And what have you done
Another year over
And a new one just begun
Ans so this is Christmas
I hope you have fun
The near and the dear one
The old and the young
A very merry Christmas
And a happy New Year
Let’s hope it’s a good one
Without any fear
And so this is Christmas
For weak and for strong
For rich and the poor ones
The world is so wrong
And so happy Christmas
For black and for white
For yellow and red ones
Let’s stop all the fight
A very merry Christmas
And a happy New Year
Let’s hope it’s a good one
Without any fear
Happy Xmas — John Lennon
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Asking Price: $499,950
Income Requirement: $124,987
Downpayment Needed: $99,990
Purchase Price: $546,000
Purchase Date: 7/19/2005
Address: 1703 Terra Bella, Irvine, CA 92602
First Mortgage $435,750
Second Mortgage $109,150
Downpayment $0
Beds: 2
Baths: 2
Sq. Ft.: 1,341
$/Sq. Ft.: $373
Lot Size: –
Type: Condominium
Style: Other
Year Built: 2002
Stories: Two Levels
Area: Northpark
County: Orange
MLS#: P609749
Status: Active
On Redfin: 28 days
From Redfin, “Beautiful Tuscan Village architech with desireable front entrance with small balcony. 2 bedroom 2 1/2 baths with a living area of 1341 Sq. Ft. in an incredibly well kept gated community with guard. Association Pool and spa with very low association fee. Ceramic tile and carpet flooring throughout. In very good condition with breakfast counter/bar and very spacious floor plan. Master bedroom with dressing area and walk in closet. Central A/C and Heating. And so much more!”
desireable? architech?
incredibly well kept? Is it really?
Shouldn’t the asking price be $499,999.99 and 9/10?
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Since this is another 100% financing deal, the lender will eat this one. Assuming a 6% commission, they will lose $76,047.
These sellers will probably not pay the bank back the $76,047, and they will just walk away. They probably could afford to repay the debt as it isn’t that large, but in many instances, the debt is overwhelming. Those are the circumstances I would like to discuss today.
There is a “strictly business” aspect to the decision that most often points to walking away, and there is a moral aspect that never points to walking away. This is a complex dilemma, and it is easy to moralize when one is not in the dire financial straits a massive home debt can bring about. However, people often find it far too easy to just walk away and justify their immorality.
IMO, walking away and declaring bankruptcy probably go together. There is probably not much distinction between the two as it impacts one’s credit score (perhaps some, I don’t know, but they are both bad.) Bankruptcy law was put in place to give people a fresh start when life’s circumstances create a debt that could not be repaid in any reasonable amount of time (7-10 years.) We can debate whether or not these circumstances were self created, and we can debate the morality of bankruptcy law, but these laws are on the books because debtor’s prisons were not serving the greater good (we can debate that too if you want.) Therefore, it can be argued that society has determined it is desirable — and thereby moral — to wipe the slate clean and give people a second chance. Lenders knew what the bankruptcy laws were when they chose to make the loan. If they chose to extend the credit, do they bear any moral responsibility to the outcome?
IMO, when faced with a debt that cannot reasonably be paid off in 7-10 years (which will be very common in the aftermath of the housing crash,) it is the right financial decision to walk away from the debts. It is in society’s best interest to have a productive citizen whose income is going toward restrained (due to lack of credit) consumer spending rather than unrelenting debt service. Is this moral? You tell me.
It’s surely immoral when you “promise” to do something and then fail to perform.
That’s a hard question of whether or not we sentence someone to a lifetime of miserable debt prison just because they made a few bone-headed promises that they could not honor in the end.
The way I see it is that these bankrupted home “buyers” will not be in the market for a house when the bloodbath is over and left out as the rest of us come swarming in for the feast.
These home “buyers” will be forced into realizing that they are no better than anyone else and all those gravy covered toys they bought with their house ATM were part of a big lie that they fell prey to.
In my mind, that is fair enough. I wouldn’t mind seeing a limit to how much debt these people can walk away from, but I don’t think I would particularly want to see these people endure a lifetime of misery.
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Is morality in this situation only one sided? Do lenders have a moral responsibility to prevent these situations from occurring by adhering to sensible, sustainable lending practices? Predatory lending laws are on the books because immoral lenders would intentionally overextend borrowers in order to foreclose and obtain large fees, back interest, etc. in a foreclosure sale. Society has said this is immoral. The lending in the bubble seems just as predatory, only this time, it is going to backfire on the lenders. My point is, if the lenders would not have enabled this problem, we would not have so many borrowers in this moral dilemma. What responsibility do the banks have in this matter?
If I had bought an $800,000 house and saw the value heading toward $400,000 with an increased monthly payment on the horizon I’d walk too. There is absolutely no dis-incentive to not walk. The taxation of their forgiven debt would have been the only thing that may have caused them to consider staying but with the socialist bailout coming freeing them of any tax burden they can walk free and clear.
So they have poor credit for a few years. With a three year history of re-establishing a pristine record they’ll be able to borrow at market rates soon. Also why stay and wait twenty or thirty years to break even. If the re-set of their ARMs raises the payment $1500 a month they can save that in an IRA or invest it and actually make money instead of paying interest on a upside down property. Or, more likely, they can spend it and continue to live beyond their means and living paycheck to paycheck.
All the speculators and “investors” will bail. Anyone who has any education and is able to look at the big picture will bail. The lower class with poor educations may fall for the “bailout” although I doubt that also as they’re the ones who had the worst credit histories to begin with.
If you and I make a personal agreement, where you loan me $1,000 and I agree to either pay you back $1,100 on the same day nest year or hand you the keys and pink slip to my car, I have promised to do one or the other. If I do not pay you the money, but give you my car, my moral obligation is fulfilled. If I pay you the money and keep my car, my moral obligation is fulfilled.
I am not a mortgage contract expert, nor am I even familiar with how mortgages are written, but I wonder if mortgages do not work the same way. Is the agreed upon performance for one or the other, not both? The lender is not a victim in this contract. The lender has agreed to and desires this collateral type of contract. The contract is fullfilled no matter which option is performed. For immorality to occur, doesn’t there have to be a victim? Yes, the lender will lose some assets on the short sale or foreclosure, but isn’t that the risk the lender took and agreed to by demanding collateral, and agreeing to the contract. Loss does not equal victim. If you sell your home or car for a loss, you are not a victim. Neither is the lender. It is the agreed upon risk they took upon entering the contract.
In my mind, if I am a judge, morally it seems it should be one or the other, and as long as either option is performed, the contract is legally and morally met.
I see that it is a two bedroom place, however, there are no pictures of either bedroom. What good are pictures when the most important features are not photographed for view?
In some countries, university education is paid for. University grads tend to make more money and pay more taxes. That’s one more source of massive debt that doesn’t get added to the pile…
There was a whole other class of people buying houses with 125% loans, zero downs, neg am’s etc… People at work who ask you to tell the guy on the phone not to call there any more ( because they were not paying their bills, either, on time before the big purchase). People who could never ever be part of the american dream were now let in – no longer just window shoppers looking in- they had their plastic ready and bought their homes, expensive furnishings, expensive cars, to-die-for trips and just about anything else that they could get before the bills came due. It was like a giant supermarket shopping spree (remember that show where the contestants loaded up as much merchandise as they could and the “winner” was the one with the highest check out total?) show. Faked out credit scores, liar loans, ridiculously inflated state incomes all got a large group of people into the sham called Real Estate the last few years.
This is not a moral issue. These people could not be trusted to pay their rent and lights on time and someone handed them the keys to a house and a credit line to die for. Only 50% of the population is “normal” in intelligence and ability. 25% fall in the above or below intelligence/ability scores, respectively. This is not a morality issue. This is about letting the unqualified and unprepared into the world of responsibility that they knew very little about.
Awgee….I agree with you but I also believe lenders have a moral responsibility to put borrowers into a product that they can afford regardless of collateral or market conditions. This is why I really don’t care if lenders loose money if it was the borrowers that got taken advantage. Granted some borrowers took advantage of easy lending but for instances like AV Paperboy he, IMHO, was taken care of and should walk.
It’s a tradeoff – the taxpayers in those countries are paying for it rather than the students. We DO pay for higher education – it’s called community college & state schools. And for those that can’t afford, taxpayer funded financial aid will fully cover. For those that can, the US offers generous, subsidized tax breaks and interet deferment.
I have 2 kids and refuse to put any more tax burden on those without children.
Another way of looking at it is people started to see their houses the same was as their cars. You sign a lease, pay for two-three years then give the car back to the dealer. Same w houses. You sign a mortgage, pay for a couple years then give it back to the bank.
What’s wrong with that?
yes- higher education is heavily subsidized by taxpayers – but financial aid is pretty much all loans now – and I believe interest deferment is only for the first 6 mo after leaving full-time school. If the loan systems made it easier to combine part-time work and school it would be easier for lower-income folks.
Alan – so much for the “ownership society”…
RE morals… I think borrowers have a responsibility to themselves and their families to understand the obligations they’re getting into, and banks/investors have a resposibility to themselves and their shareholders for the same… my scorn is reserved for the irresponsible mortgage brokers, realtors and CDO originators who built and perpetuated the whole sham. I don’t see them having to take any hits in the bailout schemes either.
Slacker hugh? You must be from the younger generation
One of colleagues proposed this law “anyone born after 1965 is no longer responsible for his/her actions”
but also consider the positive effect that the investment in higher education has on your community – having a good community college system is a huge draw for employers because they know they’ll have a well-trained workforce to draw from. Usually community colleges are more important to employers than a university – they can recruit professionals, but for the bulk of their personnel they have to work with the local population. Desirable to employers = more jobs = higher or more stable property values. Not to mention that a strong education system makes your area more attractive to residents.
Out here in TX there are a lot of places that try to go the low-tax, low-service route, but a community that can’t be bothered to invest in itself isn’t an attractive investment to anyone else either.
I agree … my statement was that community college is nearly 100% subsidized (provided the student qualifies for in-state status). This refutes doug r’s inference that the US doesn’t pay for higher ed. I’m a product of cc, and hold an mba. my sis-in-law has a berkeley degree, bro has a hastings law degree, all products of cc. Downside is you miss the “experience” during the first couple yrs.
regarding interest deferment, remember that stafford subsidized loans also cover interest during the period you’re in school, including grad school, through 6 months post-graduation. That’s up to 6.5 years of interest paid by you and I. Not bad.
school is still the best investment you can make, at any price.
it is moral to “walk away” provided you don’t have the means to stay put. if you’re upside down, want/need to go, but can afford to stay, do the short sale and take the 1099 tax hit.
walking without the short sale ultimately hurts the taxpayers based on a reduction in income tax.
Does immoral behavior from others give you license to act in an immoral manner? If so, then just about everyone who has bought a used car from a used car dealer is licensed to ignore their legal obligations.
FBers were stupid enough to buy into a mania. Just because they were also stupid enough to deal with immoral people/organizations does not mean that they should get a “get out of jail free” card.
There was a time when that irresponsibility would have been attractive to me (ie when I was growing up and becoming responsible for myself), but eventually you realize that freedom and responsibility tend to go together, and that karma is as irrefutable as gravity.
A friend from pakistan told me how there women have some traditional advantages – like you can’t evict a woman with children. Her uncle had a property with a tenant who had been squatting there for 20 years (again, this is tradition, not law). But the downside is that women have less access to rentals, and to credit generally.
RE slacking – the hub and I are enjoying the benefits of living cheap – our mortgage is about 12% of our income (and before you get jealous, the place is a tiny POS with nonperforming schools), and I’d rather put the extra money toward the one child we’ll ever be able to afford – Sallie.
I don’t think it’s really backfiring on the lenders. After all, it’s the SIVs that hold the mortgages right? And if the mortgages fail, it’s the SIV investors, not the banks, that take all the losses (assuming there’s no misrepresentations at time of sale that makes the bank buy the mortgages back – ex. fraud). All that happens to the banks is they have to keep back more reserves because they help guaranteed the SIV’s debt in some way – big deal.
As usual, it’s the Wall Street fancy dance where a bunch of finance whizzes figure out a way to fleece the clueless (ex. pension funds, municipalities, etc. that don’t know what’s going on and trust in the AAA rating to make it all right). The clueless lose the money, and the finance whizzes pocket their fees.
