Article Source: msnbc.com
from:msnbc.comThose who 'strategically default' are using system the way it was designed
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Does the phrase in this article, "erosion of social and moral standards", apply to the banks as well?
Banks obviously would not want anyone to think they are immoral as well, but they played a very big part in this whole mess. Sure there are those who were given mortgages they could not afford and should have know better. But it is the BANKS who played the biggest part in creating the housing bubble. They ultimately made the decision to approve those mortgages and it was their financing activities that drove up prices to unrealistic levels. All of this to make more money and without caring how that would hurt the homeowners in the end, many who could afford their mortgages but are now left with homes not worth anything what they owe. So banks are sufferering the consequences of their own greed. Too bad!!
And the BANKS were given an offer they couldn't refuse, via the Community Reinvestment Act and other good-cop/bad-cop government tactics. The PEOPLE have a RESPOSIBILITY to pay their bills. Shame is a part of "the way the system was designed" also. Of course no bias on the part of the author here.
Total fair play . . . if banking culture dictates that your "home" has now become your "investment" or your "nest egg" or is any way tied to your "financial security" then it's appropriate for home owner's to behave like "investors."
sorry but these people are scum, walking away from a mortgage just because the value of your home dropped, thats no reason to walk away while you can still pay, theyt are ruining house prices and the markets for everyone else, people who walk away from mortgages should be blacklisted from ever being able to get a mortgage for the rest of their lives.
I agree with the spirit of the article.
hometowngirl:
Actually, the more people that default, the more prices get lower, and the more people can really afford them.
Anyone who spends more than 2x their annual salary on a house is in over their head.
"charity", Banking culture does not "dictate" that your home is your investment. Complete fabrication on your part. Your conclusion is based on your erroneous assumption.
It's called survival. The banks have resisted every effort to reign in their predatory practices, and now want the public to meet obligations that they have made unsustainable.
If the banks had used commonsense and morality instead of rampaging to fleece their customers they wouldn't be left with overvalued property and massive defaults. They have only themselves to blame, but of course they don't see it that way.
Undoubtedly there are some people with even less integrity than the banks who are taking advantage of non-recourse laws, but the banks set themselves up for this with their massive greed and lack of honest dealing. And still they continue to blame the public for their dilemma.
This was a well done and dare I say somewhat subversive article.
On the same token, It's truly mind boggling to see so many Americans in these comments identifing with the owning class while trashing their own fellow workers who made a legal financial decision in their best interests. Are the banks paying you people to defend them so vociferously? If not, then why?
Typical hysterical blather from an uninformed person. Everyone knows full well that defaulting on a home loan will haunt your credit rating for over a decade, and any bank that takes a chance on you is doing so at their own risk. Why do people sit and type such ridiculous hyperbole when they could be doing something much more productive?
I think the question we should be asking is would these people be walking away from their mortgages if they had made the mistake of buying an investment that went bad because of their misdeeds, as opposed to the mortgage meltdown that happened because of greedy lending institutions.
The primary reason for people being upside down on their mortgages rests primarily with the industry that created a secondary market that allowed people to purchase homes without the resources necessary to do so. So if you've been a prudent investor who did the right thing and played by all the rules, you're thinking why should my financial welfare sink into the abyss for something I had nothing to do with.
It really does come down to financial survival, and since banking has become this impersonal behemoth that sees its cutomers merely as a bank account number, it simply makes it that much easier to walk away from the albatross around your neck aka, your mortgage.
These people have apparently worked out the math and figured out that a 7 year blight on their credit record is better than the financial impact of holding on to a depriciating asset.
Do I think it sends a good message to other homeowners who are trying to do the right thing by being a responsible debtor, absolutely not, do I think that their being financially prudent, absolutely.
In this new financial world of kill or be killed, you have to put your family's financial interests foremost over the banks financial interests. And for those of you who might be thinking I am one of these individuals who walked away from his mortgage, I am a life long renter, however, knowing what I know today, I would probably do what's in my family's best financial interest.
Kr . . . o.k., let me rephrase that . . . at the bank I WORKED AT FOR TEN YEARS, homes were promoted as an investment . . .
Do you really believe that nonsense?
Kr . . . further more, why do you think we have non-recourse loans in the first place . . . hello, it's in your contract
"charity", hope YOU weren't promoting homes as an investment, that would make YOU part of the probelm. Again, BIG difference between "promoting" homes as an investment and, as you said, "dictating". When you sign on the bottom line, YOU take responsibility. Now I agree that the banks have behaved like idiots, and I'm sure many bankers refused to go along with these loans and either A) survived today because they were in a "safe"(from the government) location, B) went out of business because they couldn't or wouldn't compete in the government-warped market, or C) ran afoul of CPA and were either fired, quit, or caved in to doing what was wrong (which of course, the vast majority at the time felt what was "wrong", i.e. giving loans to those who could not afford them, was "right").
I do not sympathise with those banks that made too many bad loans and agree they should go out of business, but that does NOT excuse people from paying what they owe. Not every bank with foreclosed homes is in the same boat (of course the actual IOUs are spread far beyond the banks, but let's just stick to what's on the surface).
Now if these people want to walk away from their mortgages, they should never be allowed to borrow without any independent (or whatever you bankers call it) capital again. If I believed that would be the case, this wouldn't be such a big deal, but I'm sure that just as soon as this crisis is over all these people (and the innocent people who in the future fit the same profiel as these people) will whine and cry to the government to create the CRA problem all over again.
Seriously, the whole point of having a non recourse loan is THAT YOU CAN WALK AWAY BY SIMPLY RETURNING YOUR HOUSE. No one is saying the person who bought the house was not a spectacular fool . . . but the person in most cases does have the legal right to simply walk away. The banks new this when they made the loan. Everyone motherfacking knew (except you perhaps) and no one gave two craps because everyone was making big money or big equity. So now, one party is loosing their a$$ and the other party can simply walk away . . . it's not nefarious, it's the whole point of having a legal system which does not subscribe to the idea of "debtor prison."
And you might want to check out the derivatives market and the MBS market . . .because if you understood how mortgages were being repackaged and traded you wouldn't be spouting off this nonsense.
