Rethinking the consequenes - Tomson Burnham LLC

You’ve all read about it. Buy and Bail. Walkways. It’s all over the news.

For those considering these ideas here in Salem…have you really thought it through.

In the buy and bail scenario, a homeowner with good credit purchases a second home and then lets the first home go into foreclosure. With their good credit they secure a place to live. I mean home prices are down, why put your financial health in jeopardy. Sounds like a good strategy, right?

With walkaway, it is just that simple. Mail the keys to the lender and stop making payments. Let them take the loss: They’re just a bank. You take the credit hit. Fine, you rent a place for a while so what? What’s the big deal?

The big deal is this…credit. Both of these plans are short sighted and narrow minded.

First of all, banks aren’t just a bank: They are a business that will make up the loss. That’s right. For every person that bails or walks, they are helping to raise interest rates for others. It’s no surprise that Citibank and other large banks have raised interest rates on credit cards. They are going to make up the loss. So if you walk or bail, remember that it is your sister, brother, grandmother, and cousin that are paying for your home with higher interest rates on credit. This isn’t just about you; it’s about everyone.

Second of all, credit is important. In the buy and bail, the homeowner has a place, a roof over their head. Now as long as they live there for a few years, all will be well. True. What happens if all is not well? What if something happens and you need credit. Your son breaks his arm and you don’t have health insurance? No credit to tap into. Having access to credit can be the difference in making in through a rough period or not.

Now, I am not an advocate of spending yourself silly. I personally live very conservatively in order to plan for those unexpected life events. I have a home equity line and a personal line of credit which were essential for launching my own brokerage and other home remodels along the way. They have been paid off, but having access to those funds without having to tap into retirement funds, or other sources can be a good financial move.

People that buy and bail and walkaway are not thinking about the consequences of their actions on the rest of society, nor are they appreciating the impact of lack of credit can have in their lives.

If you are thinking about either of these strategies, I encourage you to reconsider your choices.