You have to remember where the money comes from when you walk away. It isn’t just some faceless bank taking the hit. It’s some retiree’s pension, or some school kid in northern Norway who’s school can’t afford worksheets or the photocopier bill next year…
Awgee, I disagree. I don’t think a mortgage is *intended* to be an either/or option. Because of the massive amount of money involved, the collateral is required as a loss mitigation item in the event you default. Similarly, I do not believe a car loan is intended as drive it until you get tired of the payent and then you have the choice to give us the car instead of paying the bill.
IMHO, the implicit flaw in the strictly business camp, often coinciding with the ‘blame the lender’ camp, are the assumptions that
1. the lender priced in the risk that your decision to default was a given if home values didn’t continue at a 20% pace.
2. that it’s the lender’s responsibility not to let you over extend yourself.
Neither of these are true. Lenders have priced in the risk based on your credit history that you’ll have financial difficulties like job loss, illness. Borrowers did not go in with a business plan, pro-forma financial statements and a marketing plan with a client list. Which the lender then decides is too risky and declines the loan. Nor are the interest rates near what a small business start-up is facing.
Government paid university educations are not EXPENSES. They are INVESTMENTS. When you invest in your citizens, they (like all good investments) have a reasonable probability of yielding you a nice return on your investment.
The investment that Cal State Fullerton made on my education was about $15,000. The investment that Cal State Long Beach made on my masters was about $18,000. The State of California received over 10x that amount since my graduation in 1986 (not counting the property taxes, sales taxes, utility taxes, etc.) And they will (hopefully for me and the State) continue to receive much, much more for another two decades.
Besides, what should a government want for its citizens? And educated populous? Obviously. IMHO, we can’t spend enough on education. Tax me more — but spend it on education!
Exactly awgee. Those who are arguing that it is a moral wrong to walk can logically extend all contracts resulting in losses to either party to be immoral. That would mean that the stock and commodities market is immoral, since you can buy high and be forced to sell low. One could also infer that it is immoral to sell a stock below your purchase price because that would mean that the previous buyer may not get their break-even stock price.
The contractuality mortgages is not in question. The whole argument of morality on behalf of the home owner focuses around the willingness of the home owner to foreclose or short sell when they have the ability to stay in their home and continue making payments.
From a utilitarian perspective, if it is for the greater good to walk away from a mortgage that is too burdensome and let civil law take its course, the act is moral. Again the contract is fulfilled when the lender takes the home.
Using these generalizations, I agree, especially if an $800K Irvine home were to fetch $400K within a couple years. But I wouldn’t adivse anyone to walk-away without understanding their complete financial picture.
e.g. The household that purchased the $800K home could have financed less than 4-times their income. Their housing cost could be very affordable at less than 28% of their gross. The debt forgiven would be taxed at 37% (28% + 9%). So their realized net worth gain would be just $.63 on the dollar; i.e. Instead of getting to walk away from $400K, they’re really just walking away from $252K (this would be less according to the principal reduction over the years).
So, for a household earning $200K+, living responsibly with little debt outside of the mortgage, they’d have to ask themselves at that point, whether $252K is worth the credit and moral hit their lives would endur.
Remember, the option to walk away is always there. It only expires once the loan is paid in full. So many people not in financial trouble may likely just ride-out the market.
NSR
“Lenders have priced in the risk based on your credit history that you’ll have financial difficulties like job loss, illness.”
Did they also price in the risk of lending to people with no money down, more than 5X gross income, and history of indebtedness? I am sorry but the banks are in business to make money off a mortgage and also the same people that send you info about refinancing your home so they can make more money off of you. It’s not immoral to walk away from a home that you can not afford or that you are so upside down that the future payments you will never beable to afford.
read my further comment on education being the best investment one can ever make.
i’m sorry … where in the constitution does it discuss the responsibility of our gov’t to provide higher ed?
libertarian values aside, we strike a damn good balance in this country of providing funding, access, and quality in our higher ed system.
Yup, there are two sides to each story. Sure, people should always keep their promises. And the Lenders should have dealt in “good faith.” After all, isn’t a loan broker’s duty to his client and not his pocketbook.
One could argue that people sought a loan broker’s advice to help them through a complicated and important process. They trusted them just like you might trust the advice of your attorney or CPA. After all, if your CPA gives you tax advice, are you really supposed to go look up the Internal Revenue Code, check the Revenue Procedures and Revenue Rulings, the court decisions and other substantive authority to “double check” your CPA? No, you relied on a professional for advice so you should be able to rely on it.
Then there is the “bullshit” factor. Let’s face it, regardless of what the loan broker advises, it just doesn’t pass the BS test that you should lie on your application and buy a $850,000 property whilst working at Target.
So there is plenty of blame to go around. And when the smoke clears, I don’t think someone should be indebted for the rest of their life because they made one stupid mistake. After all, one’s obligation to their family, to support and provide a reasonable standard of living, without undue hardship or stress, supersedes one’s obligation on a business transaction with the Lender.
And if the Lender can’t be made whole after foreclosure, then the Lender made a business error in judging both the payment ability of the borrower and the residual value of the property. And the Lender will have to pay a price for their error in judgement. The Lender, after all, has an obligation to look after their own money before giving it out to someone else.
Laws appropriately place the burden on the lender to make a “good” loan. The lender is the more sophisticated party by far in most loans. They also have the data necessary to price the loan according to every single risk factor of the borrower and in the market. If they don’t make a “good” loan, they’ll need to mitigate their loss liquidating the collateral.
I suppose if there were another overriding obligation, one must consider that. For example, putting one’s family through torment in order to keep paying a loan agreement. I would imagine that circumstances vary, and I doubt that it is ever an easy choice to walk away or sell short.
On the other hand, it is never usually ok to judge someone who is going through adverse circumstances, like a short sale.
The whole morality discussion is entirely orthogonal to the situation. Does anyone here in their right mind think that the lender would take morality into account in their decision making? Hell no. For a borrower to do so then places them in an immediate disadvantage wrt the lender in what’s essentially an adversarial relationship.
This is a business transaction. Run the numbers. If it makes sense to walk, walk. If it makes sense to stay, stay. Because that’s *exactly* what they’ll do on the flip side. if it makes sense to foreclose, they’ll foreclose; if it makes sense to do a workout, they’ll do a workout. And they’ll do so without one thought of whether it’s moral or immoral.
But if you still want to argue morality, look at it this way: the lender knowingly went into a legal agreement with you, and did so with a far bigger arsenal of legal knowhow than you (you can bet that those reams of legal documents you signed went through the kind of pricey and thorough legal review most people couldn’t afford in their wildest dreams). Therefore, the lender has already *agreed in advance* that you are allowed do anything that is permitted by the contract you both signed and the law governing it, and this includes walking away from your underwater mortgage. If the lender has already agreed you can walk away, there’s nothing wrong with doing so: morality does not mean being more Papist than the Pope.
A little (lot) off subject, but I was wondering if anybody else caught this:
The Fed said it would also establish foreign exchange swap lines with the European and Swiss central banks to ensure the availability of ample dollar funds in European markets.
So… is this an attempt to prop up the dollar by setting an artificially high price for the dollar in the swap? Kinda like the Fed moving interbank lending rates?
Does this mean those mythical foreign real estate investors coming to save the day will get locked out of the housing market?
Also, the decision is forward looking. So another question this household would have to answer, is whether it is reasonable that the less than $240K they’re considering walking away from could possibly be recouped; i.e. “Our home is now under-valued and will likely appreciate over the next few years.” This further diminishes the value of the option to walk away.
Agreed. Maybe the better question is, rather than considering morality, how hard will it be on you when presenting your “walk away” to friends, family, and coworkers? How badly will it make you feel?
That’s a touchy-feely type of question, but I think it’s important. I know one of the primary reasons pushing me through college was not wanting to feel like a failure.
I think allot of people only see that new beautiful house. I don’t think they see the total financial commitment to own a home. But after the excitement of the new house wears off, new buyers get that mortgage statement month after month after month. Some people can’t handle the pressure of coming up with the money, so they just walk away and never look back.
Nope, looks like it is the banks running the SIV’s that will get hammered.
Yes, the bond holders assume the risk and if the SIV fails while all the bonds are issued then the investors are left holding the bag while the bank gets away.
The problem is most of the bonds are short term. So, most bonds have matured and investors decided they don’t want to buy anymore of them. Since that means the bank no longer has the money from the bond, and can’t raise the money, the bank has to value the mortgages in the SIV and put them on the books. At least this is what I think I’ve figured out.
I don’t know about the equity tranche though. This works more like a stock that pays a dividend, so I think once the SIV sells it then the bank is worry free. I think. So, this should soften the blow for the banks.
The bank loans people money to buy homes, and if the people don’t pay the money back the bank takes the house. It’s a win win for the bank. If the house is worth less than it was when the contract was written the bank losses on the deal. It’s called risk. Thats a risk the back takes for doing business. The customer gets a hit on his credit for backing out. We have a credit system in place to know if prospect are in good credit standing or not.
Perhaps I am somewhat jaded, but I find the entire situation culpable. The banks that bought the CDO’s, the Mortgage Brokers who knowingly put people in loans they couldn’t service, the Real Estate agent that carried the “mantra” that real estate never goes down, better buy now before you’re priced out, the buyer who lied on their application knowing they could not afford the reset, and of course our government for dumping billions and billions of dollars on our economy to prop up the scam.
Unfortunately the ones that will end up picking up the tab are those that have been responsible. The banks will take the losses against future earnings, and the Fed will pick up the difference for the loans that were purchased by Fannie Mae and Freddy Mack.
So in the end…….they all walk away scot free and get to keep all those commisions and fees, great work if you can get it.
I think if someone lied on a mortgage applicaion, they should be responsible.
If a broker put someone in a house they KNEW they could not afford, they should be responsible.
What people forget is that the lender performed their part of the agreement when they provided the money for the mortgage. The only remaining performance is by the borrower, i.e. make payments.
Who in the world has more knowledge of the borrower’s financial condition, then the borrower himself. The borrower has intimate knowledge of his job promotion prospects, expenses, outside income and the myriad of financial data which affects his ability to make those payments in the future. Whether the borrower lied to himself, or to the lender, it is the borrower who ultimately agreed “yes, I can pay you back for this loan.”
If an event beyond one’s control and unrelated to the loan agreement, i.e. heart attack, makes it impossible to repay the monies, that is not an immoral act. It is for that reason, that the house is collateral.
If, however, the reason for the non-payment is the borrower’s sudden realization this was a bad deal, or is otherwise related to the purchase, then it is immoral for the person to walk away. Don’t make promises if you are a lying cheat who will not back up your word.
Why do people so quickly condemn loan companies who renige on their part of the agreement, e.g. switch type of loan or interest rate, yet provide justification when the borrower reniges on their part of the bargain, i.e. make payments.
The best thing for this country would be if as a society we started to condemn loudly those whose promises and words mean nothing.
I believe that it boils down to having good controls in the system that hold everyone in the transaction accountable for what they are doing. And unfortunately accountability gets QUITE diluted as it moves from the level of a CEO or Vice President down to the individual loan producer in a mortgage companies. There is only so much that the CEO can do from the 10,000 feet point of view. The way people are compensated for the loans they produce without any checks and balances on HOW these loans are produced causes bubbles like the housing bubble. Yes, the consumer is also accountable, but why give the consumer options that they can exploit and misuse? I have a friend who bought a sub prime loan mortgage back in year 2000 and he has lead me to believe that he benefitted from it and has been financially responsible on the mortgage. If you look at the percentage of loan portfolio of a bank comprising sub-prime loans you have to ask the question if anybody at the bank performed a risk assessment on what amount of sub prime loans the bank can issue without lowering lending standards? Also if someone in the industry lowers their standards, they obviously get more business as a result and competitors do a copy cat with the justification of bringing additional revenues for the company and soon you have an epidemic problem. There are very few companies out there that will turn away business due to strict lending standards. So I guess greed is the key.
ken lay at enron and the ebbers guy at worldcom went to jail (well ken died before he went but jeff skillings is rotting away there) and mozilla and the other mafiosos of the mortgage business should be indicted for criminal acts in this mess and sent away. they had a moral and fiduciary duty to offer loans at the lowest rates and instead steered their clients to time bomb loans. there are perps on both sides of the mortgage transaction and the big perps should walk to jail. where’s the outrage calling for criminal indictments in the mortgage meltdown, just as what happened in the tech meltdown?