And Jesus, if I hear one more hillbilly mouth off about the CRA program . . . hello, CRA loans are the LEAST likely to fail . . . why you ask? BECAUSE THEY HAVE THE STRICTEST UNDERWRITING STANDARDS. Do you people even bother to google the information or do you just accept it as truth because some banker told you it was true? Or even better, did you read it on the "internet?" Have you not absorbed anytyhing this past year?
Your responses are scary . . . not because you are misinformed . . . because that I could handle . . . but because you are so willing to believe any line of crap a lobbyist spits out . . . it's this refusal to form independent thought which is destroying not only our banking system, but our country.
And are you seriously blaming poor people? Please let it be sarcasm . . . because statistically speaking the amount of wealth "poor" people control isn't enough to sink a dingy let alone the THE ENTIRE FINANCIAL SYSTEM.
It's not magic, it's math. You might want to try it before you blame the least amongst us for the tragic disregard of human decency espoused by the banking oligarchs.
And let's get one more thing straight . . . as a veteran of the banking industry I can tell you unequivocably that the only reason the lobbyist are going after the meager CRA program (the amount of money dedicated to this program is negligible when compared to the whole) is because they need the money to do one of two things . . . One, either repay TARP so they can bonus out all of their traders or two, loan the money to their country club buddies at a better rate of return.
And since you seem to think I'm a criminal I'll give you another clue . . . because you seem to need it and I'm feeling generous today . . . There are two main functions of any major investment house . . . there are those who "make" the money and those who "regulate" those who make the money or "administrate" those who make the money.
So what happens when those who "regulate" those who make the money find a problem with the system? Hmmm . . . They mother facking get fired and then when they try to file a complaint with the appropriate authorities they are characterized as a disgruntled employee. . . Why you ask? Because banking is not longer about the depositor . . . and probably not even the share holder. It's about expanding the money supply via credit. Take a look and find out when "new" currency is issued . . . it had nothing to do with the Fed or even the Treasury because in the modern economy CASH FOLLOWS CREDIT or the tail wags the dog. That's right, credit is the economic mechanism for currency creation.
So once you get your head around that, tell me, who in the hell do you think benefits from elevated home prices? Hmmmm . . . there's so many clues someone better call Matlock because I think we have a mystery.
Whoa, "charity" when it comes to misstatements, you're leading the pack with talk of "dictating" banks, etc. Nobody is talking about "debtor's prisons" and spouting such populist clap trap does not do your position any justice. AS I SAID, the problem is with recidivism down the road. As for your CRA comments, you want to have it both ways. The CRA has nothing to do with the situation AND these loans went predominantly to "poor people". "Poor people" are not the only issue here and (again) nobody is talking about debtors prisons. AS I SAID, I do not sympathise with the banks, per se. However, the debt is spread far and wide and people need to be responsible (Banks also) about what they owe. There must be a penalty to be paid for waking away from a loan.
And WTF do you get off with this "hillbilly" BS? The CRA (or any) program as a whole does not have to encompass a significant part of the market to warp the system. You apparently lack a fundamental understanding of economics. Same applies to tort issues and their effects on health care costs. Belive me, I am quite good at math (and economics), probably better than you are at "banking", however that is not the point of this discussion, it's about RESPONSIBILITY. However, I see where this discussion is headed, you scream "lobbiest stooge" and I'll scream "Moveon.org/ACORN lackey" and we'll get nowhere with this level of debate. Thanks for your input.
There sure should be shame in walking away from a mortgage. Talk about a total lack of personal responsibility in today's world. My parents' generation would have thought it an outrage if someone walked away from their responsibilities. But in today's world, you see it all the time - fathers walking away from their families and refusing to pay child support, people walking away from their mortgages.
Sure, the banks have a lot of blame to lay on their shoulders. But that's not the point.
There should be shame in walking away from a mortgage unless something truly tragic has happened to prevent you from being able to pay - like an illness or death in the family. If you have to walk away from a mortgage because you never could have realistically afforded to pay it... well, damn right you should be ashamed. And you should probably be in jail for fraud, too, along with whatever jerk approved a loan to someone who couldn't afford it.
Charity I feel sorry for you.... Its like watching a math teacher trying to explain calculus to preschoolers... They think they know everything about it and aren't willing to do any research. If they did they would see the cold logical facts proving them wrong, therefore they won't even try.
The banks have treated the rest of us like their personal blood banks, time to let them do some bleeding, lord knows chase doesn't mind jacking up the rates on my credit card to 30% for no legal reason other than they can, so why not give them back their house? They own it after all...
hometowngirl-510510 what are you talking about? People walking away from mortgages are making housing prices BETTER for the rest of us. Housing prices are best for everyone when they are rooted in the REAL, fair value of the home.
People are neither legally nor morally required to repay a home loan that has gone south. Legally, you can walk away, and accept the default on your credit score, that's how the contract is written. Morally, you need to put the lives of your family before the wealth of investors, so morally you should walk away if you find that to be the best course for caring for your family's future.
I have a feeling in the author's world, everyone is a victim. A victim of banks willing to lend them money. A victim of the stock market and housing market from taking what they are entitled to. A victim of the public school system for not learning you should read a contract before signing.
Many of those that have difficult mortgages went in with full knowledge they were taking out cash to buy plasma TV's, or purchasing a home they could ill afford. Common sense tells you if you make $50,000 a year, you can not afford a 3,000 square foot home in California. Those that walk away from their mortgages are simply putting their burdens on the backs of those that are ethical, keep their contracts and have a spine.
I personally think that these "strategic defaults" are very , even though they appear to be perfectly legal in some states. The issue is that these people are asking their friends and neighbors and every American who is keeping their house to pick up the slack.
It's true that some banks/lenders/mortgage companies are unethical also, but like the old saying goes, "just because everyone else is jumping off a bridge, it's not a good idea to join them."
What kind of lesson, exactly, are people teaching their kids when the parents walk away from their obligations?
Greg-281912
If you lost a significant percentage of your home value and owed $75,000 more on it than it was worth, would you walk or would you do your civic duty at your own expense?
John,
If you bought your home to live in for 30 years, then it should make no difference to you that the value has dropped below the amount that you owe.
