WONDERFUL McDONALDS AD
Here. En Francais. I love this ad. (Thanks, Zac.)
I will never forget touring the Wonder Bread factory when I was 8 (or the Havana cigar factory 50 years later). It’s fascinating to see how things work. Here’s a terrific site to access 548 different “factory tours” (loosely defined) that you and the family might want to explore all over the country this summer. Corning Glass! Chalet Suzanne Soup Cannery! Fermilab! The Intercourse Pretzel Factory! American Whistle! The guide dog operation in Boring, Oregon! America’s last remaining washboard factory!
WHAT SHOULD THEY DO?
Tania: “I haven’t seen you write anything about ‘strategic defaults.’ I hate to say we’re considering it, as it goes against the values I was raised with, but here in a nutshell is our situation: My husband and I bought our first home (with no money down!) in 2003 in California for $250,000. A year later he was offered a job with free housing in New York! We rented out the house and had a blast in New York for three years, refinanced in 2006 when the home was appraised at $420,000. We had a baby in the hospital at the time so my brain wasn’t really thinking clearly apparently. We signed on for a ten-year interest-only loan, so in 2016 our mortgage payment goes up by $1000, which we can’t afford. We currently sink about $500 on top of the renter’s $$ to pay for mortgage, taxes, insurance etc. The house is now valued at $155,000. Ouch. We have great credit (about 800). If we walk away now, our credit is screwed for say 5 years, but we have $500 per month we can invest, which in 5 years would be a decent down payment once our credit would allow us to buy again. If we stick with it, there isn’t much chance the house will get back up to the $270,000 we owe (we pulled an additional $12,000 out of it) when we refinanced. So in 6 years when the mortgage goes up we’d still lose the house, and then have to deal with not much in savings and bad credit then. We currently rent a house in California, as when we moved back it was to a different part of the state. So we are landlords and tenants at the same time, and therefore appear to be investors even though it is our only home loan. We don’t qualify for a short sale as we make enough money for the current payment, and Wells Fargo won’t refinance since we don’t live in the house and it is so underwater. I can’t seem to see a logical reason why we shouldn’t walk away… so, back to my original question, what do you think about strategic defaults???”
☞ Wow. Doesn’t that ever speak to our times. I suppose the likeliest right answer is . . . walk away. And/or save your bank the expense of a foreclosure and simply give them back the deed “in lieu” of foreclosure. The obvious downsides are the credit situation and the morality/your feelings about doing this – although my recollection is that California is a “nonrecourse state,” meaning that the bank knew going in that you were not personally liable for the loan (except for the extra $12,000, which falls into a separate category) – that it was secured only by the value of your property. And boy: from an appraised value of $420K down to $155K? Ouch. Welcome back to reality.
(That house next to mine that sold for $105,000 in 1998 and $765,000 is 2005? It just traded hands at $265,000 last week.)
Quote of the Day
Markets are very good at what they do, in part because they harness greed and envy (in fact, all of the Seven Deadly Sins except sloth) and turn them into positive virtues.~Rocky Mountain Institute newsletter
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