Immoral to walk? It depends on what led up to the person walking. Illness, unemplyment, etc. which led to the walk, then not immoral in my eyes. Using the house as an ATM to buy Hummers, hookers and cocaine, which led to the walk – totally immoral. Many people fall somewhere in between these 2 extremes.
Irresponsible to walk? Always!
Anyone that is considering “a walk” shoud get some good professional advise, because there are huge consequences to “walking” in terms of taxes owed (not always but in many cases), a possible money judgment owed (depending on how you financed the home); and destroyed credit.
And a person’s credit these days means a lot. Employers check it. Landlords check it. And of course lenders check it. Poor credit will affect a person’s ability to secure future employment, an apartment to rent and of course future credit.
It boils down to this:
Bad Credit = Irresponsible Person = Life just got a little more difficult for you.
I agree. These are the people who over-bought (probably representing a majority of the purchasers in the last few years). For them, there will be no moral question. They only have to ask themselves, “Do we still want to put groceries on our growing credit cards, or do we just want to get off this treadmill and reset our lives?”
Except that your “promise to pay” is a fairly complicated one with lots of rules: is the very contract that allows you to walk away. Therefore, walking away from the mortgage is not violating that promise because it is *directly allowed* by that promise.
Put it another way, your promise is not “I will pay this monthly payment no matter what.” It is “I will pay this monthly payment, but if the value of the house goes below what I owe you, I can just give you the keys and be done with” (and a whole slew of other caveats on both sides), and the bank *agreed* to loan you money based on *that* promise. So walking away is not violating your promise at all, and it does not make you a “lying cheat,” which is, btw, inflammatory and insulting.
Awgee, I respectfully disagree. If you look at the mortgage papers, the opening sentence is typically “In return for a loan that I have received, I promise to pay $X (this amount is called “Principal”) plus interest, to the lender.” There is no option in the documentation to hand the keys to the house back to the lender as substitution for the promise to pay. In fact, the lender can decline to accept those keys in lieu of payment. If it was an option set forth in the loan documents as you suggest, the lender would not be able to decline the keys. The conclusion is that if I default on that mortgage, I have defaulted on my promise and the state decides what happens thereafter.
Thus, I think it can reasonably be established that failure to pay a mortgage is a default on a promise. Does that make it immoral? I think it depends on the circumstances and intent of the borrower. Yes, I know some will tell me intent and circumstances are not part of a business arrangement. I respectfully disagree. I don’t think morality gets left at the door because a business transaction has started. I would hope there is morality, ethics, integrity in every business decision, even if the letter of the law does not require it (it has often be said that we cannot legislate morality and that is probably correct).
So is it immoral to walk away from a mortgage? The rules on the foreclosure process are set forth by the state. As such, the rules in California are fairly merciful. At least for first mortgages, they are non-recourse, meaning the lender cannot come after your other assets. If the borrower is really far over his/her head and entered the situation through ignorance or unfortunate circumstances (illness, job loss), I don’t think it is immoral to humbly and gratefully accept that mercy. However, if the borrower is able to within reason to pay back the loan or is gaming the system by treating the loan as an option on housing appreciation, I think it is immoral to abuse that mercy and default on a promise with that intent. The buyer can certainly legally do so, but that does not make it moral.
There’s a host of economic and utilitarian arguments being given for being able to easily walk away versus not being able to easily walk away. Those arguments include the undesirability of debtors prisons, the abuse of lenders versus arguments such as the lenders losses driving up costs for future borrowers, etc. Those arguments are reasonable reasons that the state sets the foreclosure rules where they are and perhaps why they should be merciful. But in my opinion, those rules and the utilitarian reason for those rules do not define morality.
IR, could you change as soon as possible my name on the previous post. I intended the handle to be gEEk and assumed the name for entering a comment was supposed to be my real name. Urgh… I would prefer my real name not be used. Thanks
My god, no one put a gun to someone’s head and forced them to over-extend to buy a house. These consumers selected their agents and picked their mortgage. Those chose a “professional” to help them with a large transaction and elected to follow that person’s advice. Maybe they got bad advice, but it’s on them to get a second opinion, find a better agent, or get off their lazy ass and do some research on the internet before they buy.
The lenders put a contract in front of these borrowers and provided plenty of disclosures to the effect of “hey moron, your payments are quite possibly going to go up quite a bit down the line when your mortgage resets”. If these borrowers didn’t think about it, didn’t bother to read the paperwork, or couldn’t read it, they have no one to blame but themselves. They should have gotten the facts before they signed on the dotted line.
Real estate agents aren’t to blame. They are simply salespeople trying to make a buck. A great many of them are low-skilled, poorly educated, and wouldn’t have the foggiest notion about the future forecast of interest rates. It’s not their job to advise on affordability of a particular home for a potential buyer. It’s not anyone’s job… When I go to Toys R Us to buy my kid an Xmas present, should the cashier be discussing my monthly budget with me before she rings me up?! Should the Best Buy guy I approach to help me pick out a nice plasma TV for the wall check my net worth before he shows me the super 52″ high def model?!
Lenders made the money available and now they are taking it in the shorts. If they didn’t price in enough margin to account for the risk, oh well, they rolled the dice and came up short. For years, lenders were making a killing and now they are hurting. That’s just business baby…
Bottomline is that prices rise and fall. That’s what happens in a market economy. The lenders are responsible to themselves for their lending activity, the investors are responsible to themselves for buying CDOs, and most importantly, the home buyers are responsible to themselves for their choice to buy. If they weren’t smart enough, informed enough, or rich enough to purchase what they purchased, they shouldn’t have been buying. They rolled the dice too and crapped out. Whatever pain they experience as a result should all be on them…
You’re absolutely right Diane. Unfortunately for some borrowers, they’re going to get burned both ways. They’ve bought more house than they can reasonably afford, but if everything goes right, they could make do. Now they’ll start hearing about how easy it is to walk away, and they’ll just do it, without considering the consequences. There’s just not too much you can do for these borrowers. And I don’t feel too badly for them considering the vast amount of info available today.
Mark – there is a good chance that they will not be taxed on the forgiven amount. Bush is working to get that taken out of the tax code.
Good point, I think any talk about morality is simply rhetorical. I’m not sad to see the predatory lenders take it in the ass, what goes around comes around.
As far as I’m concerned, because the people who started and profited from this mess are getting or will get bailed out, morality doesn’t even enter into the equation. It’s a free for all, take what you can and gtfo.
gEEk – I recommend sending a note to zovall [at] irvinehousingblog [dot] com. He is the techie behind this site.
I think a lot people will be running away from their homes….not walking.
I you read my post in the forum, you’ll see I agree. My main beef is with the ‘it didn’t appreciate so the bank took the risk when they gave me the money’
How about if the person makes $150,000 a year and could sell, for a $25,000 loss. Should they eat it? Or is it the bank took the risk when they gave them the money so the bank should eat it?
I fundamentally disagree that the banks took the downturn risk. They were greedy, they’ll lose BILLIONS. That doesn’t change the responsibilities of the borrowers.
I frankly find the “the bank should know better than to give me money” argument patently offensive. Are they a six year old child that needs mommy’s permission to buy the toy in the store or are they adult buying a home?
If borrowers think the bank is responsible for all downside risk, including the borrower’s ill thought out plans, decision to buy an SL500 to drive to their mid-level job, that credit instrument is already available and has been fairly ubitiqious since the mid-70s. It’s a credit card. If people really think the bank takes the risk should the housing market stall or flatline, then the borrowers need to be ready for mortgages with credit card type rates, credit card type fees and credit card type terms.
This is the million dollar question……..who’s face will be on this story of greed and hubris….lay, milliken, ebbers, keating………who’s next for the “greed is good” hall of fame ?
SIV Accounting
http://calculatedrisk.blogspot.com/2007/11/siv-accounting.html
If these guys where smart, they’d wire transfer their millions to Brazil and live a life on the beach drinking caipirinas and watching young Brazillian girls cruise by Ipanema Beach in thong bikinis ;-). No extradition from there — and the dollar still goes a hell of a long way in Brazil.
Ok, here’s the ex-Catholic school girl who is now an agnostic/atheist take. Anybody who went to Catholic school, and took it at all seriously has a big interest in morals. From a theoretical and practical point of view.
I see nobody discussing any principles. When you don’t have a god or goddess to fall back on, you really have to focus on what your principles are or should be.
The only thing even faintly resembling a principal is, gosh, if it’s business then, it’s just business walking is ok, and nobody should expect anyting more.
Not much of a principal there.
I have found, in my practice, that most people wouldn’t recognize an ethical principle if it bit them on the tushy.
In reality, what most people’s actual morality says is:
Money is good.
More money is better.
Even more money is better still.
Less money is bad. Etc.
For all you Star Trek fans we will call this Ferengi morality.
Even Ferengi morality does have some positions which might not be entirely of the money is good variety. Thus, I believe that the “Rules of Acquistition” say that one must honor one’s contracts–at least where another Ferengi is involved. But I will call it Feregi morality anyway.
In reality, one can have too much money. Bill Gates, Warren Buffet and Soros can handle that much money, but I’m not sure I could. I would regard it as a painful amount of responsibility.
Then one has moralities handed down by various religions. That is, I have to pay because god/goddress will punish me if I don’t pay, either here or in the afterlife. I have always regarded this as the worst possible reason to be good. But it that motivates you to do better than you would otherwise, then it’s ok by me.
I think that general principles of ethics apply everywhere, like the law of gravity. Even in business. One might say especially in business, because that is really where the rubber meets the road. If ethical principles do not apply to business, then there is no use even having this thread, or discussion. Please do not bother to respond to me if you think that ethical principles do not apply to business. If you think this, you are ethically dead. If you want to discuss which ones apply and under what circumstances, and with what exceptions, we will have a fine discussion.
Ok, if you don’t have money as a god, in itself, and you want something other than what religions offer, where do you go.
You have utiltarianism, greatest good for greatest number. Useful, sometimes.
You have various “rules of thumb” that various societies have found to be useful. These tend to start at the family, clan and tribal size and then grow upward and outward in larger and larger circles. Thus the problem with the mafia and gangs is that they have some ethical principles for the family and clan, but feel that outside of these immediate circles, no loyalty is owed. This actually pretty much worked as long as the earth was thinly populated. It also help keep numbers from swelling too far too fast by constant simmering low level warfare between clans. So you don’t lust after the neighbor’s wife and his stuff.
And you don’t go around killing people or stealing.
(Yeah, I’ve read the 10 commandments and Francisco DArconia’s Money speech and find much to recommend in both of them.)
So what’s stealing, and when do we look the other way, and when do we enforce the rules? Here we have to get subtle. We also have to consider that we live in a global economy, which is a new thing in human evolution. As recently as the date of my birth in 46, I don’t think you could say we really lived in a global economy, tho of course there was foreign trade and foreign wars. No huge inter country capital flows. It was hard and unusual to make an overseas phone call, and unusual to make a long distance phone call. No outsourcing of jobs. Effective unions, effective because little or no outsourcing etc, etc.
So, we have to act in such a way that:
Our families,
Our relatives
Our friends
Our neighborhoods
Our towns and cities
You can look to Darwin and say that actions that result in most successful healthy offspring, can be principals.
If I had time to sit around and think, I would decide on something real world, not pie in the sky to use for principles.
I will never forget that buying a house is the biggest financial risk that a typical American family will take. In the late 80’s my wife and I bought a house in New England at what turned out to be the height of the market. At the time, we were assured by the realtor, our friends and our lawyer that we were doing the right thing, well within our income limits, the market hadn’t peaked, great neighborhood, house was a bargain, now or never, etc.
Nine years later, my wife and I “walked away” from our house and our 30 year fixed mortgage. Never missed a payment until I lost my job and our house payments suddenly went from 26% of our monthly gross income to 65%+. We were able to keep up the payments for 8 months by running out our savings and maxing out our two credit cards while we tried to sell the place. Three different realtors told us the same story – we were still underwater with the mortgage, as prices in our town still hadn’t recovered from their late 80’s high.
