Walk away from your mortgage? Just do it, says one professor

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By Kenneth R. Harney, Special to the Times 

In Print: Saturday, November 28, 2009

WASHINGTON — Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it.

That's the incendiary core message of a new academic paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis," by Brent T. White, a University of Arizona law school professor.

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus, the penalties are nowhere near as painful or long-lasting as they might assume.

"Homeowners should be walking away in droves," White says. "But they aren't. And it's not because the financial costs of foreclosure outweigh the benefits." Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, "one can have a good credit rating again — meaning above 660 — within two years after a foreclosure."

Better yet, you can default "strategically." Buy all the major items you'll need for the next couple of years — a new car, even a new house — just before you pull the plug on your current mortgage lender.

"Most individuals should be able to plan in advance for a few years of limited credit," with minimal disruptions to their lifestyles, White says.

What kind of law school professorial advice is this? Aren't mortgages legal contracts? In an interview, White said that in so-called anti-deficiency states such as Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners' assets beyond the house itself. In other states, lenders may decide it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

The main point, he says, is that too often people's "emotions" get in the way of clear financial thinking about mortgages, turning them, as he describes, into "individuals who choose not to act in their own self-interest." Most owners are too worried about feelings of shame and embarrassment after a foreclosure, and ignore the powerful financial reasons for doing so.

Buttressing these emotions is a system that White labels "the social control of the housing crisis" — pressures and messages continually sent to consumers by the "social control agents," namely banks, government and the media. The mantra these agents — all the way to the president — pound into owners' heads, says White, is that "voluntarily defaulting on a mortgage is immoral."

Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20 to 50 percent in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts.

Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

How does White's 52-page manifesto go over with mortgage lenders? Predictably, not well. Officials at Fannie Mae and Freddie Mac — investors who fund the bulk of all new mortgages in the country — disputed White's characterization of how quickly after foreclosure a walkaway borrower can obtain a new loan. It's not three years, they said; it's a minimum of five years, absent extenuating circumstances such as medical or employment problems that caused the foreclosure.

"Borrowers who walk away from their mortgage obligations face serious consequences," including severely depressed credit scores for extended periods, said Brian Faith of Fannie Mae. In addition, he said, "there's a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community."

Lewis Ranieri, CEO of several major mortgage-related companies and one of the pioneers of the mortgage securities industry, called White's argument "incredibly irresponsible and misinformed." Not only is the professor urging consumers to break legally binding contracts, said Ranieri, but if large numbers of them did so it would send mortgage rates soaring and "tear apart the very basis" upon which mortgage lending rests — the understanding that borrowers will honor commitments and pay back the money they owe.

Ken Harney can be reached at kenharney@earthlink.net.

This article ran in the St. Petersburg Times on Saturday, 28 November. It's a pretty controversial idea and one that doesn't sit well with me. What do you think? Are you still required to be true to your word when circumstances change? Is defaulting on a mortgage due to job loss or illness more moral than "strategically" defaulting? What would you do if this described your situation? If it does describe your situation, is a planned default something you'd consider?

Dishwasher troubleshooting

The following is lifted entirely from the blog for Warner's Stellian. Warner's Stellian Appliances is a terrific, independent appliance retailer with seven Minnesota locations. Additionally, Warner's Stellian also sells over the web and delivers nationwide. Get this, if you spend more than $1999 [edited to clarify that it's not $1900 combined, that's $1900 for an appliance (which is not hard to do) --sorry for the confusion], they will ship your appliances at no charge. If you're in Minnesota and you need qualified appliance information and service, head on over to one of their locations. If you're anywhere else and looking for the same thing, spend some time on the Warner's Stellian website.

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Dishwasher troubleshooting: Dishes not clean
By Julie Warner

Thanksgiving means two things: lots of food and lots of dirty dishes. And more dirt requires more soap, right?

WRONG.

Despite what you might think, too much soap can actually prevent your dishes from getting clean —especially on the top rack.

You should only use about half the amount of detergent recommended on the package. And if you have a water softener, you need only 1-2 teaspoons of powder — even less if you use liquid.

Too much soap can cause over-sudsing. Our customer service representative Maghan explained to me that the dishwasher tries to drain as much of the soap suds and food residue as it can. But when too much soap is used and it produces  so many suds, the dishwasher can’t drain it all in the time allowed.

So instead of draining, the soap bubbles pop inside, redepositing tiny food particles back onto the dishes, which show up most on glassware and silverware.

