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Comment by jjeaff | Hacker News Reader

>greed

There is definitely a lot of that. But that is not the only reason. The excessive housing pricing have gone on long enough now that many people will be trapped and ruined if housing prices stagnate or fall.

People have had to spend far more than is prudent to get a house that is not that great just because there are no other options.

If you are putting all of your extra money into your mortgage payment, you are going to have to rely on being able to sell that home anf move away when you retire. If you cannot at least sell it for the equity you have in it, you will be trapped in an expensive city with no money to retire on and no way to sell and get out.

So I understand why so many are fighting to keep prices high. Their financial future depends on it and I don't think it's greedy to try to avoid financial ruin.

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Why would it be financial ruin? California is a non-recourse state. The highly paid engineer who bought the multi-million dollar home can easily stop paying on the home and live there "rent free" for several months, recouping their down payment. By the time they are foreclosed on, they will have a sizable nest egg to do what they want with. In your scenario, the person would be "financially ruined" presumably due to a downturn in housing. In my scenario, they would be in a better position to buy again in several years at more sane levels, while ridding themselves of all the downside on their bad real estate. The only cost is a relatively minor (you can still get credit cards, etc) hit to credit for about 3 years, and in general your interest rates will be higher. But you're also cash rich, so who cares.

If somebody is older with little income and goes through the exact same scenario, they would be ruined, assuming all their net worth is in real estate. However in that case I'd argue that's more about their own poor/risky financial choices. There would be less people acting like their primary residence is an investment if the market wasn't so absurd to begin with.

It's hard to get another mortgage if you've previously been foreclosed upon. If you can save enough to buy a house for cash this could work (and screws the banks in a wonderfully ironic way), but housing prices would have to fall a lot without incomes falling much for the money saved in foreclosure to be enough to purchase another house for cash.

That's why you have your spouse get the second mortgage.

Many if not most spouses are both signed on the mortgage because they would have needed both incomes to qualify for the loan.

What spouse?

You cannot be serious. Planning on a strategic default is crazy from a personal finance standpoint for most homeowners. When you consider all the impacts it only makes sense in very limited circumstances. There's no reason to expect that prices would be more "sane" in the future, and in the meantime people still need a place to live.

Only purchase mortgages are non-recourse. A high percentage of owners have refinanced into recourse loans.

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