There were apparently a lot of people who didn’t think that Cramer was serious yesterday. So today on The Street he says "Just default- – it makes huge economic sense."
Transcript below.
Transcript:
Torabi: "I have to bring up a video we did yesterday that was entitled ‘Walk away from your house’".Torabi: "Jim Cramer says, y’know, ‘there is a time to walk away from your house’. To re-visit the video yesterday, you said, ‘when your house is down 20%, essentially, when you have no more equity left…’"
Cramer: "Right"
Torabi: "…that’s a good time to sell…"
Cramer: "Yeah"
Torabi: "… but what [unintelligible] because that"
Cramer: "Well not just sell, to walk away. You can’t sell it."
Torabi: "How do you walk away?"
Cramer: "Well you just default on the mortgage. It makes huge economic sense. You go rent. Uh, you don’t want to lose your job, so you keep your car. Uh, you keep your credit cards so you can buy, and all that really happens is is that you made a bet and you lost, so don’t compound it by continuing to pay."
Torabi: "Now the hierarchy of debt, you were saying also that y’know, your credit card debt should be less of a priority than if your house is losing value"
Cramer: "Oh, yeah, credit cards are much more important than your house. Remember, your house is only a good bet if you can build equity. But if you are going to lose money each month, you might as well rent. You shouldn’t own."
Torabi: "And, but, yesterday you’re also saying there are no places in this country where there is value in homes. A lot of homes are depreciating…"
Cramer: "No, No, there is no place where [mumble] you wouldn’t be down on your home if you bought it in 2006, that’s what the issue is. So, I’m saying that buying homes in 2006 was like buying the Nasdaq in February of 2000. They’re very very similar – it was better to be margined out than to continue to put capital against those Nasdaq stocks."
Cramer: "There was a report this morning by David, I believe it was David, uh, Blitzer, on, when I was on with the wonderful and fabulous Erin Burnett and it was that the, some housing prices have, uh, been, have actually stopped going down and some are going up and I just think that’s not true. I think, like, bad CDOs, and, like, bad leveraged loans, the actual mark to market is down everywhere. I get that from the 5 homebuilders whose conference calls I listen to. There are no up markets, and there are markets that are falling 20-30%, and those are the ones where it’s much smarter to walk away from your house."
Torabi: "Is the 20-30%… what’s that based on, or is that just…"
Cramer: "It’s where the, uh, purchase prices are, uh, when you back in the discounts. The discounts are very hard to see, cause all the homebuilders do two things: One is is that they offer incentives that don’t surface, so the list price is $250,000, but you’ll get rebates just like a car, so the list price of a car is $25,000, y’know, but you’re really only paying $18,000, so take in that, and the second thing is is that there’ll be Realtors, and what’ll happen is is that you’ll say ‘look – the list price is $225,000′, but you can negotiate down and go $190,000. I’m using the negotiable prices.
Cramer: "This is happening in the inland empire, in Sacramento, uh, it’s happening in Phoenix, it’s happening in Denver, and it’s happening in Las Vegas, and in southern California, uh, anywhere near the bread, the so-called bread basket, Modesto, these are all places where there’s tremendous overbuilding, and where it may pay to leave your house."
twist -
Old Mike is going to have a bird …
John-
I had to look at Urban Dictionary for a translation. It says that have a bird is Bostonian for what we say here in Arizona have a cow. : )
What would be the most striking?
A. Jim Cramer turning as bearish as hell:
“buying homes in 2006 was like buying the Nasdaq in February of 2000″
Ignorance is bliss, but hindsight is a blessing. I’m shocked. If he keeps talking like this he won’t be on the air much longer I guess… for reasons of “National Security”.
B. The Fed admitting that they know nothing:
“I’m not saying that the Fed should ignore what happened last week – we need to understand what is happening”
tip @ Fed Governor Poole: the credit cycle is contracting together with the real estate bubble, while the world is losing trust in the USD. That’s what happening
http://biz.yahoo.com/rb/070731/usa_fed_poole.html?.v=3
Fed will act on market slide if warranted: Poole
‘Poole, a voting member of the Fed’s interest-setting committee this year, was speaking at a University of Missouri luncheon in Columbia, Missouri. The event was closed to the media, but a copy of his remarks was made public.
“Most of these upsets stabilize on their own, but some do not. I’m not saying that the Fed should ignore what happened last week – we need to understand what is happening,” he said.’
NotFunny –
Reuters stretched Bill the Butcher’s words to (and maybe past) the breaking point. That was an exercise in wishful thinking more than anything else.
Can he say that as a host of several shows, that people should walk away from a debt that they consented to, and not be sued by the owners of these debts?
I viewed this earlier today and my reaction was “un*&#believable”! Went in now to show hubby and it’s gone…Housing Panic confirms Utube has pulled it.
TemekuT:
The Google Video on our page is still visible. You just have to click play.
All I can say is wow. I believe that Contracts and Criminal Law are required first-year classes at Harvard Law School. Was he high the days that they covered honoring valid agreements and fraud?
Guys…
I think you’re taking what Cramer is saying a bit too literally.
He’s not advocating fraudulent or criminal behavior. The concept he is referring to is “Deed in Lieu of Foreclosure”. When he says “walk away” I don’t think he’s actually suggesting that people pack up a suitcase, strap on their nikes and literally walk down the street away from their house. It’s a hyperbole.
The Deed in Lieu of Foreclosure process is most often advantageous for both the mortgagor and the mortgagee. Anyone who is in this unfortunate situation would probably invest the fifteen minutes necessary to figure this out.
