Lowenstein: Walk Away From Your Mortgage!
The Sunday Times magazine has an interesting look at underwater home-owers by Roger Lowenstein.
He asks:
“Why should underwater homeowners behave any differently from banks?”
John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.
Such voluntary defaults are a new phenomenon . . . The housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?
Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry…
That is a good question. Perhaps the better way to phrase it, is as follows:
The decision to walk away from an home worth considerably less than its mortgage should be made strictly as a business decision; It should be devoid of emotion, sentimentality, and other non-monetary factors. There should be a fair and honest assessments of the gains (lowered cost of living expenses, less stress) and the downside (damage to credit score, possible litigation).
It should be a calcualted business decision — just like the banks make.
>
Source:
Walk Away From Your Mortgage!
Why should underwater homeowners behave any differently from banks?
Roger Lowenstein
NYT Magazine January 7, 2010
http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html
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January 9th, 2010 at 11:50 am
Agreed. I saw one of the mortgage banking industry reps on CNBC arguing against Dr. White. I couldn’t tell if I was watching a business show or a televangelist.
In my opinion, every head of the household is a mini-CEO. He or she has to do what’s best for the his own balance sheet, just like a CEO does (or is supposed to!). As long as there was no fraud involved, then there’s no reason why both parties shouldn’t employ the full range of their rights and obligations under the contract to their best advantage.
This whole situation reminds me of a scene from Unforgiven. The corrupt Sheriff, Little Bill, has basically run his town as a tyrant, abusing people whether they deserved it or not. For our purposes, he’s a bank. Little Bill ends up beaten at his own game by a gunfighter, William Munny (Eastwood). The fallen dictator resorts to an appeal to morality, which he never showed when he held the cards:
Little Bill: “I don’t deserve this… to die like this… I was building a house.”
Munny: “Deserve’s got nothin’ to do with it.”
Munny blows his head off.
January 9th, 2010 at 11:58 am
No kidding!
I was shocked a couple of months ago when I read the comments section of a similar news story from an Arizona newspaper.
I think it was other homeowners castigating the strategic defaulters for their behavior.
If people made more rational decisions about their personal finances they a) would not get into the mess in the first place and b) get out before they pour another year or two’s salary down the drain.
January 9th, 2010 at 11:58 am
Moral hazards aside, I wonder about the details of the downside. According to http://www.creditcards.com/credit-card-news/mortgage-default-credit-scores-1270.php -
“A lot of people are under the misconception that it’s the foreclosure or the short sale itself that affects your credit,” says Patrick Ritchie, author of “The Credit Road Map.” “It’s actually the number of months that you’ve been delinquent on your payments that’s going to cause the drop in your credit score.” The same is true if you choose to walk away from your home. However, in this case, your credit will be hit hard since you did not attempt to make contact with your lender and after a few months of no response from you, the lender will most likely hire attorneys and sue for foreclosure.”
Further into the article -
“When it comes to foreclosures and short sales, they are both going to weigh the same on your credit rating and drop your credit score 150 to 250 points,” Ritchie says. “If you sense that you are going to have problems paying your mortgage, it’s best to meet with a credit counselor to explore your options.”
Has anyone seen hard data on this ?
January 9th, 2010 at 12:16 pm
f411 posts-
‘Little Bill: “I don’t deserve this… to die like this… I was building a house.”
Munny: “Deserve’s got nothin’ to do with it.”’
one of the all time best scenes in cinema- because it is the cold hard truth- good one f411-
also- BR-
where are my goddam kudos- I have giving this advice for months and months- glad to see it is catching on
January 9th, 2010 at 12:18 pm
This isn’t a new phenomenon. It happened in Texas in the late 80′s, and it happened in California in the early 90′s. In fact, there are prominent economic papers written in the mid 1980′s that point out that the major cause and sensitivity of mortgage defaults in homeowner equity and house price changes. They don’t call it a ‘strategic default’, but a borrower ‘ruthlessly exercising their default option’. There were subsequently 100′s of academic papers trying to quantify transaction costs and moral impediments.