How do you know if you’re over-sudsing? Run a cycle without any soap. If suds are left at the bottom of the tub, you’re over-sudsing.

To remedy, we suggest a “vinegar cycle”:

1. Empty any dishes and shut soap door, without adding any detergent
2. Run dishwasher until it gets to the wash cycle
3. Open the door and check if the dispenser flap has opened

• If it hasn’t, run for another minute or so until the flap opens
• If the flap has opened, add the 1 cup vinegar and run through the full cycle.

You might have to repeat the process two or three times to ensure you’ve eliminated the build up of soap. Maghan also suggests trying a dishwasher cleaner like Glisten or Dishwasher Magic.

And I’ve said it again but I will continue to harp on about using rinse aid. It’s not just for looks, people! Maghan reminds us dishwashers today come designed to use rinse aid to help dry, as they lack a built-in fan.

So remember: gorge on turkey, just go easy on the soap, OK?

This entry was posted originally on November 23, 2009 at 2:59 pm

You can follow Julie Warner on Twitter: @WarnersStellian.

It's a holiday weekend, let's watch a National G special

I have been thinking a lot about an opportunity I have to go back to Italy in 2010. This trip will have me returning to Rome, a city that affects me on a level so deep I can barely find words to describe it. The greatest repository of the the history of western civ is at the Vatican Museums in Vatican City. If you like art and if you find yourself anywhere near Rome, you owe it to yourself to explore the Vatican Museums.

So let's let National Geographic transport us to Rome today...

Thinking about Thanksgiving

Yesterday was everything I look for in a holiday dedicated to gratitude and good food. Dinner went off without a hitch and I think I turned out the best turkey I've ever roasted in my life. Few things give me the satisfaction of preparing a meal for the people I care about. That satisfaction gets the gratitude train moving in me and it's easy to reflect on just how good I have it when I'm elbow deep in a raw turkey. I have the life I imagined for myself when I was a teenager and I marvel at that all the time, on Thanksgiving particularly.

While it's true I wouldn't have chosen the path I took to get here had I known what was involved, what's important is that I made it. Back then, my big picture imaginings for what my future held were that I'd be in a position to call my own shots and that I'd be surrounded by people who love me. I have both in spades and I'm a fortunate, grateful man for it.

Yesterday we were joined at dinner by someone I'd never met. Dzenan is a neurosurgical resident at the big teaching hospital in Tampa and he's a colleague of my friend JD. Dzenan is a recent transplant here and doesn't know many people locally. JD had told me earlier that he was from Sarajevo originally and that he was a good guy.

I swear, when I hear an accent I know that there's a story lurking in there somewhere. The wars that tore apart the countries in what used to be Yugoslavia were a horror show that barely warranted a mention in the US. So whenever I meet someone from that part of the world I always find a way to steer the conversation back to the place they used to call home.

The Republic of Bosnia and Herzegovina declared its independence from Yugoslavia in March of 1992. By early April of that year, both the European Community and the United States recognized the independence of Bosnia and Herzegovina. Within days of that recognition the Yugoslav People's Army (JNA) and the Army of the Serbian Republic began a military attack of Sarajevo. The Bosnians were overwhelmed and waited for a UN intervention that never came.

Photo by Mikhail Evstafiev

From 1992 to 1996 the JNA and the Serbs blockaded the city of Sarajevo and unleashed upon it the most sustained and violent siege of a capital city in the history of modern warfare. The blockade was nearly complete and it's estimated that 10,000 people were killed and 56,000 were wounded during the conflict. According to UNICEF,

Of the estimated 65,000 to 80,000 children in the city: at least 40 percent had been directly shot at by snipers; 51 percent had seen someone killed; 39 percent had seen one or more family members killed; 19 percent had witnessed a massacre; 48 percent had their home occupied by someone else; 73 percent have had their home attacked or shelled; and 89 percent had lived in underground shelters. It is probable that the psychological trauma suffered during the siege will bear heavily on the lives of these children in the years to come.

The siege has also had a profound effect on the psyche and future of the city's population. The Bosnian Government has reported a soaring suicide rate by Sarajevans, a near doubling of abortions and a 50 percent drop in births since the siege began.

Dzenan was 19-year-old when the blockade of his home town started. He lived through the deprivation, the sniper fire, the bombs and the shelling. He was a medic in the Bosnian resistance and at 19 found himself running across a tarmac with two friends. Had they been born anywhere else in Europe they'd have been doing what 19-year-olds do anywhere. But because they were 19-year-olds in a blockaded Sarajevo, they were running across a tarmac and dodging sniper fire. Dzenan was the only one who made it to the other side of the tarmac.