If you speculated and bought your house as an investment, then you made a bad investment no different than the stock market. You should never invest money that you can not afford to lose.
A house is not an investment, it is shelter, a place to live, a roof over your head, nothing more. If you treated it as an investment than you should be held accountable for your actions.
Personally, I wouldn't sign up such a contract period. It's called sub-prime and those people could have asked questions, researched, etc. before jumping on board. I do believe it is an unethical practice on part of the business but no one was tying these people's hands telling them that they had to buy a house and that they had to use this type of mortgage. For goodness sakes...your buying a house! It's not a t.v., an article of clothing, etc. You obviously will be paying on it for sometime, won't you want to know how much of your money is going to the house and how much of it is going to the pockets of the bank?
oldmustang42
I disagree. Houses are every bit as much an investment as they are a residence. People have no choice but to look at them as both.
The truth is that there are many people who do not plan to stay in a home for 30 years. If these people lose their jobs then they have to go to where the jobs are. Ask any resident in Noble county Indiana. In order to relocate, you have to sell your home. Oh wait, it happens to be worth 30% less than it was now. Now what??
John,
People always have a choice, just because we don't like some of our options does not mean that they don't exist. Historically, the national average home price has has appreciated at a slightly faster rate than inflation. There are many factors that we take into account when we buy a house. If a major factor for you is assuming price appreciation, that is your choice. If you are correct, you will reap your reward. If you are wrong however, you should suffer the consequences. Buying a home is not a risk free opportunity, there is no place in the contract where the lender or the seller guarantees that you will not lose money when you sell your house.
If these people want to walk away from their homes, that is their choice. The bank will get the house and life goes on. My problem is that 5 or 10 years down the road when we have a real recovery, these are the people who will be screaming the loudest because the banks aren't treating them fairly. They may have to pay a higher interest rate than others because of their financial(re-payment) history, but they won't see it that way. To them it will be about race, or class, or the 'big corporations' against the 'little guy', and then the Gov't will once again meddle into our lives creating many more problems than they ever actually solve.
rw1410785 said it best. Bravo to you for pointing this out. These people are not only fools, they are fools with no shame.
Everyone has a choice. No one HAS to buy a house. There are lots of apartments for rent! There are lots of houses for rent! There are friends and relatives with empty rooms!
And, since NO ONE was forced to buy a house, then each and every person who made that decision should be legally responsible for making their payments. PERIOD.
And dont' even start on the "but I lost my job", or "but I am upside down."
If you didn't have a backup plan to make your payments should you lose your job, then you shouldn't have made the decision to buy.
Sorry Greg, you are inserting morality in a business issues. Plus Greg, what if they made their payments, but then lost their jobs. Sorry, there is already a penalty if you can't make the payment, you lose the home PERIOD.
People without jobs can't afford apartments either. They get eviction notices.
There are two homes within 100 feet of my home that are in foreclosure and a third that was just sold by the bank after going into foreclosure. All three were rentals owned by investors... at least one of those investors owns other rental property and reportedly doesn't even live in the same state as these homes. He also passed up the opportunity to sell the house for a very fair price (to the tenant who had entered a rent-to-buy agreement with the investor before the housing value plummet) and he would not sell to the tenant...insisted on asking a higher, outrageous price. It seems like the investor did not want to sell the house...which would cause him to pay off his mortgage...instead let it go into foreclosure (was somehow approved for short sale, first). One of the other foreclosed on homes was owned by a landlord who received section 8 (government tax funded) monthly rent payments over $1000/month, and yet neglected his mortgage payments that this government payment would have funded, and let the home go into foreclosure...reportedly to go on and purchase other now devalued homes to rent out. I do not think that investment homes should be allowed to go into foreclosure. Many Americans have lost money in their investments... without the tax payers expected to pick up the tab. I understand that homeowners who are loosing their homes due to job loss, etc. need assistance and/or may be forced to foreclose on their mortgage. It would seem that is what foreclosures were designed for...primary home owners who run into financial difficulty in paying back their mortgage. I believe it should be criminal for investors to being doing this with investment homes...there are many people needing homes to rent. Even if the investors must lower rent fees and suffer a financial loss during these tough economic times, that is what they need to do (everyone else is)...investments are a risk, and you aren't supposed to be able to just walk away and dump your problem on everyone else when the investment isn't as profitable for a time period...or when you have already sucked every financial advantage out of it and now want to move on to buy very cheap homes in a devalued market (that you have helped to create)...and start all over again with even bigger profits.
hell the banks are the ones in the first place who started off this mess. countrywide and the like. people are paying more on their houses than they are worth.
to wit, My property tax just went up against my defiance as my property lost value and didn't gain value. strange
bankers suck
Chris your taxes will come down,takes a little time but they will. As for paying more for a house than it is worth,that was the gamble,like buying stock,sorry but when you make a deal its your fault, the banks did not make the property values go down. The sub-prime borrowers did,by default and the Government intervention in the mortgage industry.
The banks were responsible for your property taxes going up?
Keep your hatreds straight.
And, once again, BANKS CAN'T LOAN MONEY THEY DON'T HAVE. Where did banks get all this money that went out in all these bad loans? Deposits went through the roof? Doubtful since deposits have declined year after year. Where did the money come from? THE FED. All they had to do was make one sided entries and - POOF - new money to toss at people to keep our overheated economy, well out over its skis, going just a little bit longer - the quarter - the next election cycle - the next fiscal year. It was the "stimulus" before it became part of our lexicon. The Federal Government has been over-priming the economy for a few decades now, with a dizzying display of monetary stupidity the last 5 years or so.
So yes banks have a share in the blame. But I have little doubt that banks were no different than your average street pusher - if I don't sell it (and get my commission) the guy a block over is going to do it.
In this scenario the "victims" are credit junkies, getting high buying stuff they can't afford, the banks were the pushers, morally ambivalent in the process as the "junk" is going to be there one way or another so why be a boyscout about it? And the Federal Government is the proverbial Drug Lord in this equation. They were the ones who benefited most out of all of this. They didn't give a dump who was "clean" and who was "hooked" so long as they could push everybody around when they needed to, blind everyone with false prosperity, and maintain its control over the Power Supply.