When we finally walked, it didn’t even seem like a choice: If we paid the mortgage and credit card minimums, we wouldn’t have food on the table and gas in our 10 year old car. It took a year for me to find another job in my field, and it was halfway across the continent. For reasons we didn’t understand (and weren’t going to argue with), the foreclosure never showed up on our credit reports, but the credit card delinquencies did. Six years later our credit records were clean but it was another 3 years until we felt secure enough in our jobs and savings to risk buying another house (10% down again, with a 20 year fixed mortgage and house payments
These guys all have personality disorders……when you hear them talk they all seem to think that some one set them up. They are unable to understand what they did and why it was wrong. Look at it like this, if they were smart enough to flee the country, they would never have committed such colossal crimes in broad daylight
Oops, didn’t mean to press the button.
Our country
Our allies and
Everybody else, including people we don’t like and who don’t deserve to be liked.
Don’t, at the very least collapse.
I must get back to work.
But I suggest other readers and posters suggest principles that they think are very important in the economic and mtg sphere.
Only then can you reason from those pinciples and come to any satisfactory answers.
And incidentally, I don’t think it immoral to steal your own stuff back from a thief. But the person you are stealing it back from has to be the thief, not what we in the law call a “bona fide purchaser”.
Gosh this is a mish-mash.
but I think that throwing out useful principles and rules of thumb are a useful first step. You must have rules before you can reason from them.
Math and hard sciences do this, there’s no reason why ethics shouldn’t.
Except–that Darwinian principle. If you can produce more healthy offspring by cheating, then mother nature who is a slut, will favor those actions. And Darwinian selections ONLY acts on the here and now, and never considers the future, altho in the long term, some action may actually be more beneficial. So there is always tension between the here and now, and us intelligent designers. So, walkers may have more healthy offspring, be able to send kids to college, etc. Do we designers want that result?
Would we even be asking the question if they were making money? Is it immoral for folks to lie on their applications, brokers and mortgages guys to perpetuate the lie, and for the bank to look the other way so long as everyone wins? The system has completely broken down and the only way to fix it is for every single one of these folks who are in houses they simply cannot afford is to walk away and let the cards fall as they may. The entire financial system is so corrupt that no one is willing to buy anything since there is simply no way to know if this AAA bond you are buying is actually worth 25 cents on the dollar. Until this all shakes out and all of BS is washed from the system we will continue to be stuck in a financial meltdown. The system cannot be cured until all the infection has been flushed out.
“they had a moral and fiduciary duty to offer loans at the lowest rates”
Huh? I don’t disagree that Angelo has presided over a business model that almost certainly has given rise to prosecutable actions, but asserting that Countrywide or any other lender has a fiduciary duty of any sort to its borrowers (much less a duty to provide tehm cheap money) evidences a complete misunderstanding of “fidcuiary”.
The duty the lenders had and have (while wearing their lender hats–ignore their role as depository institutions/brokers/toaster distributers/whatever else) is to deal in good faith with their borrowers, comply with applicable laws/regulations and to maximize their profit for their shareholders. Anything else is about what YOU want the lenders to do, not what they must or should do.
As to the moral question, until relatively recently, Christianity (generally) had the same prohibition on charging and paying of interest that Islam (generally) still has. Thus, Jewish bankers in medieval Europe. Taking a narrow view of “morality”, the lenders should charge NO interest; if this were the case, there would be no lenders. Is that what you want?
OK, I had to put on my office rig to type back: Grado 325i, Grado headphone amp, M-Audio Transit, WinAmp and an USB drive holding my music.
Most of the audio is in 24/96 WAV recorded from a Linn/Itttok/Grado Master Low Output/Grado Preamp/Conrad Johnson PV9/M-Audio Delta-24/Cubase.
Phew… that all says that I’m listening to Shaved Fish…. Along with Zappa and vonKarajan, Lennon is one of my old time favorites…. While Happy Xmas is fun…. I can think of better for this site.
Instant Karma would be great.
Cold Turkey surely covers what will happen when folks get hit with the ROE.
Power to the People is what the politicians claim.
Whatever Gets You Through The Night ( I love that one ) is what people are clinging on to.
But… for this stuff….. hey, it’s
We’re playing those mind games together,
Pushing barriers, planting seeds,
Playing the mind guerilla,
Chanting the Mantra peace on earth,
We all been playing mind games forever,
Some kinda druid dudes lifting the veil.
Doing the mind guerilla,
Some call it the search for the grail,
Love is the answer and you know that for sure,
Love is flower you got to let it, you got to let it grow,
So keep on playing those mind games together,
Faith in the future outta the now,
You just can’t beat on those mind guerillas,
Absolute elsewhere in the stones of your mind,
Yeah we’re playing those mind games forever,
Projecting our images in space and in time,
Yes is the answer and you know that for sure,
Yes is the surrender you got to let it, you got to let it go,
So keep on playing those mind games together,
Doing the ritual dance inn the sun,
Millions of mind guerrillas,
Putting their soul power to the karmic wheel,
Keep on playing those mind games forever,
Raising the spirit of peace and love, not war,
(I want you to make love, not war, I know you’ve heard it before)
Love it. Jeez, the two people who’s deaths really affected ( besides family and close friends ) were John Lennon and Steve McGarret.
Aloha dudes.
I think we need a motivator to make this behavior by lenders and bone-head borrowers a little more unpopular as a activity.
Throwing people in jail for being stupid is a bit too much. We do need a major overhaul of the lending documents and the regulation of the industry.
I think the perps on both sides though should be forced to wear a scarlet letter on their forehead showing they were avaricious or an idiot. Perhaps a larger font if we as the public are paying to bail out their contract.
This might leave people motivated to try harder to “fix” the problem (or move to Panama) and come to think of it, either would be fine with me.
Anyone want to take a wager on any of the mortgage weasels actually doing any time for their thievery and forgery? I’m betting 1/2 of 1 percent.
Lawyerliz,
Wonderful, you just proved my point.
By writing such a long letter, you show that you were born before 1965 and therefore take responsiblity for your actions.
People born after 1965 are irresponsible, hence not responsible to anyone for their action.
True about the lack of morals from the lender. Are they somehow immoral because the investors who bought the loans are now screwed? It is stricktly a business and financial decision to walk when you’re in over your head or barely getting by. Morality would be the last thing on my mind.
Uh yeah, right. That’s why the Great Depression never happened, everyone in the old days was 100% moral and reponsible and put other people first in their decisions…
It’s one thing to lose your house because you lost your job or due to sickness or accident… those are unforeseen events and it’s about impossible to plan. That’s why we have bankruptcy protection laws. If you planned well and in good conscience and you got hit with some unfortunate events then you should not face indentured servitude for the rest of your life.
It’s a completely different thing to have gotten into a contract with no planning and little foresight. Or worse yet, financially gambling into a very unsound contract with little downside protection. A lot of these people who went 100LTV are still holding down jobs and making no less money that they did when they entered the contract. Why should they be allowed to walk?
These folks KNEW that they could not afford the payments when the loans were fully reset and the gambled that interest rates would stay low and home appreciation would climb forever. They made these decisions in a time of historically low interest rates and a bubble RE appreciation. And this was not a secret… everyone knew about it.
So… tell me then… why should these irresponsible clowns be allowed to walk?
And I don’t feel too bad that the mortgage and banking industry is getting whacked either. They went on an irresponsible binge.
Shades of the dot.com bubble, eh?
Yeah, the information at that link looks completely wrong to me. From my understanding, SIV’s don’t invest in commercial paper (short term bonds), SIV’s issue commercial paper to hold long term investments such as, but not necessarily, mortgages or mortgage backed securities. The idea is to capture the spread between the long term securities/investments the SIV invests in and the short term securities the SIV issues.
That’s the core of the SIV anyway. They also issue equity tranches which I’m still not clear on the maturity. I believe there is no maturity, it is “ownership” like a stock. The equity tranche gets all the leftovers which ideally is more than either the senior or mezzanine (fixed rate) tranches pay.
Anyway, the only long term debt related securities – that I know of – that significantly beat short term bonds were mortgages. Remember that a year ago even Treasuries were inversed – i.e. the longer the term the lower the rate. Can’t make money off a negative spread, so what to invest in? Mortgages.
Well, the media has done its usual fine job of explaining these things. So, perhaps I’m wrong on this. After all, I still can’t tell the difference from a SIV and CDO. Wikipedia says the difference is that CDO’s don’t last forever while a SIV does because it looks for new things to invest in. Are they right? Who knows? But, Calculated Risk looks totally wrong.
http://en.wikipedia.org/wiki/Structured_investment_vehicle
What I find hopeful and pleasantly surprising is how well thought out and expressed are the various opinions on the subject. It seems almost irrelevant that there are so many different opinions. Folks here are disagreeing with poise and consideration. At the risk of being mush, you make me glad to be a member of this collection.
Yeah, the information at that link looks completely wrong to me. From my understanding, SIV’s don’t invest in commercial paper (short term bonds), SIV’s issue commercial paper to hold long term investments such as, but not necessarily, mortgages or mortgage backed securities. The idea is to capture the spread between the long term securities/investments the SIV invests in and the short term securities the SIV issues.
The only long term debt related securities – that I know of – that significantly beat short term bonds were mortgages. Remember that a year ago even Treasuries were inversed – i.e. the longer the term the lower the rate. Can’t make money off a negative spread, so what to invest in? Mortgages.
Well, the media has done its usual fine job of explaining these things. So, perhaps I’m wrong on this. After all, I still can’t tell the difference from a SIV and CDO. Wikipedia says the difference is that CDO’s don’t last forever while a SIV does because it looks for new things to invest in. Are they right? Who knows? But, Calculated Risk looks totally wrong.
http://en.wikipedia.org/wiki/Structured_investment_vehicle
That’s the core of the SIV anyway. They also issue equity tranches which I’m still not clear on the maturity. I believe there is no maturity, it is “ownership” like a stock. The equity tranche gets all the leftovers which ideally is more than either the senior or mezzanine tranches pay.
Damn… I’m just listening to Happy Xmas…. imagine what the man could have done if he hadn’t been killed.
So many songs in his head that never got written down.
As much as I liked Reagan, it would have been a hoot to have Lennon there too. And can you imagine if Lennon had been there next to Zappa when Tipper Gore ( Mothers of Prevention ) went on the rampage against Rock and Roll and Al Gore chaired those Congressional Hearings….
I can just “imagine” Yoko One and John Lennon showing up in white robes with flowers on their hair preaching peace to all and good karma while Zappa in his red tie told Gore to watch out for the Central Scrutinizer.
magine there’s no heaven
It’s easy if you try
No hell below us
Above us only sky
Imagine all the people
Living for today…
Imagine there’s no countries
It isn’t hard to do
Nothing to kill or die for
And no religion too
Imagine all the people
Living life in peace…
You may say I’m a dreamer
But I’m not the only one
I hope someday you’ll join us
And the world will be as one
Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people
Sharing all the world…
You may say I’m a dreamer
But I’m not the only one
I hope someday you’ll join us
And the world will live as one
I like your thinking, if the lender thought a McPOS is worth 800k instead of 400k, then they can have it back and good luck. 😆
You will not believe how desperate realtors are getting these days. There is this one realtor who has been sending me listing for last 7 months. And I have been telling this person that I have not found something which is value for money and interests me aesthetically – all along. So despite being given a cold shoulder by me for more than 6 months, this person calls and starts boasting of the fact that she has been getting multiple offers on the properties she is selling and how all the “smart” buyers out there are going for buying new homes.
I can’t believe how these numbskulls think they are going to get people to buy by lying and further lowering their integrity and credibility. I think there is enough public information out there for peopel to read the writing on the wall. Yet these realtors try to enforce their desperate will and further taint their own profession.
