending you money just like a bond investor, If they no longer wish to loan money to you they can withdrawl from the loan at anytime. A borrowers option would be to find another lender.

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AlanfromBigEasy on July 23, 2006 - 5:16pm Permalink | Subthread | Parent | Comments top
A bond investor (holder) cannot issue a call either.  Only the bond issuer (debtor) can decide to pay off early, and the times and premium paid for doing so (paying off early) are clearly set out in the prospectus.

In the special case of convertiable bonds, the bond holder can convert their bond to stock in the company at the holders option.  Again with clearly spelled out dates and conversion ratios.

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ThatsItImout on July 24, 2006 - 4:01am Permalink | Subthread | Parent | Comments top

Alan, you are on your game here, your right, despite the hysteria loose in these part of the woods, the power of contract still stands for something....on someone being a few payments shy of being payed off and being foreclosed upon, where did thier equity go?  One assumes that that they could take a loan for some portion of the property and shake off the first lender....

Of course, if they have already refinanced multiple times they could not, given that they may be within a few payments of having the first mortgage paid, but still owe a considerable amount on the property, perhaps even more than it is worth....

Roger Conner  known to you as ThatsItImout

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