Again, WHERE did the money come from that the banks lent? THERE is your answer who most to blame.
The internet is a wide and wonderful thing. Use a search engine and put in "Federal Reserve" or "Fractional Reserve" Banking or "what causes inflation" or "monetary policies and the Great Depression" and educate yourself. You'll likely get both sides of the debate, but which sounds reasonable given the pattern of booms and busts BEFORE the Federal Reserve and the pattern AFTER the Federal Reserve?
stormerF - where do you live?! I've been a homeowner in NJ for 30 years and my taxes have NEVER come down! Plus, I do believe the banks encouraged the gov'ts "intervention". I enjoy HGTV, but I can't count the times I've watched the property "virgins" buy homes with no money down! If I was the lender, I sure as hell wouldn't loan them the money! Whoever did was asking for a default - morons.
Well, that's what happens when you live in NJ....
As for the subject at hand, if you agreed to pay a certain amount for a house, then that's what you pay. There is no law or guarantee that the value will stay the same or go up. You're car loses at least some value as soon as you drive it off of the lot. Should you stop paying on it because you now owe more than it's worth as well? It's a home, not an investment, so stop treating it like one and pay what you agreed to pay.
The banks caused property values to be artificially inflated by loaning money to anybody that could sign their name. Being professionals, they knew or should have known that values couldn't stay that high. They didn't care, because they were taking their profit and selling the risk to other people. So, yes the banks did make property values go down.
What a load of crap...Many Americans are Sheeple.(ohh the herd is going there I guess I gotta go there)..Demand for homes caused the bubble. Those who believe that supply and demand do not come into play are misguided. Also, just imagine if these 20% paid their mortgages and didn't go into foreclosure? I bet things would be on a very positive upswing by now.
Would someone please point me to the bank which held a gun to people's haeds and made them sign a loan?
I really, honestly want to know so that I can prosecute that bank, cause holding a gun to someone's head and forcing them to do something they don't want to do is illegal, and I know some darn good lawyers!
Please, bank names, please! We need to prosecute!
Well the bank did not have to sign the mortgage contract either Greg if they felt the borrower didn't have the means.
So Greg, do you want indentured servitude to come back, the precursor to slavery.
I hope their ruined credit follows them for the next 20-30 years,When did It become OK to sign a contract then default on it? I grew up when your word was your bond and if you make a bad deal then you learned next time to read the fine print.Too Many bet wetting socialistic scum out there, wanting the government to provide from them. You make your bed and you get to lay in it,so go ahead and walk away,just because you can,and I hope you never get another loan.
Are you referring to the mortagees or the mortagers?
Both.
In that case I agree with you.
StormerF must be living in a some fantasy world.
Contracts are made and broken all the time. That's why they all include provisions for breaking them. If a person willingly breaks a contract and accepts the consequences, then what business is it of yours to get huffy? I can understand being upset that the government shoveled all that money at lenders who @!$%#ed up, but you are blaming average americans who are just trying to live the American dream W lectured us all about not too long ago.
If bad credit followed people for 20-30 years, how many banks would still be in business? How would the American economy even exist without trillions in debt being seviced at any given time? What you are suggesting is the crippling of the single biggest sector.
Any lender already accepts that a certain percentage of loans will not get repaid. It's part of doing business in finance and not any big secret. That's why until last year the average american recieved dozens of credit card offers in the mail each year.
Geez o pete, think critically instead of typing the first rant that pops into your head!
The lenders are/were professionals who knew a lot more about property values and loan risk than the average person. When they discovered how to unload the risk to other people, they didn't care if the property was overvalued, or if the buyer could make the payments. They took their profit and ran.
I'd agree that people should do their best to avoid losing their homes, but I think more blame should be laid at the feet of the lenders who knew exactly what they were doing, knew it would explode, but chose to take their profits and let the chips fall as they may.
Who forced anyone to buy a home?...sheesh, you folks are pathetic whiners.
Danimal, nobody forced anyone to buy a home. Is there a point behind your apparently meaningless post, other than that you seem to like calling people whiners?
re: stormrF: :I grew up when your word was your bond and if you make a bad deal then you learned next time to read the fine print". But way back then the banks and powers that be seemed to be more honest and put the public's interests at heart!
Up until couple years ago I would have agreed with you. That is, until greedy corporations and banks, with their paid lobbyists and the majority of greedy politicians who heed them ran our economy into the ground. Who paid the price? Not the people who caused the problem, but the people who lost their jobs and whose homes became worth less than their mortgages! So do I blame the people who are desperately trying to make ends meet and support their families during a totally unforeseen situation caused by fatcats - same fatcats who are still earning lots of money and/or made off with big golden parachutes? Hell no!
BTW - I am still paying my mortgage. I put 50% down, I have a 6% fixed, my house is still worth somewhat more than I put into it (I hope), but I understand where those who are defaulting are coming from. There but for the grace of God go I. And I would like to leave this damned state but obligations keep me here, so I pay my taxes and look forward to the day I can get the hell out of here!
'Borrowers who "strategically default" and walk away from mortgages with the thinking they're better off taking the risk aren't abusing system. They're using it the way it's designed to be used.'
It's unethical to walk away from this debt. You made an agreement to pay so live up to your agreement. In the long run, it's others that will pay for your selfishness. If you are not going to be responsible, don't borrow money.
very good chloeellen...finally an American speaks!
I would think it would be unethical for the professionals to have written such a loan. The only reason they did is because they could sell the risk to other people in the stock market. Do you understand any of that?
Technically, they made a contractual agreement to either pay back the loan, OR to give the property back to the bank, and they are in full compliance with the contract if they surrender the property.
The banks are the ones who sold loans to consumers for houses with drastically overinflated values. Now houses are just starting to get back to their actual values, not the values made up by speculators. If the banks had loaned responsibly then they wouldn't be in this position of people abandoning overvalued mortgages. Pot, kettle, black.
If the government had stayed out of the mortgage industry,there would not have been so many bad loans made to low class people who could not pay their mortgage.
StormerF, your comment is just wrong. It is incorrect.
No one, no government, forced banks to make loans.