However when Wall St. and large banks started building mortgage models, they only looked at data going back at most 5 years (all that Basel II requires incidentally) – which happened to be a period of low interest rates and high house price appreciation. Therefore most of them interpreted that the major risk of mortgages was due to voluntary prepayment speeds, not credit risk. Since almost none of the Wall St or large bank modelers bothered to read existing literature (most were physicists or interest rate specialists), they didn’t know better.
Add Lowenstein to the list of people who don’t know any history on that which they right. But self rightousness feels good.
January 9th, 2010 at 12:22 pm
Businesses also “threaten” to walk as part of a negotiation. If you’re in the situation, and you can pay, but it’s just so big of a cost that it’s better to walk, why don’t you just stop paying the bills for a while and then see about a “renegotiation.” There’s a good chance, with as backed up as some banks are, that they won’t catch up with you for several months anyway. Also, banks are clearly hoarding the cash right now anyway. They’re anticipating that you’ll default or they’ll have to write down debt. So, they’ve got the cash from Ben B. Let the Debt Jubilee begin!
January 9th, 2010 at 12:36 pm
Given what I do for a living, people might be shocked that I really believe that they should honor their debts and live up to their commitments. It’s the only thing that separates us from … well … corporations.
Our society has already gone way narcissistic in the past 50 years. A commenter here yesterday used the term “golem” to describe the Corporate Person. Very apt. There’s nothing to be gained by taking a page out of their playbook. As much as I would like to threaten my kids with termination because they are cost centers (big time) and routinely violate Z family corporate policies (dress code, work hours, violence against each other, theft, use of Z family property for appropriate purposes, confidentiality, sick days — they’ve abused them all, repeatedly), I probably won’t.
No, democratic process is still the way to go to control the golems. But that requires the heavy lifting of organizing and building consensus.
January 9th, 2010 at 12:38 pm
I was horrified by this thought just two weeks ago but on fourth and fifth thoughts…..why not. It’ll certainly flush the bad debt and credit scores will most likely become irrelevant for a decade as the system reboots; and since the government will do everything possible to delay the bottom and put us in an endless recession then why the heck not re-boot now?
Here’s the flip side: State gov’s will react seeing devastating effects to the tax base and impose punitive taxes upon those who preemptively hurt their neighbors? Before Ca goes willingly into bankruptcy they will take the middle class and above with them in a socialistic sweep…..no?
Who can think this ahead beyond immediate gratification? If communities become total losses because of profit and loss decisions (that are meant for businesses)then how far will the left be from taking us to draconian capitalistic rules that will prevent any true recovery? What began as bad decisions on the part of private enterprise will eventually be completely socialized losses either way. My name is not Danny F Doom but how else could this end if it happens? Credit ratings will become artifacts along with ratings agencies and our national credit line, along with the buck not far behind. It only works when a few get away with it….but everyone can’t screw the system or there is no system.
January 9th, 2010 at 12:41 pm
andy-
good point- I know a couple who were just denied a mortgage to purchase the house they have been living in rent free for OVER a year-
alas they still had no money for a down payment- in any event- once they realized the owner of the home stopped paying his mortgage- they stopped paying rent-
and a whole year has gone by- and the bank still has not sold the property-
debt jubilee indeed-
the funny part of this whole little story though- is- how can you be rent free for over a year and still have ZERO savings for a down payment?
boggles the mind
January 9th, 2010 at 12:41 pm
I’ve acutually threw a few resumes at the “You walk away” type companies. Legally they only work in some states based on what happens after the bank takes your house… IE do you owe the difference in the price of the house and vs. the actual value when they take it. Meaning if you house is worth 500,000 and you owe 800K and the bank takes it and sell it for 400K in some states you still owe 400k.
MA – is the way described above. WHile CA lets you walk away. If I understand it correctly. It would be a good infographic to see the default rate in the state that allow you walk away vs. the other type.
On a similar note. I’m kinda not paying back my grad school debt (200k) not out of choice. I know bankruptcy is not an option so I’m basically wondering at what point do they start garnishing wages? Does this mean that I’m destined for bartending? Moving to Europe? Maybe move out to Cali and get involved in the new “Green economy” (not clean power).
I was praying for HyperINflation so I could pay this back easily, but the more I look at it the more I see Deflation in the mid-long term.
