But does this really come down to a question of morality?
Posted by Phoenix

......"morality" is one tool for those that have money, to take & keep, more money away from those who have not......

Because all those home buyers defrauded the banks that's why.

When you take a loan of any sort you are taking a risk. They knew this signing up. If you take a risk, you must meet your obligations in accordance with that risk.

If you don't want to get screwed, don't play rigged games.

Maybe some people don't default because they don't want to be deadbeats, because they like their neighborhood, because they know the price will eventually go back up . . . and because if they walk away they won't be renting something similar for much less.

And maybe some people are sick of being told they are idiots for paying back the obligations they committed to.

If they can afford to pay the mortgage, why not? If they default they may never be able to buy their own home again. Even though they are underwater, in the long run housing will continue to inflate.

Little poor people have higher moral standards than important rich people. That's how they got so rich.

But the other part of the story is that Banks do not want these defaults on their books. They are delaying foreclosure longer than normal, not booking their losses when they do foreclose, and not putting all their foreclosures on the market, since this will further depress the market.

It's a simple answer.

Just because you're 'underwater', doesn't mean you can't afford the house.

Many people bought their homes with the intention of being in them a long time, so the value, as it stands, is fairly irrelevant until further in the future.

Now, if they wanted to move, they would be in trouble, but for many, that's not the case.

To me a contract is a contract---it goes beyond the legality and there is a moral obligation as well---If I made a deal with someone and shook hands on it without a contract I would make every effort to honor that handshake if things didn't come out the way I expected even if it cost me.

To me a contract is a contract

Yes. If you could afford it 5 years ago, why can't you afford the same payment today? The fact that the writer is amazed is...amazing.

Yes. If you could afford it 5 years ago, why can't you afford the same payment today? The fact that the writer is amazed is...amazing.

#9 | Posted by andyuhenet

Henry Paulson has to deal with his own integrity problems---he's going to have to live with what he did if it lacked integrity---it's pretty simple--I've got enough in my own life to do what is right and not have to regulate others lack of making the right decisions.

IMHO, we should all try to meet our obligations that we freely entered into but, by the same token, if it becomes impossible to do so it is a failure on our part financially but not morally.
WE should try to meet our obligations but in an environment that has been so dramatically different that what anyone expected if we default it is not an indication about our character.

Moreover, shit happens.

If you aren't into the "outdoor lifestyle" such as under a bridge, you generally have to live somewhere. So even if you are "underwater" in your mortgage, it is often a good price for a place to live, esp. if you still are working.

And until you sell, you aren't underwater, just undervalued.

To me a contract is a contract---it goes beyond the legality and there is a moral obligation as well---If I made a deal with someone and shook hands on it without a contract I would make every effort to honor that handshake if things didn't come out the way I expected even if it cost me.

#8 | Posted by matsop

It's not often that I agree with you, but this time you are absolutely correct. If someone can still afford the payments but walks away, just because they're underwater, they should never be allowed to borrow money again. A deal is a deal.

"If someone can still afford the payments but walks away, just because they're underwater, they should never be allowed to borrow money again."

I agree but define "afford."

Does afford mean just barely making the payment but not really being able to take care of your family??? HOw do you determine when a person can't afford to continue trying to fulfill the contract?

IMHO, we should all try to meet our obligations that we freely entered into but, by the same token, if it becomes impossible to do so it is a failure on our part financially but not morally.
WE should try to meet our obligations but in an environment that has been so dramatically different that what anyone expected if we default it is not an indication about our character.

#11 | Posted by danni

More of this country has to get away from the credit card syndrome---a lot of us over the years lived the same lie the government lived---beyond our means---a large % of people wanted to act wealthy when they weren't. On the occasions I would drive through well-heeled neighborhoods I couldn't understand how the folks could afford the homes they did when I knew my income and ultimate networth was more then theirs--they also drove the expensive cars and had all the toys--saw an article where the author made the comment that there were three times more millionaires living in houses worth less then $300,000 then those living in houses worth more then $1,000,000. I do believe it becomes a moral issue when you live for the day and beyond your means without building up a savings for contingencies; when you look out for your own interests and not others.

well said Matsop.

If someone can still afford the payments but walks away, just because they're underwater, they should never be allowed to borrow money again."

I agree but define "afford."

Does afford mean just barely making the payment but not really being able to take care of your family??? HOw do you determine when a person can't afford to continue trying to fulfill the contract?