I know what you are referring to, the current trend to blame the CRA (Community Reinvestment Act).
The trend is wrong..."Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining" (taken from Wikipedia).
It did not and does not force or lower standards, it made standards consistent.
rjkardo,
Thanks for the copy-and-paste job on the definition of CRA. Reality and definition are two different things.
Whether it was CRA or otherwise, government and community activist groups wanted more people in homes, regardless of their ability to pay. Bankers were scrutinized and sued for not lending enough money to "undesirable" borrowers. There is plenty of video available (unedited) online of politicians testifying how safe home ownership was and how they didn't want to do anything to slow the rise in homeownership.
"Consistent" standards, in the eyes of CRA, means that lending rates should be the same in all zip codes, regardless of income. That may not have been the original intent, but that became the reality. Hate to break it to you, but "fair" does not mean "equal".
Keep ignoring the fact that investment banks and mortgage brokers did not fall under CRA.
Virgo,
Keep ignoring the fact that the government and private organizations had other ways to coerce lenders into making loans. Citibank was sued by ACORN for supposed redlining. CRA was one of the "official" tools of a long line of government and other organizations promoting home ownership for lower income borrowers.
You can argue the merits of it, or the specifics of CRA's DIRECT responsibility for it, but none of that changes the message, intent, and pressure that it placed on lenders.
http://www.c-spanarchives.org/program/177173-1&start=1076 (32:25 - 34:00). Plenty of others on there too.
Folks...I worked for the BIG BOYS. I can tell ya, there was tremendous government coersion to do more NOW and it you don't your funding is GONE! This a the fault of law makers pretending they know business. OHHHH RIIIIGHT our National debt/deficit are under control...lol, get a grip!
Liar.
It's interesting that when a corporation decides to stop paying it's bills and restructure through bankruptcy or some other means that it is considered a smart business decision, but when a homeowner who is underwater makes the same "business" decision to not dump his life savings into a losing proposition and walks away from his mortgage he is somehow morally corrupt. Banks don't make moral choices, they make business decisions, they would sell a homeowners soul in a heartbeat if it would turn a profit.
Why? if it is such a good business decision for businesses to declare bankruptcy,did we not just let GM declare bankruptcy,instead of throwing billions at them not to?
The government bailed them out even though there were plenty of experts that said the company would be better off going bankrupt and restructuring out of the UAW Union benefit mess. Boils down to jobs, this administration didn't want to be seen as putting more people out of work. Same stupidity as bailing out the banks that are largely responsible for putting us in this mess to begin with, let them fail, it's the way capitalism is supposed to work.
This whole moral issue is just something to keep the little people in line. Big money will do just about anything to increase their bottom line. Big money worries about being legal. Morality has nothing to do with their decision's. The little people are finaly catching on.
Sure, blame the banks all you want for this financial mess. But if you want to see the other big cause, look in the mirror. Too bad that everyone else who decided not to waste money and live inside their means gets boned.
How are these people "boning" you?
By allowing their homes to go to foreclosure and ruin our communities SonOfLiberty2008. They have "boned" all of us who pay our bills, and what's worse they think it's funny. "strategic default" is a farce, and it's sad that so many bought into it. What's really cool though is those who did that and think they are easily going to get a mortgage, car loan, etc. are in for a surprise. With risk comes rate and fees. Have fun getting loans for your kids school Johnny...heh...pathetic
I guess you always have to have someone to blame... so lets just blame the poor saps that lost their homes because NOONE in this freakin' country is honest anymore.
Word is your bond???? Haven't heard that since the 1950's... nowdays everyone is too hell bent on lying and misrepresenting - or telling "partial truths" like the idiot that just won the nobel peace prize...
I am not in favor of people walking away from their financial obligations at all. I believe that you should pay your debts. I also believe 30% interest rates on credit cards is loan sharking, writing subprime mortgages for people that can pay 20% down and a reasonable interest rate is loansharking, and bundling loans together and selling this debt is indentured servitude. Banks should be required to hold mortgage loans for at least 10 years. You wouldn't be seeing what is going on today if they had.
nowdays everyone is too hell bent on lying and misrepresenting - or telling "partial truths" like the idiot that just won the nobel peace prize...
Don't forget the idiot that lied to get us into Iraq. What's fair is fair.
Huh? Bush lied so Obama gets to lie too? That makes Obama exactly "as good as Bush". Is that what we voted for?? I don't think so.
I had hoped for better out of our little "diety" Obama...
Still better than Bomb, Bomb, Bomb Iran McCain.
Pat8 - this article is about people that CAN afford to pay what they agreed to pay via a legal and binding document, but decided that since they over bid and over paid for said house, they're just going to walk away. They didn't lose anything. They dropped it like a bad stock. If you can't look at a house and say, "you know what, this house isn't really worth the $500,000 the seller is asking for it" and walk away and find something more reasonably priced or bid a lower price for it, then you deserve what you get or shouldn't be buying a house in the first place.
The question is why didn't we bail out the homeowners instead of the bankers and watch the banks go BK instead? My point is that you can not have morals for just PART of the country. If it is illegal to steal, it is simply illegal. If you are hungry and steal they lock you up. If you work in upper mgmt and cheat and steal you likely will get a golden parachute on your way out. Morals start at the top and slide downhill at this point. If you want people to be loyal to their debts and their country, then business needs to be loyal to the workers of this country and do the right thing... stop dealing with the chinese. Stop the erosion of ethics in Washington and at the top, and we might get our nation back. Growing up the worst offense in my home was lying. You simply would lose the trust of others, and the wolf story comes to mind of course. Today, they call it spin and pretend it does not effect our society. Well, here is proof.. t he American people have been watching and learning.. to lie and cheat too, and to have not concerns about you corporate America, and to not care if you fail or not. To turn this ship around, it will have to start at the top. And with the lying fights going on in Washington and talk radio lying and ranting i doubt it will happen. I spend time on www.factcheck.org because it tells the lies of both parties... I like that.. I like to know the truth. In fact I would like to see them all hooked up to lie detectors before they can speak in business and in government. We have a new culture of robber barons who could care less if they ruin their own country, and now they are trying to pretend that 19% of the people are walking away from a mess they created. 60% of BK's are driven by medical costs.... We have 19% un- or under employment right now... so, that is pretty close to 79% of those who are fileing.. what about those who simply did over buy and they have a two income household... they would be effect by the 19% right? The remaining 21%, 19% of those are all they want to walk???? Yeah, right.. no... I would believe they can not afford to live and have to move in with family or friend would account for a larger part of that... few want to walk, most have no choice.