Any advice?
January 9th, 2010 at 12:44 pm
@Transor: I hear you and have mixed feelings about this as well, but I’m thinking the only way we get to a point where the system regains some sense of normalcy and decency is that it has to get much worse before it gets better. To me, the little guy/gal has little to no power, but this is one area where they can wield the little power they have. Corporations set the precedent on what is acceptable behavior. How can we not expect the minions to follow? It’s poetic justice, in my mind. I certainly don’t blame anyone for walking away if its in their best interests to do so.
January 9th, 2010 at 12:45 pm
Government is corrupt; investment banking is corrupt; Wall St. is corrupt; banks and lenders are corrupt; lobbyists are biased and corrupt; unions are biased and corrupt. Why would anyone listen to these self-serving groups or their representatives as regards morality?
Morals are a group based system. Our society is morally bankrupt and is no beacon of moral superiority. Ethics are a very personal thing. Ethics is defined as “reason and rational towards optimum survival” and is very concerned with one’s future. Thus, walking away from a mortgage is an ethical issue… not a moral one. There is also the dilemma of right/wrong. One solution to this is following “the optimum solution”. One can divide one’s life up into 8 key sections (self, family & children, groups, humanity, plants and animals, the physical universe, the spiritual realm, God or infinity). When one needs to decide on a path of action, one can make the optimum decision by asking themselves “which decision or path does the greatest good for the greatest number of the 8 key sections of my life”. That is a way to solve the dilemma of… walk or pay a mortgage that is worth more than my home?
I got the above data on morals and ethics from reading a book by the American philosopher, L.R. Hubbard.
January 9th, 2010 at 12:46 pm
TZ-
trust is out the window for our elected officials to do the right thing by the American people-
people are taking matters into their own hands-
not too hard to imagine since the corporate run congress has kicked the average citizen to the curb
January 9th, 2010 at 12:49 pm
This is well worth a watch/listen. Moyers. This thing is FAR from over. It’s actually gaining steam. The O man has really dropped the ball by aligning himself with the wrong side. Tone deaf. Wall Street is the O man’s “Iraq”. That’s the bottom line.
http://www.pbs.org/moyers/journal/01082010/watch.html
January 9th, 2010 at 12:50 pm
In some states, the lenders have the legal right to compel borrowers to pay additional money when they default on their mortgages. Given the propensity of the politicians to bail out banks when they incur losses, it would seem that this issue of borrower liability should be considered on the national level.
January 9th, 2010 at 12:51 pm
Well put, fusion.
@ahab: Props to you for raising this issue MONTHS ago. As usual, many here at TBP well ahead of the curve.
January 9th, 2010 at 12:52 pm
fusionbaby-
good points-
it comes down to survival and what is right for an individual and his family
January 9th, 2010 at 12:55 pm
Bingo ahab. If the minions have been paying attention to their masters (and MANY have been), it’s that you do what’s RIGHT for YOU and yours and don’t care about anyone or anything else. Now I don’t necessarily agree with that and think that long term it’s a terrible way to “run” a society or community, but if the game is set up that way by the powers-that-be and you refuse to play it that way, you will get trampled. The corporations set the precedent for what we’re seeing now. Either you play and play it well or you don’t and get trampled. Personally, I love it. It’s poetic justice.
January 9th, 2010 at 12:58 pm
The meta-theme behind populist rage is that there is one set of rules for the elite and then another set for everyone else. One way for a citizen to combat this is to elect officials that promise to apply the rules to everyone. Another option is a kind of civil disobedience, where the people start changing the system by the simple weight of their collective decisions.
I think this is what is happening with the so called drug war right now. Weed is becoming de facto legal in so many places right now, especially the west coast, because if the cops arrested everyone who smoked, they would arrest half the state … including half the cops.
There may be a similar mechanic at play here. If enough people start saying, “fuggit, I am going to start playing by the same rules as the banks,” then change might actually start happening, from the sheer weight of the collective decision.
January 9th, 2010 at 12:59 pm
Mannwich @ 12:49
I watched the first few minutes of it. (Nothing new for regular readers of TBP).