I’m in a more OC bleak mood. How about some Offspring from 1998. Just as the housing market was starting to recover last down turn…
“The Kids Aren’t Alright”
When we were young the future was so bright
The old neighborhood was so alive
And every kid on the whole damn street
Was gonna make it big and not be beat
Now the neighborhood’s cracked and torn
The kids are grown up but their lives are worn
How can one little street
Swallow so many lives
[Chorus]
Chances thrown
Nothing’s free
Longing for what used to be
Still it’s hard
Hard to see
Fragile lives, shattered dreams
Jamie had a chance, well she really did
Instead she dropped out and had a couple of kids
Mark still lives at home cause he’s got no job
He just plays guitar and smokes a lot of pot
Jay committed suicide
Brandon OD’d and died
What the hell is going on
The cruelest dream, reality
The tax forgiveness legislation is already in the pipeline and Bush has said he will sign. It is absolutely a done deal. Again I personally don’t see this as a morality issue unless people had planned on walking when things went bad. For those who do, are the Congress and Pesident also immoral for aiding and abetting the deadbeats?
the lender did not do their job, they gave the borrower too much money for the collateral, tough shit excuse my french
I was thinking the same thing. This has been on of the finest discussions we have had on this blog.
What exactly is the inane point you are trying to make Alan? Hopefully your “people born after 1965 are irresponsible” is some undecipherable tongue-in-cheeck…
I for one, was born after 1965 and they don’t get much more responsible, especially in terms of finances, than myself. I run a company with the utmost respect and reverance for my fiduciary responsibilities (i.e. I could rip the place off without anyone being the wiser and yet I don’t), own a nice little home with a payment that is less than 12% of my family’s gross, max out retirement savings, put almost a grand a month toward the kid’s future education costs, and still have managed to accumulate enough capital to make a down payment at today’s prices.
“I think the perps on both sides though should be forced to wear a scarlet letter…”
That would probably modify behavior very quickly, at least I would hope. I also think that people placing their “wealth” on display should also display their financial statements. e.g. If your neighbor’s driving a $70K Benz, s/he should display a sticker in the window demonstrating how well-off s/he really is (to be driving such a luxury item, IMO).
It’s just old people viewing their own youth though the positive memory filter, then bashing the young.
A habit as old as time…
http://answers.google.com/answers/threadview?id=398104
Amen zaleriana. “Moral and fiduciary duty to offer loans at the lowest rates” – that is comical. They had a fiduciary duty to get fools to take the highest rate and/or most profitable loan products offered. Morality has nothing to do with it… They aren’t providing some community service for the greater good of society, they are simply offering the supply portion of the supply and demand equation.
It will be very interesting to see if this goes anywhere. I would think a better solution would be to lower the cap gain tax exemption from $500K for couples to maybe $100K or less. And then on the flip side, allow borrowers to deduct owner-occupied real estate losses.
Everyone is guilty.
1.) The borrower, the borrower’s attorney/friends/financial advisors,etc
2.) The mortgage broker or bank that originated the loan
3.) The actual the loan officer, sales manager, processor, funder, doc-drawer, notary
4.) Escrow officers, Realtors, Title insurance companies
5.) The investment firms that purchased the loans and collateralized them into bonds
6.) The rating agencies that rated these turds as AAA
7.) The pension funds, public funds, retirement accounts, hedge funds, that purchased these mortgage-back securities
8.) The fed & state gov’t, OFHEO, HUD, SEC, DRE, etc
…..anyone else that I missed?
I should clarify what I meant by lenders have a moral and fiduciary duty to give their customers the lowest possible loan rates…meaning they are obligated to give their clients the lowest rates based on their credit history. Instead, it’s well documented in the media that it was corporate policy that borrowers who qualified for prime loans were steered by Mozilla’s crew to higher cost loans that were set to explode two years later, to inflate profits and Countrywide’s stock price. That’s stock manipulation (particularly with Mozilla’s suspicious stock sales reminiscent of pump and dump operators) and a breach of fiduciary duty just like someone administering an estate for an elderly person putting all the assets into high risk stocks instead of CDs. The CEOs all claim they are victims just like schoolyard bullies claim victim status when they are caught, instead of admitting they ruined people’s lives by not doing their moral and fiduciary duty. Some CEOs (and fraudulent borrowers) got to go to jail for this.
there’s also a principle of product liability, where companies get sued for selling dangerous and defective products. ARMs fit the bill especially when it’s obvious there is no ability to repay. So Mozilla and his ilk sold defective products to unwary borrowers (I understand stupidity on the part of consumers can’t be legislated but they sold these neutron bomb loans to the admittedly ignorant masses knowing how dangerous the product is) that then exploded, leaving the house intact but vaporizing the former inhabitants all across the country. In the cases where the inhabitants barely survive, they are trapped in mortgage hell where it’s better to walk away than be crushed under the debt burden of these toxic loans. Mozilla’s got to accept responsibility for his company’s criminal acts and go to jail.
I double posted on purpose to reiterate what I was saying. I’m not sorry and would do it again.
Like now.
“Tax me more — but spend it on education!”
That’s waaaay better than taxing you more and spending the money building prisons and locking up debtors.
I was born after 1965 and and being very responsible. I am being very responsible by saving up for a 20% down payment, thank you very much. Who wants to pay rip-off PMI or get an 80/20 or 80/15/5 loan or some other product?
I keep my finances in order, always pay my bills on time, and am currently debt free.
My opinion is very much alike to your very well written post.
Our economic system is supposed to be “capitalism”. Given a set of rules,everyone can play the system, by the rules.
Problem is, when there is a hitch, the rules are being changed.
Is the system immoral? Is changing the rules immoral? Are there too many people cheating on the rules?
Would a more “socialistic” system be more moral?
How about communism? Anarchism?
I don’t know whether or not your Board should grant the assistance, but I would hope your Board would require more from the requester. Shouldn’t you ask how they expect to improve their financial situation so as to not have to evaluate another assistance request next year? I would expect them to provide an action plan for the year, and then prove they’ve accomplished the required benchmarks to improve their finances.
appraisers.
Boy that brings up a ton of mixed emotions. Why should the kids suffer because the bonehead parents are either greedy or stupid?
But isn’t this a close cousin to paying the schooling and medical costs for the kids of illegal aliens? After all, is it the kids fault? Whew….
I’m reminded of the poor family in Central California that hit the lottery big about 15 years ago. They ran through the money in 6 months and then went to the welfare office looking for help. The welfare people said that since you’re wealthy you don’t qualify (but we’re starving and the kids are hungry too…….)
Maybe we need a special database we keep of all these people with the requirement of a clawback of any future assets to pay back the schooling, medical care, and home loan forgiveness that the public coffers have offered.
We are absolutely headed down the slippery slope of moral hazard where our basic good nature (somewhere) is bailing out criminal financiers and dolts.
Next we’re going to feel sorry for the kid who kills his mother because he’s an orphan. If only we could give him a few million dollars I’m sure he will automatically put himself on the right track and never do such a stupid thing again. BWAHAHAHA!
I’m reminded how many people joined the welfare roles and ditched their husband when the Feds paid for that behavior in Lyndon Johnson’s “Great Society”. Magically, far fewer needed the Federal largess and decided they could stay married and get a job after all when the spigot was turned down in the early Nineties.
We get the behavior we reward.
Just a quick question… how do you get the details of the outstanding debt, mortgage amount, etc on these listings?
The problem with that is over the past few years applications can be left blank or stated as far as income, assets, even employment. Lenders were not able to make a moral decision if the borrower could afford the debt payments on reduced documentation loans. Lenders accepted these types of loans because their investor would accept it. It is the borrowers moral responsibility to put themselves into a mortgage they can repay. I would not loan money from someone if I could not afford to pay it back. Why should these borrowers be able to walk away from their debt with no consequences? They shouldn’t.
I am not excusing the behavior of FBs. In fact, it generally makes me very angry. I wish I could see this issue as being more black and white. Two wrongs certainly do not make a right.
I can’t help thinking that I would walk if I were in their shoes, not because I thought it was the moral thing to do, but because life is too short to live it in indentured servitude for a single mistake. I owe my family better than that. I could easily take the moral high ground and say I would never do that or that nobody else should because it is wrong, but I would know in my heart I would be not be being truthful, so I am telling it like it is. I would walk away if the debt was large enough, and I would wrestle with my own conscious for a time, but I would get over it and move on with my life.
Having given this more thought, I think I would feel back the curtain a bit when people are asking for this kind of help. There are other choices for them.
This is a little bit like asking for help making the payment on your Mercedes. Say what? Can’t you suffer though driving a Toyota or Chevy for a while until you’re in easy money again?
The church preschool is a “nice to have” not a “must have”. There are cheaper choices and preschool is not mandatory, it’s the perfect “babysitter” when you both work, but the cheaper alternatives do exist.
I think if a family is asking for assistance you have every right to get more financial information — just like FAFSA asks for when getting college help for the kids. If the situation is questionable those people should be at the back of the line behind those more deserving.
It’s really back to the moral hazard argument. You’re rewarding the bad behavior with a preschool discount
C’mon, guys. You are being too hard on fumbling. I’m going to use that line next time I go shopping.
Hey Fletcher Jones, you have a moral and fiduciary duty to sell me that AMG model at the lowest price!
Hey South Coast Plaza boutique, you have a moral and fiduciary duty to sell my wife designer threads at wholesale!
Hey Starbucks barrista, you have a moral and fiduciary duty to give me my venti chai latte at cost!
Yikes. Last I checked, America was still a capitalist system, but it’s hard to tell from some of the comments here.
Do any of you think lenders take advantage of people’s morality to guilt them into making payments when financially it does not make sense?
“It’s one thing to lose your house because you lost your job or due to sickness or accident… those are unforeseen events and it’s about impossible to plan.”
I have seen this defense offered up a couple of times in this thread. There is some truth to it, but you can purchase disability insurance (although it is expensive), and people are supposed to have savings to get through a job loss. Planning for the unexpected is part of life. If people fail to plan or fail to properly insure themselves, is it really any different?
I suppose we are trying to parse the difference in intent between knowingly gambling and unknowingly gambling in determining morality. Is that a valid distinction?
IPOPLAYA- you’re singing to the choir here, couldn’t have said it better myself. There’s enough blame in this mess to go around, but I have zero sympathy for these folks who bought a house they couldn’t afford. I’m not highly educated but I can manage simple math, and know how to budget my money while factoring in the unknown like job loss, illness, etc. It’s not rocket science to understand one’s income versus expense! The banks were flat stupid in their lending practices but they shouldn’t have to double check and pinkie swear with these moron buyers that they are able to afford their loans!!! God I’m so sick of our Mommie state government, and how everyone in this country is a victim of something or someone. How about the banks/borrowers/risk takers etc. all take responsiblity for their choices????
I say lets sign all these FB’s up for 60 year loans on a fixed rate. The banks take a hit on their interest rate, and the FB doesn’t get to walk away from his obligation.
Central Bank of Japan for promoting 1/2 % interest rates and creating the carry trade which provided much of the debt underlying CDOs.
I would think that financial assistance should be soley based on income and family size, not debts. I would also have written policy in place as a guide for financial assistance, not leave it up to an arbitray vote that is potentially unfair to other potential students. I would have asked for a copy of their tax return and used that along with family size to decide their request for financial assistance. IF they refused to provide a tax return I wouldn’t process their request. Current debt load (bills) shouldn’t factor into the equation. If they have too many bills they should adjust their lifestyle and pull their kids out of private school.
That’s my 2 cents.
First, you misuse the term fiduciary. A fiduciary is someone who acts for the benefit of another — a trustee of a trust, the guardian of a child. Lenders are NOT fudiciaries to their borrowers. They are adverse parties in a business transaction. I disagree that they have a moral obligation, but we can agree to disagree on that.
Second, why are lenders so special that they should be tasked with knowing the best loan for a borrower, such that they could discharge this “duty” to deliver the lowest possible loan rates? Is the lowest rate ALWAYS the best option for every borrower? I paid a higher rate in 2001 to lock in a 30 year fixed. I don’t think my lender was immoral for letting me do so.
Which leads to my third point. You act as though the borrowers were forced to accept the loan that the lender “chose” for them. Borrowers aren’t helpless. Borrowers can’t ask questions? Get a second opinion? Borrowers can’t eyeball the bold font, all-caps disclosure that says the loan amount will reset in two years and ask, do you have anything fixed? Borrowers can’t employ high school economics and compare APRs and basic loan terms to determine what is in their best intersts? And if they can’t, perhaps they shouldn’t be buying a $500k asset.
C’mon, people. I don’t want to live in a nanny state.