Banks are not at fault for this. They have government issued regulations on who they can lend to, how much they can lend in relation to the property value, etc. If the borrower wants a $400,000 house on a $40,000 a year salary, that's their ignorance, not the banks'.
This isn't entirely true though. The banks created new types of loans which were not covered by government regulations. They knew that the people couldn't afford these loans they were making to people for houses the banks knew weren't worth the value of the loans. Banks did this because they refused to look beyond the short term profits.
The banks didn't just create new types of loans and hope that people would stumble across them either. They actively marketed these loans to the people that they knew could least afford them. There have been many testimonies from the fallout of this whole recession from managers who were given quotas of these loans to sell.
People making bad decisions and accepting a loan they can't afford is one thing, but the banks were convincing these people that they could afford these loans. That's poaching.
In the early 80s banks were lending money that had increasing payments. The loan balances would increase for the first five years of the loan because the payments were not covering the full interest. The "unpaid interest" this month was added to next months principal. This type of loan was a nationally recognized plan to keep the housing market going when interest rate was soaring to the high the high teens and low 20s. I got "pushed" into one of those loans because I wasn't educated enough to ask the right questions. After a couple of months of this happening I decided to refinance. After nearly 18 months the interest came done to a reasonable level and stabilized. When I questioned the loan officer about why they "stuck me" with that type of loan, she explained that it made it easier to make the payments, at least initially. I could have afforded the other loans and in fact I even went to a 15-year mortgage. There were dozens of other borrowers that "walked." If I hadn't felt such a "moral" obligation to repay I would have also. But in their cases they lived "free" for nearly a year before finally being evicted. They saved their money for that year and had a sizable account to go into the market after it had stabilized.
As for a "moral obligation" to repay - I learned something very telling things about the mortgage industry. Based on the answers received (from them) when I had questions as to their tactics, I no longer have the same "moral obligation" I once had. I wish I had been smarter like my neighbors and less morally obligated. I would be in a better financial position than I am today.
Here we have yet another apologist for unscrupulous borrowers. Borrowing money does involve a real promise and commitment to repay. It is both a moral and a legal obligation. If a borrower has a legal loophole to avoid repayment that can hardly represent elimination of the moral obligation. Further, almost 40% of all foreclosures involve borrowers who really can pay their whole mortgage payment, not just for a month, but indefinitely. This is not a last dime situation. The feckless borrowers simply see that they borrowed more than the house is now worth and they simply walk away.
Yes, the lenders were stupid to lend under the terms of interest only or payment option mortgages, but they were also encouraged to do so by extraordinarily loose mortgage rules set by the mortgage purchasers, chiefly Fannie, Freddie and FHA. The moprtgage lender shareholders are paying much of that price and so are taxpayers. However, millions of borrowers Lied on their mortgage applications about their jobs, salaries, assets, etc. to secure low interest loans. Why is it that no one wants to hold the liars responsible for their lies?
The rest of us borrowers are left looking and feeling like chumps because we told the truth on our loan applications; bought houses we wanted to live in, not flip; borrowed reasonable amounts and did not refinance credit card debt into second mortgages. When the opportunistic borrowers intentionally default instead of paying what they legally and morally owe, the chumps are left with vacant properties in their neighborhoods further depressing real estate values. There ought to be shame in lying on a loan application and there ought to be shame in walking away from a mortgage obligation because if there isn't, there will never be a recovery. Chumps.
Based on your pen-name, I'm surprised that you would take such a stance as to point out "shame" in exercising the advantage of a legal loophole. If, ask you suggest, the borrowers lied on their applications then that normally would negate the validity of the contract. The lenders could call the note due and the borrowers would be out of a residence through an act of the lender. But where is the responsibility of the lender to do a proper credit check that they normally charge for. As long as the banks are receiving their payments, they don't care about one's ability to pay. But as soon as things start to go south and the payments start to dry up, the banks say the borrowers were deceitful.
A contract only obligates an individual to a legal obligation. Nowhere on the contracts are there moral obligation clauses. Any moral obligation is purely a character trait. And here you are calling the kettle black. How many of your brethren officers of the court feel a moral obligation to not exercise a legal loophole? It appears to me that lawyers are incensed that a common lay person could find a loophole that the educated lawyers overlooked.
Dang people, walking away from a debt makes you a deadbeat. Period. Regardless.
You could owe the money to an axe murderer, but if you entered into the loan / contract, and you default on your agreement, you're a deadbeat. I think it should be a mandatory black mark on your record. See how many more times you enter into a bad loan agreement.
Or we can marginalize people's stuipidity, leave them with no consequences for their poor decisions and wonder why the morality of our country continues to erode, then repeat this process again next time we have this debacle. Isn't the definition of insane "doing the same wrong thing, over and over and over again?" The country and our politicians are going insane.
It's the trickle down effect. Morality must start at the top. And as we all know, there is no morality at the top. Profit's at any cost.
Profit motive does not make someone greedy or evil. If corporations are doing things illegal, they should be punished. If they are doing something immoral, they should be shunned or it should be made illegal.
Borrowers came to banks and asked for their money to buy something the borrower could not afford on their own. They promised to pay x in return for y. If the banks fail to live up to their end, they are wrong. If the borrowers fail to live up to their end, they are wrong.
Why is this so difficult for people to understand? Why is it that the "little guy" is always right, regardless of the circumstances? This is the ultimate failing of the modern liberal.
Why might I ask is it OK for large corporation's to be immoral as long as it is legal but it is wrong for the little guy to walk away from a mortgage as long as it is legal?
ray, where did I say it was OK? Bancruptcy re-org in business is just as much of a scam. I'm just tired of (seemingly) everyone removing all blame from the borrowers and placing it all on the lenders, simply for the fact that the lenders are "big" and the borrowers are "small".