Unfortunately, this will probably not be a big issue in the upcoming Congressional elections.
January 9th, 2010 at 1:02 pm
@DL: Agreed, but I got the link from my father-in-law and was heartened that more and more people seem to be starting to pay closer attention (although they are pretty active anyway). I just think it’s indicative that these issues aren’t going any time soon. Some in the MSM are actually starting to do their jobs. They’re late to the game, for sure, but at least the issues are staying out in the forefront. And I think these will still be big issues in this year’s elections if the economy (and jobs) hasn’t recovered because people will start take a closer look as to why we threw all this bailout money at a system that caused this mess, and who are doing just fine, while the average person still suffers. Keep an eye on that.
January 9th, 2010 at 1:25 pm
Munny: “Deserve’s got nothin’ to do with it.”’
Ahab: That’s one of my favorite movie lines, too!
January 9th, 2010 at 1:31 pm
Transer,
“It’s the only thing that separates us from … well … corporations.”
No. We are all ruled by laws, not “separate.” The laws in many places allow you to walk away, those are the rules of the game.
If you believe this “ruins neighborhoods,” then you are not a capitalist. Since the contracts are written this way, the average price of a home in a “neighborhood” will reflect all the information… that people can walk away. If it doesn’t than it’s not a market. But it is, so it does.
Give your house back to B of A…
BofA ready to pay big bonuses
http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2010/01/04/daily59.html
If B of A shareholder don’t stomp on the feckless clowns that made all these loans, then BoFA shareholder will suffer (as they have.) If you’re a stock owner, then you make less when these financial institutions bid up the price of these spreadsheet jockeys that know about as much about value as the Zimbabwean central bank.
January 9th, 2010 at 2:03 pm
That’s a good line from Unforgiven, to be sure, but I like the one just before it even better when Little Bill says to Munny “you sonofabitch, you just shot an unarmed man” and Munny replies, “he should have armed himself before he decorated his saloon with my friend”.
Anyone who doesn’t walk away from a mortgage which is substantially underwater needs their head examined, IMO. Not ethical? Puh-lease, it’s strictly business. Maybe next time the banks will ask for a bigger down payment like they used to, so borrowers have more skin in the game…
January 9th, 2010 at 2:10 pm
@VanDetta:
Go back and read up on what Corporate Person means. Hint: Fourteenth Amendment as interpreted by SCOTUS.
What separates individuals from corporations is that sociopathic individuals get put in jail. Sociopathic corporations are admired. I’ll let Mark Hoffer give you the Clusty search for “sociopathy.”
January 9th, 2010 at 2:12 pm
After a 65 year nearly unbroken streak of rising, consumer credit is contracting. How long does it take to return to sanity? It will take decades…if it happens faster than that, the ship may break apart. Hat tip Mish.
http://2.bp.blogspot.com/_nSTO-vZpSgc/S0e2jOWoUFI/AAAAAAAAHlU/Dt67uTWtew8/s1600-h/Total+Consumer+Credit+Percent.png
January 9th, 2010 at 2:13 pm
Great point, Transor. Thanks for depressing me even more on this day when I’m already sick today! ;-)
January 9th, 2010 at 2:14 pm
Although, I don’t agree. “Sociopathic individuals” who are executives or “successful” (in fleecing others and becoming “rich”) are also “admired”.
January 9th, 2010 at 2:16 pm
@Mannwich -
Drifting off-topic, but I watched the Moyers segment, and my overwhelming impression is that these guys come across as impotent whiners that aren’t going to get anyone mobilized to accomplish anything. Something is really out of whack when you get Ariana Huffington and Michelle Malkin actually agreeing on these types of issues. How this overwhelming sense of frustration finally morphs into populist action will be one of the big stories of 2010, though I can’t begin to tell you how it will play out.
January 9th, 2010 at 2:19 pm
@hgordon: I agree. These guys may not mobilize anyone but they keep the dialogue going, which is important. I don’t think the dialogue is going to end any time soon, mostly because the greedy, parasitic (and often idiotic) bankers think they’re in the clear and are back to raping the public, except this time more people are paying attention. Wall Street has misread things this time, IMO. It’s not going away.