Mbrown-
I had remembered L telling me that a Deed in Lieu of Foreclosure isn’t always easy to do. I asked him again and he said:
What Cramer has been saying is just what he’s been saying— walk away. What else are you going to do? You can’t keep making enormous payments, you can’t sell it, you can’t rent for more than your payment, you can’t refinance it– no more wonky loans. It’s not worth what’s owed on it, so what other choice do you have?
It’s not going to increase in value for 10 years or more, so what he’s saying is walk away. Listen to what he says really close. He says something like “You wouldn’t keep a losing or worthless stock would you?”
When I hear stuff like this, I immediately run in and re-read 2 Timothy 3 : 1-4.
Although Agnostic won’t like it
I’m going to place it here as a checklist to see if it rings a bell with anyone:
Perilous Times and Perilous Men
1 But know this, that in the last days perilous times will come:
2 For men will be lovers of themselves, lovers of money, boasters, proud, blasphemers, disobedient to parents, unthankful, unholy,
3 unloving, unforgiving, slanderers, without self-control, brutal, despisers of good,
4 traitors, headstrong, haughty, lovers of pleasure rather than lovers of God,
5 having a form of godliness but denying its power. And from such people turn away!
Cramer summed it up in just one line: “Just walk away.”
Makes me wonder… How does he regard the other commitments and promises he’s made?
(wife, employees, peers, investors, others?)
Again, I don’t know this Cramer from the one on Seinfeld… but wholesale societal acceptance of this sort of stuff is a great sign for me!!!
All I can say is wow. I believe that Contracts and Criminal Law are required first-year classes at Harvard Law School. Was he high the days that they covered honoring valid agreements and fraud?
What’s fraudulent about what Cramer is suggesting?
NVMike-
I would say that Cramer’s approach may not be fraudulent, but it is lacking in honor.
I know a lady who found herself seriously upside down recently. First she looked at refinancing options- there was nothing she could do. She researched a short sale- there was no way her lender was going to work with her in the time frame available. She would have done a deed in lieu of foreclosure, but that wasn’t going to work either. When she had exhausted all other possibilities, she walked away.
Sometimes walking away is unavoidable- but I think that people of honor make every attempt to honor their contracts before breaking them. They aren’t cavalier and say, Oh wait a minute, keeping my word is hard, and not to my financial advantage, I’m not bothering. [I once sold a home and came to closing with a check for I think about $5K- I chalked it up to an expensive education.]
That said, when you’ve done the best you can, and walking away is the only option, it’s not the end of the world. The bank was supposed to allow for defaults in their calculations. Rental houses work as well as purchased. Pack up, move out and move on.
If you can’t beat them, join them, right?
Inspired by Mr. Cramer’s quote: “… and all that really happens is is that you made a bet and you lost, so dont compound it by continuing to pay.”
I’m organizing a bus trip to Vegas next weekend.
Here’s the plan:
1. we head to Las Vegas, and pick a casino of choice
2. based on the fact that in the past we’ve paid our bills and honored our commitments, the casino agrees to extend us all credit markers in various denominations…
perhaps even based somewhat on our “creative applications”
3. we gamble (bet) the funds on the games of our choice, but always within the casino’s scope of allowable games
(that way it’s not really our fault if we lose.)
4. If (and probably when) we lose, and the marker is used up (so it appears we have no other convenient, pain free options available to us), we turn again to our sage wisdom, and remind ourselves and each other that:
“all that really happens is is that you made a bet and you lost, so dont compound it by continuing to pay.”
We tell the casino manager that we’re real, real sorry, and as the bus pulls up and the doors swing open, we all… you guessed it… just walk away.
Yeah!!! That should work out great!!!
Who would like to RSVP and get a seat on the bus?
“Whats fraudulent about what Cramer is suggesting?”
I mentioned both Contract Law and Criminal Law (fraud). But you asked anout the latter, so
I will tell you how it is fraudulent.
He is not recommending that only people with the inability to re-pay their loan walk away, he is recommending that people who simply paid too much for houses to walk away from their loans. If you make $4K/month and your mortgage re-set payment is higher than your income, obviously paying the loan under the original terms is not possible.
But having bought unwisely in 2005 or 2006 does not give you a pass to walk away from these obligations. What lender on this planet would allow a deed in lieu of foreclosure (or short sale, etc.) for someone fully capable of re-paying the loan? NONE would.
What other path besides fraud would allow a person to accomplish Cramer’s suggestion? Again, he is not speaking to those who have no choice about defaulting, he is talking about making the affirmative decision to walk away from the loan because house prices are declining.
“Remember, your house is only a good bet if you can build equity.”
“There are no up markets, and there are markets that are falling 20-30%, and those are the ones where its much smarter to walk away from your house.”
I think your looking at this the wrong way. Granted, the people should honor their debt. Some however bought and acquired debt to buy houses to flip and make a profit on– and in record numbers. This brings to light a different scenario than the people that bought a home to live in.
In the case of the people that bought and planned to keep and live in their home and now can’t pay for it, they are now the losers in this.
For the ones who bought for profit and now can’t flip it, the lenders are now the losers, because the flippers had little to lose.
In either case Cramer’s remarks are not illegal, as the lender took the property as collateral and the law allows no recourse against the trustor except the loss of their collateral.
To erase credit card debt the person would have to file for bankruptcy protection, and with the new laws, that is now a lot harder to rid one’s self of.
In both cases the lenders and the people who bought this debt are more to blame for allowing this to happen in the first place, so now they are reaping their rewards. If people who everyone knew would not be able to pay for what they lent them were not given the opportunity to borrow in such a manner we wouldn’t be discussing this today.
“In either case Cramers remarks are not illegal, as the lender took the property as collateral and the law allows no recourse against the trustor except the loss of their collateral.”
That is not the law in many (probably most) states. In those states that appear to be non-recourse on house loans, one had better have all of their ducks in a row, because there are many exceptions.