Your Exceptional Life

Mea culpa

You know, when you’re wrong you need to fess up. I was quoted for an article by Janis Mara in February 2007 and I was wrong. I missed the mark. Majorly. In my defense I didn’t expect banks to fail. Several have failed since then including the most recent implode, which happens to be the second largest bank failure in US history, Indymac. I didn’t expect people to be dumping houses, walking away and sometimes even purchasing again before the existing home was lost. I didn’t expect Contra Costa real estate to drop by 44%. I missed the mark. I was wrong.

Here’s what’s happening out there. People got into mortgages they had no business getting into. Zero down, teaser rates, liar loans, stuff that they shouldn’t be involved in. Lenders are failing because they spent too much time looking at the bottom line rather if they were making sound investments. A loan must be made on the borrower’s ability to repay coupled with the value of the collateral. You can not make a safe loan based only on the market value of the collateral, because market value is subjective. The market dips, no value. The market has dipped. Some people believe that they are being savvy by walking away from a mortgage they are upside down on. They will be unable to purchase another home for many years to come. How savvy is it to give up the mortgage interest deduction on your taxes? That deduction has kept my taxes down for the last 10 years. I wouldn’t trade it for anything. The rent payment may be less than the mortgage note, but it’s not tax deductible. Property taxes are no longer a deduction once the house is gone. What’s gained by walking away could very well be lost in taxes paid. My advice for the last several years has been, if you can afford it, do it. That is sound advice. If you can afford to stay, then stay. With a 44% dip in value in Contra Costa County, what’s lost in equity may be saved from the government in taxes.