Yes... if someone gets transferred a drop in home value can be a problem.
Some companies used to include a loss taken on the sale of a home in the relocation expense reimbursement package. Not many, though.
If the employee has to take the loss, we can then presume the frequently transferred employee made some decent money selling previous homes during the real estate boom? Furthermore, living in a $250,000 financed at 1% for 3 years vs 6% saved the mortgagee around $35,000, so a $50,000 loss is really a net $15,000 loss. That isn't the end of the world.
That's an oversimplification, of course, but the core problem is that people were getting into variable rate loans they could barely afford at low teaser rates. Even if home prices stayed level or rose, there was no way they could afford that same mortgage when the teaser rates expired and market rates kicked in.
I guess they figured a mortgage was like those credit card balance transfer things I kept tossing in the trash - 0% APR until xx/xx/xx... for awhile there I guess many folks kept transferring balances from one card to another for the low rate and figured they could do the same with a mortgage.
Another item to consider... with a fixed rate mortgage family and friends are often able to help out in the event of a temporary setback like a job loss or medical issue. With a variable rate turned to market rate that the homeowner can't afford under any circumstances - helping out is like tossing money out the window - and family won't be inclined to do that.
the drop only matters if you in a job where you get transferred often (like my folks were), then it complicates things. |