This is not ancient history, but something that played out in the lives of people who can tell the story today. What I found so amazing about Dzenan's telling was that he related his experiences without a hint of self-pity or attention-seeking. He's happy to be where he is and he's fully engaged in chasing down the neurosurgical visions he has for his own life.

His story gave me plenty of things to think about. If my 19-year-old vision for my life was that some day I'd be in charge and that I'd be surrounded by people who love me, what does a 19-year-old who loses his friends to sniper fire look forward to? Compared to living through armed conflict, my trials and tribulations are trivial at best.

So thanks Mr. Sarajevo, you brought the very essence of Thanksgiving to my Thanksgiving and all you had to do was show up.

An Itch to Bake from Scratch: Butternut Chai Cheesecake

Happy Thanksgiving everyone! This is David Nolan, here to express gratitude and give thanks to Paul for inspiring me this year to contribute to Kitchen and Residential Design. I haven't had the opportunity to write much, but I am a daily reader who is constantly surprised by the wit and variety of the content found here. Thanks a lot Paul - you ceaselessly provide me with entertainment and enlightenment.

The latest inspiration I received came from the post about scratch baking. In my childhood home, my mom baked many things - bread, cakes, and especially pies. She would not want me to tell the secret to her pie crusts (lard) but they were always the best. Everyone in my family still begs her to make pies when they come to visit, whether it is the holidays or not. My mom begrudgingly fulfills the requests, and everyone swoons at the end result of her hard work.

Unfortunately, the genes for baking were not inherited by me. Baking is a leap of faith that a control freak like myself just cannot bear. You mix up a bunch of ingredients into a runny gooey mess, then plop it in a pan, and pray the oven gods yield a delicious harvest. I am a cook - I taste as I go, adding layers of flavor as the food progresses, all under my constant supervision. Baking requires letting go of the control and trusting the recipe; baking also requires that you adhere to the recipe. The idea that what goes in the oven tastes and looks nothing like what comes out scares me, and the fear of following directions and letting go of control keeps me from baking.

Cheesecakes are the one thing I do bake and I bake them a couple times a year. I still cannot follow the directions though and this Thanksgiving was no exception. I set out to make a Pumpkin Cheesecake from a tried and true recipe but ended up with a Butternut Squash Chai Cheesecake. I fretted about the flavor due to the untested butternut squash and an overpowering cardamon perfume. Last night I brought the final product to a wonderful potluck dinner with some of my friends and the cheesecake was consumed with gusto and compliments.

Here is the recipe. Please let me know if you try it, and especially if you give it your own personal twist.

Butternut Chai Cheesecake
enough for a 10" spring form pan plus a little extra for a tester

Crust:
1 package graham crackers (1/2 box)

15 ginger snaps

1/4 cup brown sugar

1 stick of butter

Finely crush crackers and snaps, a food processor works well. Mix in sugar and add to spring form pan. Melt butter and drizzle in pan while stirring. Press the crust into the bottom of the pan, coming up the sides about a 1/4". Refrigerate crust for 1 hour.

Filling:

4 packages cream cheese, room temp

1 cup dark brown sugar

1 15oz can butternut squash puree (pumpkin works also)

4 eggs, room temp

2 T sour cream

1 T cornstarch

2 t vanilla extract

1 1/2 t cinnamon

1 t ginger (extra fine grated fresh or 1/2 t powder)

1 t allspice

1/2 t each powdered cardamon, nutmeg and cloves

1/4 t each cayenne, black pepper, salt and coriander

Mix cream cheese and sugar, then mix in butternut squash. Add 1 egg at a time, constantly mixing. Add sour cream, cornstarch, vanilla and spices one at a time. After crust has cooled, pour in cheesecake filling. Place spring form pan in a hot water bath for a creamier no-crack cheesecake. Place carefully in preheated 350 degree oven. Bake for 50 min and do not open oven.

Sour Cream Topping

Mix 16oz sour cream with 3 T brown sugar

Remove cheesecake from oven. Spread topping over cheesecake gently. Place back in oven for 10 min. Turn off oven and open the door a crack. Let the cheesecake rest in oven for 1 hour. Remove from oven and allow to cool completely. Refrigerate overnight.

garnished with plumeria, abutilon and Eucharist lily flowers