Recently, as I was finishing my dinner at a local Italian restaurant, my waiter asked me, “May I talk to you about my mortgage?”
“Sure,” I replied.
“I haven’t paid my mortgage in over 18 months,” he said. “What do you think I should do?”
“Has the bank been calling you?” I asked.
“At first, but lately I’ve heard nothing,” he said hesitantly. “And I’m not the only one. Three of the cooks in the kitchen have also stopped paying their mortgage.”
“And what are you doing with the money?”
“We’re saving it.”
“And what do you plan on doing?” I asked.
“Wait till they take our houses,” he said. “Do you think this is a good idea?”
“I wouldn’t do it,” I said with a smile. “Why are you doing it?”
“Because the mortgage is more than the value of the house. We’re better off not paying the mortgage and saving the money. Let them take our houses.”
I didn’t agree or disagree with this man…yet, silently, I couldn’t fault his logic. Since he was 18 months behind on his mortgage, he was so far behind that he was actually ahead.
As you probably know, the mortgage mess is only getting worse, not better. Many people aren’t paying their mortgages because they don’t have a job. Yet there are a growing number of people who have jobs but who are also refusing to pay their mortgage.
A medical doctor friend of mine confirmed this growing trend. He said the doctors he works with, doctors who make a lot of money, are buying a lower-priced second home and then defaulting on their primary residence.
If this trend turns into an avalanche, the real estate market will crash again. The only people holding onto their homes are people like me, people who purchased before the bubble and don’t owe much, if anything, on their homes.
If there is another real estate crash, it’s people like me -- people who pay their mortgages -- who might be the biggest losers.
Looking at the chart, it’s easy to see the eye of the storm. The second half of the storm is about to hit.
The leading edge of the storm was the subprime mortgage defaults, the storm that hit in 2007. The trailing edge of the storm will be the defaults of people who are solid citizens, people who have good jobs and good credit.
How severe the second front of the storm will be is yet to be seen. If there are more people like the waiter and cooks in the Italian restaurant and the highly paid doctors who don’t want to pay for a house that is going down in value, the second half of the storm will be very severe.
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