#15 | Posted by danni

And that's the dilemma--if you can't meet basic needs of yourself and family, the answer is pretty obvious; if you just don't want to have your wants put on the back shelf for an extended time while you sacrificed and still wanted to maintain the "life you're accustomed to, then that's again a moral lapse.

I agree but define "afford."

I'll start with this. If neither their financial situation nor their payment have changed since they took out the mortgage, and they walk away just because they're underwater, it's dead wrong. I'm sure the definition of "afford" can be narrowed further from there.

Part of the contract specifies what happens when you don't pay. It's not a blood oath. A mortgage is a contract that says you must pay your bill every month, and if you don't, the bank will take back your house.

It isn't breach of contract, unless you actually sue to keep your home even though you're not making the payments. It isn't a breach of contract to have your car repossessed, either. Quite the opposite--it's the lender fulfilling the contract.

Last time I lived underwater we paid cash.

Last time I lived underwater we paid cash.

They pay me to do so

I've never been "underwater".

Been fortunate in the real estate market indeed.

I doubt 1% of everyone has actually read their contract.

anybody who's gone through a closing knows how that goes....you initial and sign 40 times and it would take hours and hours to read all of that stuff.

and a closing is designed to take 30 minutes.

.
Last time I lived underwater we paid cash.

#21 | Posted by Zatoichi

Cash is a beautiful thing---if I had my druthers I would never have had a credit card (hotel reservations, etc.).

I'm not proselytizing but when I was younger I used to read Proverbs on a number of occasions---wisdom is passed down through the ages and it was a great book on recommending the basics of a fruitful life---my grandfather in his den would regale me with stories of the great depression and the importance of simple living and living within your means and not having debt---those are things that leave an indelible mark on your life.

my grandfather in his den would regale me with stories of the great depression and the importance of simple living and living within your means and not having debt---those are things that leave an indelible mark on your life.

#26 | Posted by matsop

And it seems that it only took two or three generations for people to forget those lessons. I'm not sure that many are learning anything even now.

And it seems that it only took two or three generations for people to forget those lessons. I'm not sure that many are learning anything even now.

#27 | Posted by Whatsleft

That's an interesting statement since he would say something similar to me---he warned me that over time man would forget and would think they were smarter and repeat similar mistakes.

The house I purchased in the 80's was "underwater" for a few years after we purchased it. We didn't default because we were honest people and could afford the mortgage. Since then the house has appreciated almost 400%. All the adjustable mortgages have already adjusted, so the people that couldn't afford the higher payments had little option than default. Now it's limited to people on hard luck, and bums that feel free to just walk away from their obligations just because they feel like it. Case in point - Nick Cage, liberal sweetheart, just walked away from a multi-million mortgage in Las Vegas and owes over $100,000 in property taxes in Rhode Island.

It seems like most people feel morally obligated to pay their debts. What's disturbing is that the people who run our financial institutions don't seem to share that sense of morality. It makes you question the very nature of our financial structure and whether or not those people should be in charge of anything.
Matsop believes that living for the day and looking out for yourself and not the interest of others is not the way to go. But isn't that the very definition of Wall Street? Isn't that the fundamental premise of supply side economics? By most people's standards, we are going in the wrong direction. So why do we continue to walk that path?

If you could afford it 5 years ago, why can't you afford the same payment today?

Oh, I don't know.... maybe they lost their jobs, maybe one of the got sick and lost their job, divorce, etc.

There are plenty of reasons why financial situations change.

If you look at the world through a myopic scope based on only your own life expereinces then I can see how you would be confused.

Little poor people have higher moral standards than important rich people. That's how they got so rich.

Poor people have higher moral standards than rich corporations.

When you take a loan of any sort you are taking a risk. They knew this signing up. If you take a risk, you must meet your obligations in accordance with that risk. -- #3 | Posted by ExpsRedemption

Would have been nice if the bankers played by the same rules, wouldn't it?

Once the government and banking systems are no longer able to pull the wool over the eyes of the American people and convince them that 2007 is coming back, only then will you see defaults on an unprecedented scale.

Until then, you have mortgage holders who were convinced that real estate prices were never going down who are still convinced that the halcyon days are coming back.

They better get used to being wrong.

Matsop believes that living for the day and looking out for yourself and not the interest of others is not the way to go. But isn't that the very definition of Wall Street? Isn't that the fundamental premise of supply side economics? By most people's standards, we are going in the wrong direction. So why do we continue to walk that path?

#30 | Posted by igmoramus

I'll go with the Calvinist's answer on that one---we're basically morally depraved.

