New way to reduce your mortgage: Stop paying!

An article late last week in the San Diego Tribune offers up some very realistic, yet depressing advice about the current state of home ownership: Many homeowners would be best off if they simply stopped paying their mortgages. How so? The passage of the bailout bill meant that help for homeowners was assured. After all, politicians can't risk bailing out corporate America, while letting poor little homeowners lose their houses and be out on the streets.

If you've got little to no equity in your house and find it a struggle to pay the mortgage, just stop paying. The government is making it clear that we shouldn't have to sacrifice to stay in our homes regardless of the fact that we may have bought one we couldn't afford, lied on our mortgage application, or otherwise have gotten ourselves into major financial trouble.

The government is going to take "troubled" mortgages off the hands of banks, and plans on doing whatever necessary to keep homeowners in their homes: write down the principle owed on mortgages, give homeowners better interest rates (whether they deserve them or not), offer term extensions to stretch out the payments. The government will see to it that everything possible is done to keep you in your house.

But if foreclosure isn't really an option anymore, what incentive is there to make the mortgage payments? Traditionally, a homeowner pays a mortgage so that the bank doesn't take away her or his house. Now, without the threat of foreclosure, it seems almost silly to make mortgage payments.

Who suffers under this plan? Those who have a lot of equity in their houses and those who may be in a tough financial position but are committed to paying what they owe. If you've got equity, you're not getting a "get out of jail free" card because a bank will be all too happy to keep your loan on the books and foreclose if necessary. If you're in a bind but committed to making your payments, you almost come out of this looking foolish. Why pay when other people in your shoes are getting free money?

The writer of the original article suggests the unthinkable: If you've got little to no equity and you want to cash in on the government assistance (even if you're not currently struggling to make your home payments), go ahead and spend everything you've got saved. You'll be stimulating the economy and at the same time, you'll be making yourself poor. Don't pay off your credit cards with your cash, though. You'll need that debt to make your situation look even more dire. Because next on the list for bailouts might be the big credit card companies, and surely some help will come to you through that program.

This all sounds so crass and bitter, doesn't it? But this is the reality for those of us who have been working hard to pay our bills and get out of debt the honest way. Our government is creating a culture in which personal responsibility is not a virtue, it is a life sentence.

While some of us are taking responsibility and doing the right thing by paying back those who loaned us money, there will be thousands of consumers working the system to their advantage and getting free money. And who ends up ponying up that "free" money? You and me, my friends. We all pay for the financial mistakes of others when mortgages are forgiven and credit card bills are written off. How's that for a double-whammy on the responsible consumer?

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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