January 9th, 2010 at 2:37 pm
Credit Ratings are a tad over rated. Credit is the root of all this problem. Your credit ratings will recover much faster than the financial loses.
January 9th, 2010 at 2:52 pm
f411, Wally, drey, et al-
. . .and another classic line from Unforgiven-
“Munny: “It’s a hell of a thing, killing a man. Take away all he’s got and all he’s ever gonna have.”
Schofield Kid: Yeah, well, I guess they had it coming.
Munny: We all got it coming, kid. ”
hgordon posts-
“How this overwhelming sense of frustration finally morphs into populist action”
my impression is it will be people acting in their own self interests- walking away, moving bank accounts, paying off/forfeiting on debt- understanding they do not have to be debt slaves- the modern equivalent of a serf-
the 2010 elections will be interesting- if I was a candidate I would set up a web site that accepts donations ala Ron Paul/Barrack Obama- and spend all my time railing against the banks- talking the truth- that a person need no longer be a debt slave-
$$$$$ in small donations would start pouring in
January 9th, 2010 at 3:22 pm
As far as I can tell, this party is just getting started. Talk about tone deaf. Pull up a chair and some popcorn.
For Top Bonuses on Wall Street, 7 Figures or 8?
By LOUISE STORY and ERIC DASH
Published: January 9, 2010
Everyone on Wall Street is fixated on The Number.
The bank bonus season, that annual rite of big money and bigger egos, begins in earnest this week, and it looks as if it will be one of the largest and most controversial blowouts the industry has ever seen.
http://www.nytimes.com/2010/01/10/business/10pay.html?hp
January 9th, 2010 at 4:03 pm
Ahab and hgordon:
It will definitely be interesting to see how populist outrage manifests in this year’s elections – a whole lot of people voted for ‘change’ two years ago and didn’t get it, to put it mildly. Dems are a disaster and a disgrace and I can’t, off the top of my head, think of another example of such a badly squandered presidential mandate (Carter, perhaps?)
Reps remain fractured, leaderless, and rudderless. Will people vote for the opposition party or demand another alternative this time around? Wishful thinking on my part, probably.
Speaking of Libertarians, just ordered End the Fed and am looking forward to reading it.
January 9th, 2010 at 4:14 pm
@Ahab
Thanks, and I agree! My second choice would have been The Godfather:
Tessio: Tell Mike it was only business.
Tom Hagen: He understands that.
January 9th, 2010 at 4:27 pm
Just had a conversation with a longtime friend yesterday who lives in SoCal out by Palm Springs. He’s figured out he’s about $60k upside down in the house he bought two years ago. He has a young family and hasn’t missed any payments on his mortgage. He has a good middle-income job. In conversations with the bank, he’s been trying to renegotiate the interest rate. They won’t do it so he said he’s not going to pay anymore.
He’s basically decided to stop making payments and to save the money for payments on a rental house. He’ll keep living there until they kick him out.
I get the feeling that this mess is going to drag on for quite some time.
January 9th, 2010 at 4:50 pm
drey and some other MSM sites last week “voted for ‘change’ two years ago and didn’t get it” .. time passes in double time for you’s doesn’t it .. 2009Jan20 isn’t even 1
http://www.whitehouse.gov/blog/inaugural-address/
and before you go off on me House/Senate .. save ya the trip D233 R202 I1 / D49R49 I2
http://www.npr.org/news/specials/election2006/results/
January 9th, 2010 at 5:16 pm
Corrupt powers and special interest groups have historically used the strong character, pride, morality and ethics of the common person to manipulate him (not to mention using the common person’s drive to be industrious and provide for their family as leverage to accomplish their evil ends).
Banksters wagging a moral finger at homeowners who walk away is a perfect example. The kettle calling the pot black. Ludicrous.
Through government and quasi-government agency infiltrations and via lobbying, banksters got rid of regulation (Glass-Steagall, etc.) and obtained innumerous advantages, benefits and favors from government to work their magic. They made home loans to anyone with a pulse without a concern for the future because those mortgages were being securitized and sold off. The banksters and big guys in the financial system were making a fortune with their MBSs, CDOs, etc. etc. with no conscience about what they were doing to our economy both domestic and global. The government supported the banksters. The Fed helped set the stage for all of this with their intervention (low interest rates, fractionalized reserve lending, etc.)