The situation you described is one of the reasons most of these programs qualify based solely on income. If you simply do not have the income, you should be offered assistance, if you cannot manage your income, that is your problem. Offering these people assistance creates a moral hazard.
Time’s person of the year – “The American Consumer”
It is all public record, but you need access to a database to obtain the information. Most title companies sell this access.
A little off topic, but I was skiing once with some friends and one of them got into a nasty accident. He didn’t have medical insurance, but he needed expensive MRIs, etc. The hospital — outside of Salt Lake City — gave him the treatment for free, but gave him an invoice and asked him to sign an honor pledge to pay back the amount, interest free, when he was able. I thought it was a very generous policy on their part, but it also forced the patient to value the services he’d received for free and to make the moral decision whether or not to pay for those services at a later date. We were early 20s then. I’m mid 30s now. He told me a while back that he sent them a donation in that amount — I hope it’s true.
There is no doubt the “bailout” plans offered by lenders without morals is to take advantage of borrowers and keep them on the debt treadmill until all life functions cease, by appealing to their “morality.” The lenders found themselves on the short end of the stick due to their absence of morals, now they appeal to the morality of the clients they screwed to try to salvage the transaction. It’s actually a lot like an abusive relationship where the party in control tries to manipulate the victim to stay around because “it’s the right thing to do.”
Alas, I was born in 1946, first wave of the baby boom. (and I do not have trouble going up and downs stairs).
Depends – Are they still bringing their precious child to school in the Benz, or have they “downgraded” to the Camry?
Aww, he’s just pulling our leg(s). There are responsible people and idiots in every age group. People born before 1965 are the ones running the future of the people born after 1965 into the ground by being selfish with respect to social security and medicare. Very responsible. And what about the environment? They’re handing over a polluted planet to their children. Don’t forget botox and breast enhancement either. And the list goes on.
If you intend to not pay from the very beginning, it’s probably mens rea, and a felony. Any criminal lawyers out there.
Most people make payments long after it makes economic sense to do so.
Disability insurance runs out after a year or 2, and usually you can’t afford to pay to completely replace your income.
The system can keep going with defaults for death divorce and disability, but probably can’t with wholesale walking. We are in for a very bad future people.
I propose a principle. If everybody did it and that would cause the system to crash, nobody, or as few as possible should be allowed to do it.
Anybody else have a principle for good behavior to propose?
Anybody? Anybody? Ferris? Anybody???
WWII generation — the greatest generation.
Baby Boomers — rotting this country from the inside out and mortgaging our future to finance their selfish whims.
Post-1965 generation — we got our work cut out for us.
OK, maybe there’s a little generalization and exaggeration in that. A little.
Disability insurance is definitely part of a sound financial plan. But the loss of of medical coverage could be the determining factor. This could happen due to an accident or job loss.
Sure, if both husband and wife work with good benefits then this diminishes that risk ( THERE… that’s another reason why both parents in a marriage will work… to ensure no loss of medical coverage) but you still have to deal with that.
I think that life is a gamble of sorts to begin with. The difference is that gambling when the odds are against you is nuts.
It’s the difference between poker -where you make your luck- and the craps table.
When you play poker you are in control of the situation and you can manage the risks. When you play craps you have no idea what the hell is gonna happen.
also i agree with the responses there is no fiduciary duty on the part of lenders to offer the lowest rates so i stand corrected. were they just practicing good ole capitalism? if so, mozilla and other lenders practiced mighty scummy and immoral capitalism.
Took the words out of my fingertips.
Why should we subsidize someone who is not managing an income that is far above poverty?
Poor kid, but I’m sure there are some single parents living in the subsidized apartments in San Marcos that deserve the free ride.
MAX LTV AND CLTV at Indymac just reduced to 75% for all stated income jumbo loans. Yikes! A large percentage (I’d say more than 60%) of all jumbo loans are stated income.
This means if you want to purchase a home for 750K and you need to utilize stated income for whatever reason, you’ll need to put down $187,500.
HA! good luck with that!!!
No.
I agree completely.
All the financials are trying to squeeze as many dollars out of the mortgage as they can before they become the home owner.
The government is more the willing to help twist arms, what is going to happen in Cali when property tax revinues tumble 30%? As long as the house is owned, the taxes acrue with interest and will somehow have to be paid before the title is transfere.
Yes, people were idiots and bought to much house, but they were also swept up in the greed and easy money pronouncements by the entire RE industry.
Let the banks eat crow, ultimately they made the loans. They have no problem soaking me every chance they can get.
In fact, putting all those people in bad loans was a bad business decision. Trouble is the people who got the bonuses, spent the bonuses. Mozilla will probably eventually do the perp walk, maybe together with others.
As others have posted, brokers and realtors who didn’t know how to deal with a great deal of money are now the ones in big trouble, so as a matter of fact, making all that money left them worse off, not better off.
Karma does take a while to work out, but it does often happen.
Why? So I get screwed again?
If you’re gonna do this then it should only apply to contracts signed as of today.
It pisses me off to no end that the terms of contracts (laws) get changed all the time when it comes to Real Estate mortgages.
Hell no. I have a nice 30 year loan. I have invested my money reasonable ( no CMOs, CDOs ). I did not participate in the RE bubble by selling my house and going 100LTV on a McMansion in TRidge like many around me…. so why should I play penance to salvage them?
The hell with this. I’m sick and tired of “tax neutrality”. The Gov. should figure out how to pay their “plan” without hitting in the pocket those of us who did not participate in the latest Ponzi Scheme.
Besides… in the mess of the dot.com I sold all of my stock and he IRS and California took me to the cleaners into the six figures. I figure I have already paid enough and I will not tolerate any burden to help these clowns.
It’s bad enough that the dollar has been devalued and that my best investment is the 70 loonies sitting in my desk.
In many cases the borrowers were actively lied to (“you can refi”, “RE always goes up”, “no hidden fees”, etc.) and lacked the skills to figure out what was going on. They were defrauded. Are you saying fraud victims shouldn’t be compensated because they should have figured it out? It’s a rare fraud that *cannot* be figured out in advance if the potential victim puts in enough effort.
In any case – do you really think people should be condemned to a lifetime of debt slavery (which would often be the case) for one mistake?
From the viewpoint of society, it was the lender’s actions that made this possible. There have always been lots and lots of people who wanted to buy nice houses objectively beyond their means. There have not been lots of people willing to loan them money at 95%+ LTV IO to do it. The more the borrowers are squeezed, the less the lenders will lose, and the more likely it is this will happen again.
Actually you’re mixing apples and oranges.
The example of the car and the house are COLLATERIZED right? Since they are supposed to be supported by an asset the terms are cheaper.
Credit cards, OTOH, are personal loans with no collateral, hence they are based strictly on your credit history. And as such they are more expensive since there is more risk.
After all, a car can be repossessed and a house doesn’t move around too much.
So there is a grain of truth in there that the bank takes some risk. After all, cars are depreciating assets and the banks used them as collateral. If you don’t pay a car loan and it gets repossessed will the bank go after you should the value of the car be less than the loan (ie: underwater?). ???
So the hard-working, debt-paying, and financially responsible parents of the kids in your school get to have increases in their tuition next year because an FB can’t read the fine print and handle their mortgage reset? That is a perfect little microcosm of the bailout plan. The people who made a bad choice and bought too much house at the wrong time get rewarded, i.e. they get to keep their children in preschool for free, while the those that are doing it right get to subsidize that bad choice in some form or fashion…
Personally, I’d say to parents in that situation it’s either pay the full freight or we’ll find another parent who will. Just pull out the old waiting list and call the parents of little Johnny who has been waiting to get in. Maybe little Johnny’s parents continued renting when it was smart to do and can afford to pay their fair share. An ARM reset should not be a financial hardship. It was disclosed when they bought, if their house value was declining and they weren’t going to be able to handle the reset with a refi, they should have sold long ago and hooked up with IAC. Losing a job maybe, getting injured and being unable to work, okay I get that. Knowingly living above your means should never qualify as a hardship…
This is the perspective of a parent that sends their kid to a small church-based preschool in Irvine. Our tuitiion went up 10% last year and probably will go up again next year. If I learned that my increases were in part due to the decision to subsidize people like this, I’d be looking for a different school. You don’t reward bad behavior or bad choices made by the kids at school so why do so for the parents?
Good analogy TonyE.
IrvineRenter said: “I owe my family better than that.”
Personally I think this statement conveys an attitude that is regrettable. If people were not so entrenched into stopping their own empathy at the limits of the family unit, we would live in a better society.
People who would never think twice about doing something immoral for their own self-interest will suddenly find all their moral principles disappear when “the family” is involved. I believe ultimately everybody acts for their own, more or less selfish, self-interest but invoking the family is always a convenient excuse to makes things look more appealing (sorry IR, I’m not ranting specifically on you, you probably just blurted this out subconsciously).
I’m sure many “heartbreaking” stories of FB’s & their families will come out. Let’s not forget the fact they have a family or not doesn’t make them a better or worse person, and they should not be expected to act with a different set of moreal standards due to having a family.
Nope, nobody would be asking the question if prices were going up.
Suppose the owner of a large lot found a diamond mine there, would he share with the lender? Hell, no. And if it were in foreclosure, he’d just get an invester, pay off the mtg and mine the diamonds. And I, for one, would not think it immoral.
There was a move toward equity sharing some time ago, but it seems to have gone away.
If she’s getting multiple offers on the properties she’s selling, why does she keep bothering you? Clearly there are enough buyers out there to start a bidding war on all of her overpriced listings, so why does she need to bring in another? 😉
Oh, absolutely. It’s one of the big tools of collection agencies. Agencies will also threaten to call neighbors and relatives for additional leverage. Now lenders often don’t have much contact after the loan but I’m sure they use the same techniques when the opportunity comes up.
Tovarich… I have this here five year plan that will fix everything.
First we gotta get Komissar Jerry Brown back in SaKramento.
Then we get Feinstein and Boxer to do some paper pushing in their Washington Politburo.
Finally Maxine Waters will go on TV and place the race card saying that ALL of these defrauded homeowners have at least 1/16th blood in some ethnic group (you choose: black, white, yellow, brown, red, blue, green) and therefore they are VICTIMS.
Get it? They are all victims and the deserve, NAY we owe them to keep them living in their McMansions and their Bimmers…. and yes… those in Victorville should keep their F250s, garage full of Honda Quads and stainless steel BBQs.
Yes sir.. they are VICTIMS and those of us who did not partake of the ponzi schema are really all male WASP ( regardless of whether ethnically we may be black, blue, male, female….). According to Ms. Waters “race card policy” only male WASPs would be financially responsible so we must all be male WASPs “inside”.
Dude, I’m moving to Brazil. I won’t wear a bikini bottom ( re: Bart Simpson!!!) but I sure could watch a few chicks while I drink a single malt on the rocks and puff on a RyJ SE Robusto.
I have closed thousands of loans and I will tell you the vast majority of borrowers are bumbling idiots. I closed neg am mtges by the fistful in the early to mid 80s. Those people would have signed if I had handed them a piece of paper that said, in the borrower’s native language, if necessary,
THIS IS A STUPID LOAN. YOU SHOULD NOT MAKE THIS LOAN. THIS LOAN WILL RUIN YOUR CREDIT. YOU ARE ALMOST CERTAINLY CRAZY TO SIGN THESE PAPERS.
ABANDON HOPE ALL YE WHO ENTER HERE.
Further disclosures will do nothing, except raise the cost of business for title companies and lawyers who close loans.
Wow, more posts here than ever before. Very well posted everyone.
Oh no… from a Catholic Boy ( all boy’s school…)
Catholic girls
With a tiny little mustache
Catholic girls
Do you know how they go?
Catholic girls
In the rectory basement
Father rileys a fairy
But it dont bother mary
Catholic girls
At the cyo
Catholic girls
Do you know how they go?
Catholic girls
There can be no replacement
How do they go, after the show? ..
All the way
Thats the way they go
Every day
And none of their mamas ever seem to know
Hip-hip-hooray
For all the class they show
Theres nothing like a catholic girl
At the cyo
When they learn..
OK. I’ll stop right here because this is a family forum… but this is one of Zappa’s finest and most fun songs. It’s in Joe’s Garage.
