WHEN YOU CAN’T PAY THE MORTGAGE
by Little Owl
[photo: Respres via Wikimedia Commons]
March 7, 2011 (6:41 AM NZT) - What happens when you can’t pay your mortgage? This may well be a situation that many of us find ourselves in, in the near future. The cost of everything is rising but wages are not, and in some cases people have to take a pay cut in order to keep their jobs. Our disposable incomes are evaporating and a day will come (or may have already arrived) when there simply isn’t enough in the kitty to cover the costs. Cuts will have to be made, but once every possible corner has been cut, there still may not be enough left to pay the mortgage.
Well if you don’t pay, the banks come after you, and if you still don’t pay they take your house. I know this, everyone does, but what I don’t know is what will happen if no one can pay their mortgage. Will the banks take every house?
Let’s say, for arguments sake, that one year from now, 70% of all mortgage customers can no longer make their payments.
Will the banks foreclose on everyone?
Will the banks be able to remain solvent if so many people default at the same time?
In the case of hyperinflation, are our mortgages secretly linked to the gold standard, or will we be able to pay them off with one weeks wage when the value of the dollar is so low that I’m earning $5,000 an hour?
Will the debt be written off and people just be allowed to keep their homes mortgage free?
Can anyone answer my questions? I’m asking you because this scenario is never discussed in the press.
Surely the value of property would crash if 70% of all homes were put on the market by the banks trying to recoup the debts on these properties? Are we better off to have a giant mortgage in the hope that a)hyper inflation will sort it out for us or b) that the banks may press the master re-set switch and wipe out the debts and we all start over? Are the people who have no mortgage suckers? Are they going to be the only ones who have actually paid for their house? I don’t know but I’d like to.
You see, I think the answer to much of the above will depend on timing and location. The first defaulters will lose their homes in mortgagee sales, but maybe the late defaulters will just get to hang onto theirs and eventually they’ll hear no more from the banks because they will be a) overrun with defaulters or b) have collapsed and gone out of business, or in the very least have re-structured themselves in a way that currently seems unimaginable.
As far as location goes, I personally believe that there will always be older people who are cash and asset rich and who will be a position to abandon their city / urban homes and still be able to buy a rural property without needing to sell the urban one. Therefore, if you have a well set up rural property with your orchards and veg garden and independent water supply, this will be very desirable to these cashed up people when they finally realize what is happening. So if you default on your mortgage, the bank will have a queue of potential cash buyers ready and able to take it off their hands for a good price.
In other words, all of us who are making preparations may well find we are the ones targeted by the banks when times get tough. I can easily see an older couple buying up one of these rural properties with acreage and moving in with their children and grandchildren. Perhaps it’s the people with urban houses who default who will get away with it because their properties are deemed worthless.
What I do know is that we have friends who are having hard times already and have simply extended the size of their mortgage in order to use that money to make their monthly repayments. They are banking on things improving. I haven’t told them that things are unlikely to improve, it’s not my place to and they haven’t asked my opinion (and even if they did, I think in this case, I’d be unlikely to give it as their only other option is to lose their house).
So do we strive to pay off our debts and our mortgage so that even if we lose everything else, we still own our property (which is certainly the most stress free option) or do we run up our debts and increase our mortgage and hope that we can keep juggling the repayments until a time when the masses default and our own defaulting will be lost in the swell? I did hear once that even though you have agreed to a 25-year repayment plan with the bank, they reserve the right at any time, and without reason or warning, to demand you settle your debt immediately. Would there be a spate of desirable rural properties suddenly having their mortgages withdrawn because there is queue of cashed up folk who will pay over and above the value of the mortgage. Is this true? Can the banks do this?
I don’t know the answers to any of the above and all that I have offered is entirely conjecture on my part but I’d really like to know what you think.
Can anyone tell me? Does anyone know? What should we do?