They’ve made a huge mess, causing all sorts of imbalances in our economy and a depression. After this deflationary spiral we’ll have strong inflation and the USD will be toast. We’re becoming Socialists. Our standard of living is dropping. We are in this Keynesian borrow/spend/stimulate mindset of total destruction. We’ve lost jobs, credit isn’t available for small businesses (the engine for employment), our purchasing power is going, taxes will rise, deficit spending will continue, etc. etc. etc.
The people are beginning to wake up and give these criminals the same treatment. Walking away from homes, defaulting on credit cards and student loans and auto loans are manifestations of this. They are asking themselves… “why be honorable, moral, etc. when our leaders are not”? “why work hard for low pay when corrupt bankers are getting bonuses for destroying companies and economies?”
I think the frog in a pot syndrome is beginning to change. The frogs are starting to realize that the water is moving towards boiling point and they are jumping out early. People like Ron Paul are telling the frogs, “jump out now or you’re gonna be someone’s frog leg dinner”.
The Dems and Reps have made a total mess of things for decades. Their stats suck. The stage is being set for a new third party to form and rise.
January 9th, 2010 at 5:25 pm
The bankers are saying: “Don’t do what’s best for you and your families… Do what’s best for US and OUR families!”
January 9th, 2010 at 5:27 pm
Interesting, should I stop paying my car loan because I am underwater as soon as I drive off the lot?
January 9th, 2010 at 6:24 pm
“drey and some other MSM sites last week “voted for ‘change’ two years ago and didn’t get it” .. time passes in double time for you’s doesn’t it .. 2009Jan20 isn’t even 1″
Your point being that not enough time has gone by to judge? Baloney – anyone who is paying attention would have known we were in trouble with the Rahm Emmanuel and Geithner appts which were made BEFORE Obama took office I believe…
On most matters of import this administration can barely be distinguished from GWB.
January 9th, 2010 at 6:59 pm
The River of Unintended Consequences in the Strategic Mortgage Default game plan will water the tree of Student Loan defaults. A new underground railroad? While the Actually bankrupt Big Banks today (Marked-to-Market by trading with their peers, not propped up in Potemkin fashion by the Geithner plan) studiously exempted the current wave of students from defaulting on their debts, few noticed that the accompanying housing bubble was also insuring the wonderfully wealth-producing future prices of housing was also driving away from acquiring one. The train is coming down the track full speed ahead and the bridge is out; throw in a damsel in distress tied to the tracks in a silent movie as well. The hard rain is already falling.
January 9th, 2010 at 7:58 pm
speaking of unintended consequences…
when the children of banner waving capitalists have to walk past clumps of degraded houses filled with many unrelated squatters to get to school, how long will it be before those consequences end up in headlines of outrage and further class polarization. Eventually this kind of immediate gratification (get the bastards back) will backfire in so many ways. Why not just think it through and honor a social contract that always existed. Honor your commitments until you cannot. It’s a democratic republic first and if the capitalists go to extremes, so will the socialists. They’ll invade the right through populist rage and really screw up the system. Today is not even a warm up for that act. Point the outrage at the fact that meaningful financial regulation is moving too narrow and slow. In the meantime we all live in neighborhoods that have to keep on keeping on. We’re Americans, not Ferengis.
January 9th, 2010 at 9:16 pm
The worst mistake the banking industry made was ending debtors prison………suckers
January 9th, 2010 at 9:57 pm
Hey Webmaster or Monitor… what is the deal?
I write a post and click “Submit Comment” and it disappears but never shows up on the thread. Has happened more than once to me. Just happened again.
January 10th, 2010 at 9:59 am
Morgan Staney had plenty of money to pay the note on their five buildings located in San Francisco.
Blackrock could’ve easily paid the note on Stuy Town and Cooper Village.
Four legs good; two legs bad.
January 11th, 2010 at 1:14 am
@fusionbaby, thanks for the clear thinking. But you needn’t be so hard-core strident about it.
