Just stop paying your mortgage

By Peter Schiff
October 10, 2008

If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother.

While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why.

Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.

When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.

The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.

Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.

If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.

To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.

If you do get the opportunity to live for a while with no mortgage payment, don't make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.

Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.

In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.

Bring back debtors prison. I'm betting that would stimulate the economy.

-Foxxz

Everyone needs to read this.  

You go first

I don't want all that, but skipping a few mortgage payments would let me take care of a lot of other things.

Where do I sign up?

Quoted: Everyone needs to read this.

To top this, Obama has proposed that for people who are in "trouble" on their mortgage, they should be able to tap their IRAs without tax or penalty to pay it off.  Wow!  So all I need to do is to skip three months' mortgage payments and I can get tax/penalty free money and pay it off.  

In other words, wealth transfer. I have been an idiot, working to pay my bills.

www.youwalkaway.com/

I was just about to buy a house 2 weeks ago and this is why we stepped back.

I missed the gravy train.... I have no debt..........

Quoted: www.youwalkaway.com/

Wow.  

This is a disgrace. A slap in the face to all the hard working, honest, responsible people that did it the right way. I guess we were just a bunch of fools.

That's what I told my wife, that we should just quit paying our mortgage like all of the dead beats that are going to get off scott free.

Then she indicated that we probably don't meet the demographic requirements for a free pass and that they would more than likely make an example out of us.

I'm afraid she's right.

Quoted: This is a disgrace. A slap in the face to all the hard working, honest, responsible people that did it the right way. I guess we were just a bunch of fools.

I am twisted up about this too.  Always do the right thing.  But looks like I'm in the minority of fairly debt free, paying my bills, etc. while the fools/crooks/idiots now get a free ride for a year or so, then a lower payment?  At my (taxpayer) expense?  

If the general public wished to throw a wrench the whole works then they could do one better, stop paying Federal taxes en masse.

Quoted: If the general public wished to throw a wrench the whole works then they could do one better, stop paying Federal taxes en masse.

I like this idea better.

Or at least raise your dependent claim to 10 or so.  They will get their money eventually, but won't get it up front.   Also will serve a dual purpose.  When more folks have to actually write that check they'll wisen up and listen to what's going on in DC.

I guess I am a sucker having paid off my house. Now I get to pay for my neighbors.

Quoted: I guess I am a sucker having paid off my house. Now I get to pay for my neighbors.

Just keep up the work comrade.  These homes aren't going to pay for themselves!!!

Quoted: Quoted: If the general public wished to throw a wrench the whole works then they could do one better, stop paying Federal taxes en masse. I like this idea better.

You realize for just joking about this, you two will be publicly executed by the Hussien regime don't you?

Quoted: To top this, Obama has proposed that for people who are in "trouble" on their mortgage, they should be able to tap their IRAs without tax or penalty to pay it off.  Wow!  So all I need to do is to skip three months' mortgage payments and I can get tax/penalty free money and pay it off.

Would the people this is for even have IRAs?

When this whole issue first came up I knew that .gov ain't evicting nobody.

Quoted: I guess I missed out on the cheese again. (seeing as I paid mine off last week). Damn.

Congratulations.

Funny, I just wrote my little sister a check to help her catch up on her house payments.

We just don't have it in us to be fucking lowlifes.

TXL

It's scary, but true.  

Also, I hate both candidate's ideas of jaking w/ IRA withdrawal rules.

Quoted: Quoted: Quoted: I guess I missed out on the cheese again. (seeing as I paid mine off last week). Damn. Congratulations. Thanks!   I wonder if I should now buy another home so I don't miss out on my share of the cheese ration.

Brilliant! If you can score a zero down, it might be completely free!

Quoted: If the general public wished to throw a wrench the whole works then they could do one better, stop paying Federal taxes en masse.

That's what I was thinking.

I signed an agreement with the bank, and I'm a man of my word.

I don't remember ever signing an agreement with the government saying I would pay for other people's irresponsibility, laziness and greed.