And yes.. it’s shaped like a Telefunken UB47… with leather. ;-D
Tax policy tends to be a zero-sum game; there are winners & losers in every change. Consistency is preferred so as to allow planning based on reasonable expectations.
Removing taxation from debt forgiveness will encourage borrowers to walk away. It will exacerbate the housing downturn (something government presumably does not want to do).
Hey, I thought that’s the way all Stated Income Loans were before Wall Street showed up with their crack and their Kool Aid?
Put 25% down for Stated Income, put 20% for “regular” loans and if you put 10% down you’d better not mind paying PMI.
So, lessee here, your house is $350,000 so that’s $70,000 down — not too tough for those of us with an alarm clock set to go off in 2 years.
What, Oh wait, you think the house is worth $1,000,000. Now that would be a problem………..
“In many cases the borrowers were actively lied to (”you can refi”, “RE always goes up”, “no hidden fees”, etc.) and lacked the skills to figure out what was going on”
That is bollocks… I’m sure it happened, but what you are talking about is true fraud and that did NOT cause this bubble.
The vast majority of FBs had an accurate GFE, got all the disclosures, and had more than enough information about rates and resets in their docs to make an informed decision. They chose ARMs vs. fixed-rate mortgage because they wanted to buy or buy bigger/nicer. They could afford the purchase at the time and figured buying was a way to build some equity when the market kept skyrocketing. ARMs are a gamble and for many it is now backfiring. They had options and they made choices.
skek–>Which leads to my third point. You act as though the borrowers were forced to accept the loan that the lender “chose” for them. Borrowers aren’t helpless. Borrowers can’t ask questions? Get a second opinion? Borrowers can’t eyeball the bold font, all-caps disclosure that says the loan amount will reset in two years and ask, do you have anything fixed? Borrowers can’t employ high school economics and compare APRs and basic loan terms to determine what is in their best intersts? And if they can’t, perhaps they shouldn’t be buying a $500k asset.
Isnt it obvious that the answer is NOOOOOO. borrowers werent asking, eyeballing anything, and dude what do you mean by economics? why should they have done any of the above, did you forget HOUSE PRICES ALWAYS GO UP
I love playing poker.
But never against Catholic Girls.
They are simply too good for me.
Particularly never try to bluff a woman who went to Catholic School run by nuns. They can bluff their way like no protestant could ever hope and they are tough.
We should have such women running the CIA, IRS, FDIC, FBI and DMV.
Keep some typical WASP running the State Dept and open up the rest. ( Although I think Condolezza Rice is doing an outstanding job).
But keep those “catholic girls” where they can control the “boys” and we’re set.
WAIT! I’m a boy!!! 😛
Well, this statement presupposes the idea that walking away from an underwater loan is prima-facie immoral. That is by no means a given, and I would argue is in fact mistaken.
If one makes a business deal with party B who has access to deep legal and economic expertise and thus every reason to know exactly what that deal entails, I think it behooves the people that are seemingly arguing that one’s moral obligations to party B go beyond what is formally legally required to articulate why they believe that is the case. As it stands, the banks made the loans with full knowledge that the lender has the ability to walk away if they go underwater. Therefore, there is nothing immoral about doing so.
(Now, if one of the parties didn’t fully understand what the hell they were getting into when they signed the deal, one could make an argument that it’s immoral for the other party to take advantage of provisions that favor them. But this is clearly not the case here.)
It follows that there are *no* moral obligations from borrower to bank above and beyond what is stipulated in a duly-agreed contract and the governing law. However, there are moral obligations to one’s family, which trump not just the supposed moral obligations to the bank, but also, in this particular case, any societal stigma attached to bailing on an underwater loan.
The issue does become more complex when a family is involved. If I make a mistake that I alone am paying the price for, I would probably be more willing to endure hardship in the name of morality. When my children suffer for my sense of morality, at what point does it become pride and ego to punish them for my mistake?
The MSM is already coming out with the “poor me” family stories with housing. I think that was why the post about the HELOC abusers in Turtle Ridge caught national attention. There is an abusive flip-side to all of those “poor me” stories.
Over at Calculated Risk, Tanta is talking about the Congress approving cramdown legislation for certain categories of folk, including those who got ARMs over 2000.
By the way, she’s for the cramdowns.
There is no moral issue.
This is a contract between a large financial institution and a person.
The lender makes a decision based on risk and profit.
They require collateral for the money they lend.
If the payments are not made, they have a right to end the contract and take the collateral.
If they choose to take a bigger risk for higher profit by lending more money than a house is worth, that is their well planned and calculated choice. If the market drops, that was part of their risk calculation.
The person makes a decision also based on risk and profit.
They choose to buy rather than rent – a good decision in most markets.
If they choose to not make the payments or if something happens where they cannot make the payments, then they must give up the collateral.
This is a business deal.
Foreclosure is a legal business decision based on the contract.
Bankruptcy is also a legal business decision.
Morality has nothing to do with it.
With all due respect, both the borrowers and the lenders lied, and they lied a lot.
I would here about it when the couldn’t make their payments and this lying has been going on for forever.
Sometimes the mtg brokers told the borrowers to lie.
Just recently, one of my clients got a good rate on a refi of a house he built on spec. The employee of the lender, NOT a broker, but an in-house employee, told him to lie and say he was going to live there.
Morality is much slipper thing than most people would admit.
What fascinates me is the difference in the morality applied to corporations and to private individuals (and even that distinction gets tough sometimes).
For instance, a company wants to make their bottom line look better. To do so they need to fire some of their workforce and bring in cheaper labor to replace them. Is this moral?
I hear phrases such as “it’s only business” tossed casually about and I wonder what that is supposed to mean. Is it like a financial version of “All’s fair in love and war”? It’s a contractual thing it’s not a moral issue? So are all contracts, by definition, immoral?
And then, to discuss IR’s example, who is the person “walking away”? Is it someone of limited means who invested poorly and without proper consideration in a home they could not afford? Is a real estate speculator walking away from an investment gone south? Is it the homeowner that intentionally over-extended themselves with multiple loans knowing that the worst that could happen was a kick in FICO?
What is the consistent moral standard that applies in all of those situations because, viewed generally, they’re all the same.
This isn’t a plea for moral relativism. Not in the least. What it is is to say that this isn’t simple and what might be viewed as moral and reasonable for one party might be morally bankrupt and reprehensible for another. And all of this is just one reason why a “general” bail out is a terrible idea. It is one strong argument, I think, for a more localized and involved lender system.
The tax relief for “walkers and short sellers” is absolutely not a done deal. Don’t hang your that on that one, either.
By the time the bill(s) get to Bush, if they ever do, they will be so watered down that they will benefit about .001% of the distressed home”owners”. (kind of like the 5 year freeze plan.)
Oh, TonyE.
Am I rotten because I am a boomer, or rotten because I went to a catholic girls school Or, am a rotten because I am a lawyer.
I guess I am just plain rotten.
And to go back a little farther, the parents of the WWII generaltion were a bunch of flapping drinkers and drinking flappers and all that sex and booze caused the great depression.
I remember the first time my son realized that I bluff at Scrabble. He was shocked. You would have thought I had purposefully run over a kitten.
I explained that bluffing is part of the game. And since I know a lot of weird words nobody is ever sure. . .
Being able to bluff is good in Court too!
Choices and options Liz, choices and options. Those borrowers all wanted something and maybe they elected use dishonesty to get it. They didn’t have to buy something. No one was forcing them to do it. That’s their problem. Doesn’t matter who told them what. What matters is what is written on paper and what got signed… If they were dumb enough to obligate themselves in such a large transaction based on a lie or because Fred the mortgage said prices always go up, they deserve whatever pain is coming to them.
Is there justice law student? Does justice have anything to do with morality? Sometimes, there actually is justice, and sometimes it is actually despensed by a judge. Altho most of them are idiots.
Contracts are, by definition, amoral.
Dishonestly is immoral, in most situations.
Murder, theft, rape and fraud are immoral.
Why should it matter why someone walks away from a contract?
That is why the contract exists.
Sure, there is justice. There is even poetic justice.
Catholic school. ;-D
I should know. I spent seven years in one.
Under CA law, most mortgages used to purchase a residence (called “purchase money mortgages”, firsts, seconds, it doesn’t matter) are non-recourse. Non-recourse means that the borrower is not personally liable, the only collateral is the property itself.
This non-recourse law isn’t waivable, and since it applies in most instances, essentially all residential purchase money mortgage contracts in CA implicitly integrate this term. This means the availability of credit, the interest rates charged, and the origination fees all reflect this term and the risks involved. The lender, not the borrower, has assumed the risk of loss should the collateral be insufficient.
Therefore because a borrower never agreed to be personally liable, there is absolutely no moral dilemma. I did not read all of the replies, but many see such a borrower as immoral. But this is incorrect – you are creating an obligation for the borrower for which they never agreed. They never “promised to pay” – they promised to either pay or forfeit the collateral.
Note that though there is some gray area, this law generally does not apply to refis – a borrower loses the non-recourse protection by refinancing. However, even in this situation, the bank must judicially foreclose (a more complex process than a trustee sale) in order to seek recourse from the borrower for any deficiency.
I think you are mistaken Law_student to say that contracts are made to walk away from. They are made so people can knowingly make agreements. Even the best of legal systems would be unable to handle all the contract cases that would arise, if contracts were not based upon principle that each side will complete it obligations thereunder. This is where the concept of a “man’s word is his bond” arises. Who would want to live in a society where failure to perform contracts were the norm, e.g. I order and pay for something on-line, but the seller decides not to perform. What security and comfort would exist in that society.
The loan companies have performed in making the loans. It is immoral for borrowers to overbuy and then simply walk away. Who pays for that, but the rest of us through higher interest rates or additional fees. There is no free lunch. Someone always pays, and in business those costs are forwarded and spread out to other customers.
Unfortunately, we as a society have so condemned “blaming the victim,” that even where the person’s condition is their own fault, it somehow seems improper to say “you made the stupid choice – live with it.”
I agree. Unless you are a licensed financial advisor, you shouldn’t be giving advice. I am actually regulated in that aspect at my bank. I am technically not allowed to give financial advice to people over the phone.
Personally, I think the whole concept of morals comes from the concept of there being a higher power. IMO, if you do not believe in God (or some other deity) then you have no reason to foster any morals.
If humans evolved than we are just an intelligent life form no different or more special than any other living thing. How does the concept of “self-awareness” and “the greater good” evolve? I find it very peculiar that the same people who demand the abolishment of God from all public places are the same people who demand human rights. Also, the same people in our government who practice capitilist elitism (the social version of Darwin’s survival of the fittest) are same people who belong to the religious right.
Since nobody knows nothing, I’d say business transactions are devoid of a moral compass and should not require one.
ipoplaya, one recent estimate of subprime buyers found 55% of them qualified for non-subprime mortgages. You think they wanted to pay more points and higher interest? They were taken in by unscrupulous lenders who just didn’t bother to tell them about better loans.
There’s a lot of people in this world who can’t analyze the NPV of a complicated financial transaction. They don’t deserve to be taken at every opportunity because they can’t hack college-level accounting and then forced to live in debt slavery for most of their working lives.
Really interesting, data based link that pertains to this discussion
The Over-Consumption Myth
and Other Tales of Economics, Law and Morality
http://www.yale.edu/law/leo/052005/papers/Warren.pdf
So Economist, you think these morons checked multiple lenders and all of them simultaneously defrauded them and quoted them loan rates higher than what they could qualify for?! It’s a free friggin’ market economy… You really think that these lenders would quote out artificially high rates, especially if they were aware that they were competing with other lenders for the business? No, they would have tried to earn the business by beating out the other lenders by offering the best rates they could.
If anyone got stuck with mortgage rates higher than they should have it was because they either didn’t shop rates with multiple sources or couldn’t get anyone else to lend to them. If it was the latter, then the rates aren’t artificially high because whatever source that loaned the money was the only available supplier and whatever rate they offered made the market. They had a choice, pay the rate or don’t buy. If it was the former, i.e. these borrowers didn’t shop for the best deal with multiple sources, it’s on them for not doing their due diligence.