These mortgages are commercial contracts, and are governed by state & Federal laws. Notable among them, the Bankruptcy Abuse Prevention and Consumer Protection [sic] Act of 2005, which banks lobbied Congress into passing, over objections of consumer groups.
I’d argue that the hard-ass language in BAPCPA gave banks a false sense of security about bankruptcy and helped cause sloppy lending that contributed to the crisis. (Though I haven’t seen a decent rebuttal that, as a nation, we simply got drunk on all the things that borrowing from the Chinese could buy, while we shipped all our jobs over there, in part because we didn’t need to work any more.)
You can’t say that banks didn’t know the terms of these loans, and the “fine print.” They wrote them, including the walk-away provisions.
January 11th, 2010 at 8:57 am
call me ahab asked
January 9th, 2010 at 12:16 pm
also- BR-
where are my goddam kudos- I have giving this advice for months and months- glad to see it is catching on
reply:
————-
Kudos, grasshopper. You have earned your light-saber. Your clarity is formidable. No crook shall fool you. Keep your cash dry until after the crash, then survey the landscape for opportunities. Uncle Stupid will once again power in with free money to bail out Wall Street. You may as well slice off a piece of the pie, but wait for it.
Yes, there is a conspiracy to make you poor and keep you ignorant, and anyone who claims otherwise is just selling something. Wall Street wants what you have, and, since they control Washington, they will eventually get it as a matter of law and social custom. The news media will help, as they are ignorant due to the fact they don’t have to be any way other than ignorant to make a living and because some are only infomercials for Wall Street investment sales folk.
Only a couple of years ago, this would read like massive paranoia. It probably still reads that way to some, but not to a significant and growing number who are also achieving clarity.
January 11th, 2010 at 9:56 am
obama and his ilk whistling past the graveyard. if you want widespread, sustainable job creation you have to make the business environment more attractive. throwing money at construction and infrastructure projects while sounds attractive in a sound byte is one of the worst ideas to meet this objective. they keep throwing our wealth away at increasingly incompetent ways.
<>
http://news.yahoo.com/s/ap/20100111/ap_on_bi_ge/us_stimulus_unemployment
January 11th, 2010 at 10:06 am
I think the answer to this dilemma lies in what the purpose of the building was. Morgan Stanley, and myself, can walk away from bad investment decisions. But I live in my house. Whether I’m building equity or not, or even losing value, is a secondary thought. My first thought is keeping a roof over the head of my kids, and keeping it in good repair. Morgan Stanley could care less what happens to those buildings it walks away from. Owners of investment property SHOULD walk away from bad investments, or be considered an idiot for chasing bad money with good.
January 11th, 2010 at 10:17 am
ashpelham2 Says:
January 11th, 2010 at 10:06 am
Owners of investment property SHOULD walk away from bad investments, or be considered an idiot for chasing bad money with good.
reply:
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You are advocating that contracts that become unfavorable to you are OK to breach. The world economy is based on contracts that are kept.
On the other hand, the world has become a place where it is moral to ignore contracts if their formation was based on constructive fraud. I support you. A promise to a crook is not a promise that needs to be kept. Not to mortgagees, not to lenders, not to those who con you into idiotic derivatives. The crooks need to pay and pay hard.
January 11th, 2010 at 1:39 pm
dead hobo Says:
January 11th, 2010 at 10:17 am
A promise to a crook is not a promise that needs to be kept. Not to mortgagees, not to lenders, not to those who con you into idiotic derivatives. The crooks need to pay and pay hard.
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Who’s the crook if someone got a mortgage to buy a house and is now underwater and decides to walk away? If that sort of behavior becomes widespread, I would worry less about home values in the neighborhood, etc and more about interest rates and fees rising to compensate for voluntary delinquency.
Since when is it moral to voluntarily fail to deliver on a contract? Additionally, I’m not certain, but I would imagine there could be financial penalties that go beyond just losing your home and damaging your credit score.
January 11th, 2010 at 2:03 pm
When a system gets frozen or crashes; it’s time for a re-boot. Get over it. There is is still time in this “It’s a Great Country , America” for taking a cold shower as the only Taking left , and then getting or making yourself a real job with your hard science degrees instead of Structured Arti-Finance.