I, for one, would get a kick out of watching the economy grind to a halt of all of the mortgage and other lending institutions decided it wasn't worth it anymore and got out of the business, leaving people to only be able to buy what they can afford with cash.
DJ, thanks for supporting my arguments about the mindless "greed" bashing of the modern liberal. Wanna-be homeowners go to a private business and ask for hundreds of thousands of dollars and they are being raped by the system? Last time I checked, rape victims didn't have the option to say, "no thanks".
Just man up and pay off your house. Sure you won't have the expensive vacations or all the toys your neighbors do. But my wife and I were able to pay off a 223,000 home in under 4 years. We don't have super high paying jobs either. Sure, living on a budget sucks, but now i don't have a mortgage, credit card debt, or a car note. i realize that not everyone can pay down their mortgage as quickly. People need to think of needs before wants. Did i want to spend all of my "extra" money on the mortgage for 4 years? No, but now, because i sacrificed a few of my "wants" my wife can quit her job and we can still afford all the things we need.
Your idea of high paying job and most people's are obviously vastly different. Just for kicks, what useless careers are you in?
It's possible with a $100,000 / year household income.
Look up "Dave Ramsey"
It means driving a clunker.
It means going to discount food stores
It means no cable TV
it means no broadband internet
It means no expensive gifts for the kids, but pratical ones.
It means no expensive cell phones
It means no expensive TV's
It means no eating out.
All that stuff adds up more than you think.
"The millionaire next door" is also an excellent read about how financial responsibility leads to wealth.
Even with a $50K/year (which is the average US houseshold income) it's possible to have a nice house paid off in 4 years PROVIDING you put enough money down.
Using the "Rule of Law" to evade responsibility, rather than "Common Sense", which would require living up to commitments, is rationalization at best.
To work together for success we must not lose focus on the intent and hide behind contract language when the going gets tough. Failure can be a learning experience…weaseling out while pretending it is a good idea does not build character, it promotes more failure.
This article is an affront to the sensibility of ethical people everywhere and another call for the lowering of standards under the "Rule of Law".
Sam,
Doesn't every business use the "Rule of Law" to their best benefit? When business gets in over their heads, all they have to do is disclare bankruptcy... but it's hardly as devastating to a business as it is to an individual. This affords them the ability to renegotiate the terms of the debt to a more "affordiable" solution to their problems. Since this is usually a business to business deal they are all willing to help each other out.
Banks have are not very willing to renegotiate the terms of a mortgage for homes that are now worth much less than they were. I have heard that in some cases they have renegotiated the terms, but it's a rarity.
The banks weren't crying "Moral Hazzard" or "even though it's legal, we shouldn't pass our debt on to others" when we took a @!$%#-ton of debt off their books so they wouldn't go under; and I haven't heard any of them clamoring to have their debts reinstated because it's the moral thing to do.
I can understand walking away from a mortgage because you lost your job and just don't have the money, but walking away because you owe more than the house is worth is total bull@!$%#.
In my subdivision of 142 homes there are approximately 20 in varying stages of the foreclosure process. Not one of these individuals has lost their job! Instead, they are investors who hoped to "flip" the home and were not successful in doing so.
There is a huge need for laws to regulate that type of activity.
Sure, housing values are down and a lot of homes are no longer worth what people paid. But if you were a person who paid twice as much for a house as what it had been worth a few months prior, then I'd have to say you are an idiot.
Walking away from a mortgage is really no different than defaulting on a car loan (your car gets reposessed) or going into bankruptcy and having your debts wiped out. It is the way the system was designed. I cannot fault people for following established rules/law.
Peter17, I can because the system wasn,t meant to be abused and it has been for the majority of those that do, a commintment means nothing in todays society thats why there are so many broken families and children without guidance breaking the law and killing people on the streets not thinking anything of it, for instance how about the kid in Chicago and the one in Fla., just maybe had there been someone responsible enough to realize the right and wrong way to goning about life we would not have these types of crimes, it all comes from a lack of commintment.
Banks have fault in the mess, however so do the individuals taking the loans. You default on a loan in my opinion and you are no better than someone who steals from a store or bank. Greed got the people into this mess
Everyone seems to keep accusing the gov`t of having forced bankers to loan to everyone, even those that could not afford it. I don`t believe that to be true. What the gov`t said was given two people of equal incomes, savings, future employability.... essentially identical, that the money lenders could not discriminate based on race, ethnicity, or sex. Reality is the bankers were doing it all the time. Probably still are if I had to bet money on it. There is a huge difference between that and then going for a free for all of lending to anyone. The housing market would have ground to a halt ten to fifteen years ago because of the ridiculous escalation in prices which were buoyed by banks/assessors/realtors who fed the frenzy. Housing should have ground to a halt then because houses were already over priced. They had become a get rich quick scheme for many people rather than a long term investment. Banks created funny money loan packages to keep the money rolling in and without thought for the consequence. They did not want to lose money on those mortgages, not the returns... they sold them but on the all the initiating costs many of which are bogus.
That to me is where the morality or immorality of the financial markets lie. Not what strategic walkaways. Those are commonsense decisions. If you lose your job, someone becomes ill and you lose your insurance, etc, you will eventually lose your house. If the market is upside down as it is then you have no hope to sell the house to pay off the mortgage, bankruptcy laws have been changed to work against the homeowner (at the banks requests btw), and to pay until you can pay no more having wiped out savings, retirements, etc is ridiculous. Now you have set yourself up to not even be able to afford to rent using said savings.
Immorality is on the head of the bankers..... the money changers that created all this.
And if you accept that the strategic walkers away are immoral then what do we say about all these large corporations that declare bankruptcy and walk away..... legally through the courts, on ALL of their bills to include employee retirements, health benefits, and even paychecks at times. They may sell the business but they do it through the courts (or through the gov`t last year) but it still wipes out their debts. Well, except for the ones like huge bonuses to their executives.
Immorality is on the heads of the businessmen as well.
Haven`t seen much to give me any indication that average American buyers were or are immoral. I accept there were a few gaming the system but in reality I believe they were few and very far between.
so true mightyhunter
So if all of these folks are at fault....where are the "perp" walks, the indictments, the hangings and lynchings.....