Maybe these are the same fools that walk on to the car lot and pay sticker while the rest of us just sit at our desk and call around to the fleet managers to get thousands below that?… No matter what, they made a choice to buy. Someone quoted them a rate, maybe it was too high but they were the fools that allowed a situation to occur whereby they were in a mortgage with inflated rates. Shop around, don’t buy – they had choices and options. Fools are made to be taken, it’s the essence of capitalism. If they didn’t have the skills or knowledge to properly execute the transaction just keep renting. I missed out on Brain Surgery 101 in college and as a consequence, my expertise in that area is quite limited. Because of that, I make sure not to wander into any operating rooms and start sawing open people’s heads. Very prudent of me wouldn’t you agree?
Parents of the debtor for not teaching them how to read and think properly.
High school econ teacher and math teacher for not teaching them finance either.
Newspapers for publishing constant RE fanfare stories.
The lady at Fantasic Sams that kept telling everyone how she bought a big house and it keeps going up in value.
“Fools are made to be taken, it’s the essence of capitalism”
I don’t agree but at this point we’ll simply have to agree to disagree. You should be aware that I don’t think you’re arguing from the moral high ground at this point, though, particularly because you seem to think it applies to homebuyers but not to lenders.
“It’s some retiree’s pension, or some school kid in northern Norway who’s school can’t afford worksheets or the photocopier bill next year…”
Hmm, so the homeowners who fooled themselves into believing they could really afford buying a half million + property were irresponsible, but the retiree who believed he could have a risk free investment and huge return rates at the same time was reasonable? Sry, but this looks like a clear case of double standards to me. It were those greedy investors who pushed the mortgage companies into seeking more and more borrowers, even totally unqualified ones, at conditions that were unsustainable from the start. With a little bit of attention to the housing market, those who put their money into mortgage papers should have been aware that the bubble had to burst sooner or later. If they really wanted to secure their savings, they should have bought treasuries and do with the lower ROI of those bonds. But they wanted to have their cake and eat it, and so they were not at all better than those harebrainbed housebuyers. No reason to shed to crocodile tears for them.
Premise:
All parties are moral to begin with. Lenders want to lend to make money. Buyers want to buy to make money as well. A third group, stood on the sidelines. Stars are aligned.
Fact:
Credit crisis. Foreclosures. Banks losing money. Buyers hopelessly holding onto rising debt and declining asset value. Error in judgement by both parties? No, both parties are screwing each other from the beginning.
Now, people who play the game gets hurt. People who don’t play the game gets hurt too – as can be shown by the value of their declining portfolio, the falling dollar, rising inflation, etc… Stars are drifting apart.
Conclusion:
All parties are immoral in the end, even the people who stood on the sidelines. Which group is more despised? There is none. We are all angry. Interesting to note that it is the 3rd group that will begin its assault on the market when the dust settles.
Well said
Wake up people. Moral? Let me see…
So, the government comes and declares a piece of paper to be the money, and then prints those at essentially no cost. It also gives a monopoly on loans to lenders, who are free to make even more money out of thin air.
Thus, I just want to establish the fact that no, nobody worked hard for this money, nobody had skipped on their ice-cream to save it up.
Then the government also establishes an inflationary reality, where everyone is forced to compete with government’s inflation (further printing), or the value of that little that he saves and earns will be stolen by the government through the inflation. The government insists on paper being the legal tender, forcing anyone out of currency and into “investments”. Just wanted to establish the fact that we have no choice, by governmental decree, we have to “invest”, or see our earned money diminish in value.
So, we invest. We buy the house at the market rates and market conditions prevailing at the time. Did we lie on the loan? Like we had a choice. You say theres always a choice? You mean a sucker’s choice, of course? A choice to be honest and surrender your earned and saved money for confiscation through inflation because the government doesn’t want us to lie? Of course it doesn’t. Any robber will tell you, they want you to be truthful when they are asking you where you hide your gold. So, should we be truthful with robbers who tote guns? Is that what moral is all about?
Just wanted to establish that we had no choice, our earned and saved money would be confiscated proportionally to the amount of truth in our answers.
Now, the pyramid is crumbling. The banks are bailed out left and right. They receive special infusions of credit, lest their CEOs fail to make payments on their real estate holdings. Poor get bailed out by that same government just as well, through the destruction of their contractual obligations.
Just wanted to show how moral the rest of the market is.
And here you are with your pitiful mortgage. You wonder if a short sale is moral? Are you an idiot? You want to know if defaulting on printed money that was fake, is fake, and will be fake is moral? All the while taking the loan was never your choice (except for the sucker’s choice), lying about it wasn’t your choice either. And while everybody else who has any sort of connection to the government receives huge bailouts, anybody but you? [IDIOT, Late Latin meaning “uneducated or ignorant person.” (Wikipedia)] So, if you are not ignorant, and educated enough to know that everything around you is fake and fiat, then how in the world can you possibly call defaulting on your mortgage immoral? How can you be at fault for having no choice in the matter, being robbed in the process, and all the while causing no real harm to anyone?
Lastly, only for those with better than average mental abilities. How long would a fiat system last if there were no idiots filling it to the brim, and everyone was promptly defaulting on all his debts? Huh? So, who is really Immoral here?
I think there are a few points we need to consider.
We cannot hope on the morality of the mortgage salesman to provide a reasonable — if not best possible offering to the mark, er I mean home purchaser. We have years of used car salesmen experience that shows us people will do nearly anything not illegal (and sometimes that too) to separate a willing buyer from their money.
We must have clear concise and simply readable language that protects the purchaser. Think of the last time you rented a car. Did you read all that dense language on the contract? I suspect most of us don’t. We trust that nothing will go wrong and that nothing too onerous is included. Usually we are lucky reinforcing this belief.
When we suggest that purchasers are fools for buying a poor loan they could have avoided we are being simplistic and forgetting human nature. If you are at the closing and the train is rolling — you have moving trucks showing up Tuesday and the mortgage salesman says, “Gee Jerry, I couldn’t get you that 6% loan like I promised. This POS has a 8 1/2% loan, but don’t worry you can refinance in 6 months and I’ll get you out. This is the best I could do.” Well, what does Jerry do? He thinks he’s moving in a few days and he’s over a barrel. He figures well, it’s only 6 months, that’ll cost me a few extra thousand but it’s worth it.
It’s very facile and unfair to suggest our buyer should get up and walk away. That’s very difficult to do and the sales weasels know this.
Remember, we are a little bit (some a lot) more educated about this process than the average bear, and I know the pressure I would feel to knuckle under to the stupid terms and close on the house.
It is absolutely insane that we have no controls against this drunken orgy by the mortgage and financial companies trying to make every possible nickel at the expense of a stable market, reasonable values, and safe (payable) loans.
Well, that’s my .06 cents worth……
Personally, I think the whole concept of morals comes from the concept of there being a higher power. IMO, if you do not believe in God (or some other deity) then you have no reason to foster any morals.
————————————-
Maestro,
I think that there are strong social pressures do develop morality outside of a belief in God. Society tends to reject people that are immoral (for example, murderers, or that guy in the office that always takes the last cup of coffee but never makes any more).
I consider myself to be a very moral person, despite also being an Atheist. I also consider my Christian minister uncle to be an immoral A-hole.
There was an interesting article in the NYT last March that talks about morality in primates.
http://www.nytimes.com/2007/03/20/science/20moral.html?pagewanted=all
Well, there’s some truth to that. But if you are stuck with your employer’s 401K plan, or some municpal financial overseerer, who maybe weren’t really paying attention … just what are you supposed to do about that?
Thanks, interesting link.
Perhaps it’s all about people being perceived as members of your group. If the mortgage lending had been more like the microlending in the 3rd world (ex. say 5 people who all know each other in a village can borrow from the $100 pool, but only 1 person at a time … then there is social pressue and moral obligation for whoever took out the $100 to pay it back and pay it back in a timely way).
When people perceive the disembodied bank money to be there … the social and moral obligations are a lot harder to feel. Which is why I brought up the kids in Norway example to remind everyone where the money ultimately comes from.
“There are cheaper choices”
What, pray tell, is a cheaper choice for childcare than $300/month? Your typical trained ape would cost that much to feed.
For $300 a month, they must have their children going two days a week or maybe part-time five days a week, although that seems really cheap to me. We pay $440/month for T/TH full days.
Banks typically lose incredible amounts of money on foreclosures.
Also, in Florida at least, if someone bids more at the sale than the amount owed, the borrower gets that extra money, not the bank.
If nobody outbids the bank, and the bank sells for money, well the bank wins. But that seldom happens.
Gotcha beat: 16 years–college and kindergarden.
Yep, we are social animals, and will always balance in Darwinian/game theory fashion, benefits of practicing morality vs. benefits of being a free rider. If everyone were free riders, there would be no society.
And I’m really tired of believers thinking non-believers are automatically immoral.
OK, I guess we finally jumped the shark with this one.
Wow, well fiat system or not, I am glad I can borrow money to pay off something I can live in and eventually fully pay off. Sorry, but everyone that stretched themselves are the ones to blame and are scheizers for walking away and should never be able to borrow money agian.
IR, do you know the lyrics is wrong, but I like it.
It should have been “the road is so long”, your version “the world is so wrong” hits the tone of the video. I like it and I agree with it.
Wow! What a lot to digest!
I think we can all agree there is more than enough blame to go around. Lots of people got caught-up in the maelstrom and yes, greed, and made stupid decisions. Unfortunately there were no shortage of facilitators to this madness.
Many have made concise and impassioned pleas to the morality of this mess but to my thinking, “lawyerliz” has made the clearest distinction; this is more about principles than morality. We can go down the rat-hole arguing morality but in the end, morality is often an intensely personal codified belief. Principles can be very personal too but they’re often less wrapped in spirituality. Ultimately one has to live with one’s decisions, mistakes and actions. If you can look yourself in the mirror and face your loved ones and your community with a clear conscience then perhaps you made the right choice. Let’s not also forget that history tends to warp whatever “the right thing to do” might be. We should be so fortunate to know the difference.
As was previously suggested, karma can take a while to work out but it frequently does and it’s not always in our lifetime. Bad behavior calls for bad consequences. Alternatively, Middle-Eastern wisdom has a saying … we can fix the blame or we can fix the problem. Clearly fixing the blame might serve as some cautionary lesson but in the end, it’s a fools errand. Sadly even the wisdom of Solomon couldn’t solve this mess. I submit (and it’s been suggested previously many, many times) that the only fair and perhaps wise action is to simply let the chips fall where they may and let the system work out it’s ills and shake off it’s parasites. All other solutions are either unfair, inequitable or delay the inevitable and prolong the pain.
I empathize with those poor families that will lose their homes because they were swept-up in this tidal wave. Other than the death of a child or parent, I cannot imagine anything more traumatic. But like a death in the family, time marches on and life continues. We adapt and get on with it.
I wish you all a wonderful Holidays with your loved ones and a prosperous new year!
IAM INTERESTED IN THE RESPONSES TO THI SHORT SALE QUESTION TOO!
I double posted on purpose to reiterate what I was saying. I’m not sorry and would do it again.
LOL
I fear I cant empathize with any parties to this fiasco. The FBs are to blame for failing simple subtraction. Check – mortgage = nothing to eat. No problem Hon, itll all work out. Realturd “it’l always go up and you can refinance and take out the equity for a Hawaii vacation. Appraisor, $1.2 mil? no problem. Banker “hes a ninja but its no problem if he defaults we will have sold it on by then”. Wall streeter “I know its crap but I get $28 mil commission when I package it, why should I worry, I didnt originate this stuff, Moody says it AAA so I dont have any responsibility here”. Retirement fund manager “its a solid security backed by Wall Street and reinsured, its perfect for your retirement fund”. Reinsurance manager “of course we dont have funds to cover it, we only cover stuff that doesnt go under, send us the premium, dont call if you want security, were overextended.” Propping up any party to this mess is criminal stupidity. The Romans solution was to sew these sort of people into a sack with a snake, a rat and a fighting cock and drop the thing off a bridge into the Tiber. Its a custom that should be reinstated. Instead of that there will be a solution that involves subsidy to at the very least the richest of these people. The small timer who walks? its his only rational recourse and at worst only the equal of the other parties failings.
…And thank you stupid for the link to the thoughtful piece on wealth transfer to the super rich at the expense of the middle class.