January 11th, 2010 at 3:04 pm
“Interesting, should I stop paying my car loan because I am underwater as soon as I drive off the lot?”
Not comparable. Your car wears out in 10 or 15 years. Your house, with upkeep, should last forever. The land under your house definitely lasts forever.
There also have not been any crazy out-of-control bubbles in car prices during the past century. There have been two such bubbles in housing in the past 25 years. The last housing bubble was the worst, actively encouraged by the Fed and the lenders.
Your car will steadily go down in value, not matter what, no matter how well you maintain it. In the absence of bubbles and the bursting of bubbles, the value of a well-maintained house does not make huge swings in the space of a few years.
January 11th, 2010 at 4:45 pm
Charles Says:
January 11th, 2010 at 1:39 pm
Since when is it moral to voluntarily fail to deliver on a contract?
reply:
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Normally, contracts are sacrosanct. In this case, I think not. Just because Joe Stupid decided to keep refinancing because he believed he could someday sell the house and make a payoff, in this instance I think Joe Stupid should get a pass. He’s still going to pay due to lost equity, so he doesn’t get off completely.
Bankers should have been the adults her, but they encouraged people like Joe Stupid to borrow well beyond his means and implied it was a good idea for him to do it. He trusted the wrong people. This amounted to constructive fraud. Screw the bankers.
January 11th, 2010 at 5:05 pm
Since when is it moral to voluntarily fail to deliver on a contract?
According to Judge Richard Posner of the 7th Circuit — and afffiliated with the Chicago School — it is fine to do so whenever the breach results in a net benefit. This is the so-called “efficient breach” theory in contracts that goes hand-in-hand with the Efficient Markets Hypothesis (EMH).
January 11th, 2010 at 9:50 pm
I’m not hearing anything about PMI in this discussion. Maybe my recollection is defective, but I’m thinking if you don’t put 20% down you’re required to pay PMI. Aren’t the vast majority of people who are upside-down on their houses likely to have PMI? If I put less than 20% down, the lender makes me pay PMI and PMI exists only to protect the lender.
Although I’m not under water on my house (because I always made it a point to put enough down to avoid paying PMI), I’m pretty firmly on the side of the strategic defaulters. First, the bank paid somebody to make sure that my house was really worth more than I wanted to borrow. Second, the mortgage is a secured loan, so if I walk away they get to keep the house they agreed was worth more than I borrowed. Third, for those who put minimal amounts down they’re covered by PMI. Aren’t they?
The argument that a house is different than an investment because I live in it just seems … silly. My house isn’t the only place I can keep my family warm and dry. One of the apartments down the street will do that. Sure, the apartment won’t have the big lawn. But I won’t have to mow the grass or shovel the snow, either.
Igor
January 11th, 2010 at 11:43 pm
While we’re discussing the morality of defaults how about the PMI insurers who collected premiums from the homeowners to protect the lenders (banks etc) and then failed to pay the lenders, just negotiated minimal settlements?
When a corporation screws another corporation thats OK -”just a business decision” but when a home buyer gets tag-teamed by sleazy appraisers and brokers and pays more than a home is worth and then walks away – thats immoral?
January 13th, 2010 at 6:35 am
Gee, it’s about time the media catches on. Schiff wrote about this in 2004 (http://www.europac.net/articles/pc0475.asp) and 2007 (http://www.europac.net/commschiff.asp?id=9036) already.
Talk about being slow on the uptake.
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BR: I believe the media caught on to ARMS and Walkaways 3 years ago . . .
January 21st, 2010 at 10:48 pm
In Florida, the issue of walking away from a mortgage comes with the additional cost of dealing with a possible deficiency judgment. In November, I wrote a blog post (http://aboutfloridalaw.com/2009/11/05/walking-away-from-your-home-mortgage-%E2%80%93-not-without-consequences/ ) citing an article in the USA Today entitled “More walk away from homes, mortgages.” Essentially, a lender can obtain a judgment against a Florida homeowner for amount it loses on a foreclosed property. The lender has 5 years from the date of the foreclosure sale to obtain a deficiency judgment against the borrower. So be careful, at least in Florida.