In Suze Orman’s book The Money Class, she advises her readers to, “Do the calculations everybody. How much is it costing you to actually stay in that house? How many years will it take for you to pay more for that house than it is worth? If it’s 3 years, 4 years, 5 years, are you kidding me? That’s a house you really need to say bye bye to. It’s not worth the money.” Suze Orman advises homeowners who are upside down in their mortgages to get the bank to modify the loan. If that doesn’t work, she suggests that homeowners seek out a short sale or a deed in lieu of foreclosure.
This mindset is selfish and wrong. If you can pay the bank then you should pay the bank because that’s what you agreed to do. If you can’t pay the bank then prepare to lose the house and any equity you had in the house. It’s not the banks fault you picked a property that declined in value and I bet they didn’t hold a gun to your head to force you to buy it either. The banks are in the business of loaning money to people that can pay it back. Banks are not in the real estate speculation business. If you think it’s right that the a bank should suffer your losses, then do you think the bank should be paid more if the house value goes up? Can you say double-standard?
In keeping with Suze Orman’s mindset, why don’t you finance the purchase of your next car, use it for a few months, and when the car’s value is less than the loan, refuse to pay the loan and hand the car keys to your loan officer. Using Ms. Orman’s philosophy, you should ask yourself, “How many years would it take for you to pay more for that [car] than it’s worth? If it’s 3 years, 4 years, 5 years, are you kidding me? It’s not worth the money.”
Here’s another idea. Buy a large amount of shares of stock of a publicly traded company on margin using the broker’s money. If the stock goes up, keep the money, if the stock goes down, let the broker suffer the loss for your actions. Using Ms. Orman’s philosophy, you should ask yourself, “How many years would it take for you to pay more for that [stock] than it’s worth? If it’s 3 years, 4 years, 5 years, are you kidding me? It’s not worth the money.”
The bank is not there to assume the risk of your purchase, you are. Why should you get all the profits and force them to absorb all your losses? Hypocritical don’t you think? If you think banks should suffer YOUR losses then you should consider letting them take your profits too. After all, fair is fair. Think loans are hard to get now? Just wait.
What saddens me is that Suze Orman suggests we profit from the betrayal of our moral obligations. Bad advice Suze.