Yep...just as I thought, there is an erosion of social and moral standards...and nobody gives a hoot about making sure there is accountability.
Maybe there is a case of vigilante justice coming back in style...if not just to make people think twice about the decisions they make.
What the holy hell are you talking about? A mortgage is a contract that spells out the legal ramifications for action and inaction regarding payments. None I have ever heard of involves murder and public assault by the village idiot, Ranger S.
Spoken like a true attorney or banker or something similarly misguided.
Tell me when did the term "strategic default" become an acceptable euphemism for skipping out on an obligation. Or how about the terms misfeasance/malfeasance and fiduciary responsibility in regards to banks, brokers and other financial "make me laugh" professionals. Can you show me where these are adhered to or even given any regard in the environment we live in?
The fact is that there is literally no fear in doing something these days which by most community standards would be equivalent to lying, cheating or stealing. What makes it worse is that there are more lawyers and politicians ready to legalize exotic "take someone else's money" products and absolutely no consumer protection.
Although far from being an idiot....my point was it is going to take something much more drastic to change the direction of where this country is going and it starts with accountability from the homeowner who borrowed too much to the banks who were too greedy to the politicians who created moral hazards for this country. The problem is that everyone keeps pointing the finger to someone else....an ultimately no one is held to account and so next time, people don't think twice about it.
If you hold to legalism as the solution, then I would suggest you are more the idiot than I. Perhaps we agree and don't yet know it....either way my point of vigilante justice was that if there is no system of accountability...one ultimately will emerge. That should give even greater pause for concern...
Time for "debtor's prison" that would STOP this practice of "strategic default". Those tht can afford to pay, and don't, need to be taken to task.
Splendid idea there Danimal, lets lock up all the unemployed because the CEO bigwigs sold their jobs off to india for a $20 million dollar bonus. Great idea there old buddy!
I don't recall any clause in my mortgage which states repayment is conditional upon the property increasing in value. These people bought their house at the price they did presumably because they thought it was an acceptable price. The fact it may have decreased in value does not change that. They are legally and morally responsible to continue paying on the loan even if the value decreases to zero.
Similarly, walking away from credit card debt may not be unethical. What is unethical is allowing credit card issuers to maintain the status quo.
The average interchange fee in the U.S. is seven times the interchange fee set by Visa and MasterCard in countries throughout the rest of the world. Using 2008 figures, if the interchange fee charged by credit card issuers was decreased (via comprehensive credit card reform legislation) from the current 2.10% to 0.60%, the result would be an annual savings of approximately $34.3 billion for U.S. merchants and consumers. Credit card issuers could retain 0.3% as a processing fee, the remaining 0.3% could be a "tax" used to fund a Natural Disaster Trust Fund (NDTF). In 2008, this would have generated $6.86 billion in funding for a NDTF.
The following article discusses how comprehensive, standardized, simplified, and transparent credit card reform legislation may fund a Natural Disaster Trust Fund.
http://www.csnews.com/csn/news/article_display.jsp?vnu_content_id=1004019107
Let's just give back our cars, our TV's, our other belongings too...Heck they aren't worth as much either...C'mon America snap outta this funk!
Let me get this straight Danimal, you are actually thinking that millions of underwater homeowners should pour $100,000 of their limited housing or retirement money into a rabbit hole? It might take 10 years for housing prices to even break even with what they were, you can't honestly expect millions of people to piss away 1/10 of their life earnings or more for absolutely nothing? To banks that already got free taxpayer money for just this sort of problem? To pay back imaginary money the banks never actually had to begin with and created out of thin air due to fractional reserve banking?
The article is right in one sense - the instrument of a mortgage is a debt facility that places a direct and first position over the asset being used as collateral. It was a way to provide capital with the understanding if the person defaulted the asset was the lender's, even during a complete liquidation of the individual in bankruptcy. It was a securitized loan.
But that doesn't mean that it is "honorable" to default or that a person should be allowed to get credit so easily again.
But in this "new economy" with its soft definitions of equity and individuals rotted through as to HOW to build equity and maintain it, defaulting on mortgages simply means having "rented with a few more privileges". But can individuals be fully blamed? In a "new economy" of entitlements and safety nets, personal responsibility became a quaint notion. And in a "new economy" of monetary expansion and controlled inflation (i.e. savings tax - every new issue to the money supply was a theft of anything you'd saved, so why save?), and ever increasing taxation (right now I pay a composite tax rate of 45% at all levels and I'm middle-middle to upper-middle class - in no way "rich", relying on paychecks to make my way) and a Federal Level accrual basis debt of $55 TRILLION (and individual wealth estimated at $52 TRILLION BEFORE THE CRASH) how are people SUPPOSED to operate sensibly? Our "new economy" has been a Centrally Planned economy wherein it didn't matter if you applied the "old style" of hard work and thrift and you were able to KEEP the fruits of your labor, all the Government cared about was that there was production and consumption and its first in line skim on both sides of the transactions. If people defaulted, they would just be bailed out with the equity some other fool saved. As long as the COLLECTIVE BALANCE SHEET worked out, individual by individual made no difference.
It's funny how so many people decry big bad business selling empty food nutritionally while the government has been selling a monetary system and an entitlement system that is basically the same thing. Unfortunately you can make a personal decision to avoid the effects of twinkies. You can't avoid the devastation when the coin of the realm is debased in favor the Government and rotted mass who supports it for their own benefit.
The Government is the virus that attacks you at the sub-cellular level for its own benefits and the mass of entitlees and bailed out defaulters are the secondary bacterial infection. How long will it be before the Host - the intelligent, hard-working, thrifty, self-sufficient individual - is overwhelmed? It's not long off at this point. Universal Health Care and continued subsidy (entitlements and bailouts) will pretty much end individuality as a concept. All and everything will begin and end with the State.
Given that the lenders are supposedly professionals who should understand that that collateral was worth, it would seem that walking away from your mortgage and giving them that valuable collateral is doing them a favor.
Oh that's right...............they sold the risk on the market, and didn't give a @!$%# what that house was worth.........whoops.