Why is the mortgage default rate so low? After all, millions of American homeowners are "underwater," meaning that they owe more on their mortgages than their homes are worth. Some homeowners may keep paying because they think it's immoral to default.

Or they don't want to be hit with a $200K deficiency judgment after the bank forecloses and sells the house, and be pushed into bankruptcy. Does the author of this article have even a basic concept of how banking works?

Or they don't want to be hit with a $200K deficiency judgment after the bank forecloses and sells the house, and be pushed into bankruptcy. Does the author of this article have even a basic concept of how banking works?

#36 | Posted by JOE

And then there's the whole income tax issue.

The little people are unable or unwilling to look at something as near to their hearts as their home as a straight business proposition.

Don't delude yourself for a second and think that the bank would not take an early out on the loan if they could somehow make an extra nickel on it. Morality does not enter the equation for a corporation, only profit.

There is a good reason why John Dillinger was such a hero to the working class.

Moreover, shit happens.

#12 | Posted by danni

I worked for a man once that said, "shit happens, don't let it happen to you."

If you agree to buy a house for $200k, you should live up to that regardless what happens to the value of that house.

I guess if you buy a car for $40k and a year later is is only worth $20k you should be able to just walk away from it. What a deal.

Matsop, your grandfather sounded like a very wise man. Not only did he learn valuable lessons from living through the Great Depression, but he tried to pass them on to his offspring.

Growing up, I also knew lots of people who lived through the Great Depression and would talk about what they had to do to 'make it' back then. Some of them would occasionally tell us younger folks that it might happen again, but most of us didn't believe it was possible.

I was very fortunate to be one of those who thought it was not likely, but still possible. And once I got out on my own, I tried to live within my means. Now I'm trying to pass that lesson along to younger relatives (plus re-tell stories about the Great Depression).

The majority of people honor these home loan mortgage obiligations because they have good business ethics. It is a good thing that most people in this country have this trait, because if they did not, our econocmy would without a doubt completely collapse!

One side of the coin that sometimes is lost in this debate is that, yes, a borrower has an obligation to pay - which he or she is free to break. If a person breaks a contract, there are rules that govern the remedies available to the party wronged (i.e. the bank)

The bank knows that the likely remedy will be foreclosure, and that the rules (in most states) leave that as the bank's sole remedy. So, the bank gets an appraisal, knowing its recourse is likely the value of the collateral and no more.

The banks know this, and can generally take care of themselves. If they get too aggressive, their risk increases and they know this too.

If someone is $100K or $200K underwater, with no prospect of the place coming up in value anytime soon, why not consider a walk away? Yes, credit will be hurt for a few years, but it would probably take many, many years of payments to make up what is underwater.

I know many people who have walked, and it's not an easy decision. But, it is not irrational either, and it's hard to be too sorry for banks who knew the risks, and knew their remedies in the event of a default at the outset.

Or they don't want to be hit with a $200K deficiency judgment after the bank forecloses and sells the house, and be pushed into bankruptcy. Does the author of this article have even a basic concept of how banking works?

#35 | POSTED BY JOE AT 2010-01-27 09:49 AM | REPLY | FLAG

Where do you live? Most states have rules that if there's a nonjudicial foreclosure, there is no right to a deficiency judgment.

Matsop, your grandfather sounded like a very wise man. Not only did he learn valuable lessons from living through the Great Depression, but he tried to pass them on to his offspring.

Growing up, I also knew lots of people who lived through the Great Depression and would talk about what they had to do to 'make it' back then. Some of them would occasionally tell us younger folks that it might happen again, but most of us didn't believe it was possible.

I was very fortunate to be one of those who thought it was not likely, but still possible. And once I got out on my own, I tried to live within my means. Now I'm trying to pass that lesson along to younger relatives (plus re-tell stories about the Great Depression).

#39 | Posted by AKat

My grandfather was an amazing guy--he came to America (on his own) when he was 15. By the time he was 21 he was a principle of a school and was subsequently well respected in the community---I used to meet students of his who would speak fondly about how tough he was on them and yet very fair and how he had been a huge influence on them.

Speaking to your 3rd paragraph I knew this disaster was coming and fortunately prepared for it. History doesn't always repeat but it certainly rhymes.

Where do you live? Most states have rules that if there's a nonjudicial foreclosure, there is no right to a deficiency judgment.

I'm in Illinois. There's no such thing as a nonjudicial foreclosure here.