Banks Give Homeowners a Break

About 10 months ago I wrote a post about how some people who couldn’t sell their homes just stopped making payments. I also shared that my relatives who live in Phoenix were planning to do this. I wrote:

They plan to live in their current home for 3-6 months without making any mortgage payments. They will save up some money so they can move. When the bank finally approves them for a short sale — or gives them the boot — they’ll go get a rental somewhere else.

Here’s an update:

My relatives did indeed stop making payments on their mortgage in November 2008. They started getting nasty letters in the mail, phone calls, etc shortly after that. Fortunately, their realtor had prepared them, so they were expecting this and have seemed to handle it well.

Guess what?

It’s 11 months later… and they’re still living in the same house!!

In fact, we drove down to Phoenix this past April and visited them for a week. It was kind of strange at first because I wondered, “Could somebody show up at the front door and just decide to kick us out?”

Of course, that never happened. We had a great visit (with the exception of my youngest getting sick and vomiting).

It’s interesting to talk to my relative about their house. She’s very detached… and really doesn’t care about the house one way or the other. It’s almost like she’s adopted the mindset of a renter… but to a greater extreme.

She views the house as a place to live — but she definitely does NOT feel like it’s her home. And she and her husband are always waiting to find out when they’ll be forced to move.

Not an ideal way to live, but at least they’ve not had to make a mortgage payment or rent payment in 11 months.

You might wonder, as I did, why in the world a bank would let someone “squat” on its property for that long without making payments. Well, here is what I’ve discovered…

Many banks have bad mortgages on their books. But they don’t have to officially record those bad mortgages — they don’t officially get put on the books — until the bank forecloses on the property.

So here you have a lot of banks that are actually delaying or avoiding the foreclosure process so they can make their financial statements look better than they really are.

Crazy, huh?

The banks want to deceive the public, particularly their account holders and share holders, so they can continue to profit from deposits, transactions, and increase in share value.

And so banks are literally giving homeowners a break to maintain as long as possible the deception that everything is okay and the banks are doing well.

If the banks were dealing with only 10 or 20 foreclosures, this would never happen. But they’re dealing with thousands of foreclosures. The problem is so big they can’t deal with it — at least not all at once.

Anyway, that’s the update on my relatives. Still in the same house in Phoenix… still haven’t made a mortgage payment since November 2008. What crazy times we live in!

Zero Percent Loan Same as Cash?

A couple months ago I was talking with my neighbor about some purchases I was thinking of making because of the zero-percent financing that was available.

He said, “That’s great, man. If it’s zero percent, that’s the same as cash.”

In a way, it is.

Getting a zero percent loan and making payments against it is the same overall effect as saving that money up and spending the lump sum down the road.

Yes, you may lose out on interest from your savings… so you might argue that you’re losing money by taking the debt.

But on the other hand, inflation greatly outpaces the interest rates offered by banks. The more money the Fed prints, the faster prices rise. This process discourages saving and encourages borrowing.

With a zero percent loan I can borrow money today and pay back the amount borrowed with less valuable money. Yes, I’m paying back an equal amount of dollars, but each one is worth less (or has less purchasing power) than it did when I borrowed the money.

So in a very real sense, a zero percent loan is not the same as cash… it’s actually better than cash.

This is the kind of world most of us live in, particularly in America where the printing presses never stop running. It’s a topsy-turvy world where what should make sense (saving) doesn’t make sense; and where what shouldn’t make sense (borrowing) does make sense.

Thoughts? Leave a comment below.