People "walking away" from "upside-down" mortgages - Immoral?

[El Pinko]

I've seen some posts by very upset people about this.

How can they just up and leave and let their homes get foreclosed? It'll bring down the value of all our homes! It's no different than stealing!

Well, first of all, you can pretty much make the assumption right now that whatever equity increase your home has seen since about 2003 has been totally illusory and would not have happened without the huge influx of money into real estate from subprime and other "exotic loans". Just write it off, because by the end of 2009, home prices will be back to 2003 levels, and they won't be back to 2006 levels for another decade or so, unless there is a big increase in median income in the pipeline, and I just don't see that coming. Home prices have always been around 3X local median income, until 2003, when they totally went off the tracks and reached 7 to 10X median income in the most speculative areas.

So is it immoral?

Well, I won't say that it's moral, but it is a cold hard business decision, forced by difficult circumstances.

If you got suckered into a 600K home in 2006 that's worth $450K now and dropping like a rock, your payment is $3000 and about to reset to nearly $5000 per month and your income is in the crapper, what do you do?

You thought you could refi, or turn around and sell the house for $700K in a year's time, that's what all your friends had been doing in 2004 and 2005. But those options are cut off now.

Your income has been at a standstill for 7 years, even though you work more than ever.

Your 401K was bled dry by Enron...

Your dad can't leave you that inheritance anymore because Delta airlines reneged on their pensions....

The price of everything is through the roof, so what do you do?


You walk.






Sorry, but this is what corporate America has taught us over the last decade or so. The minute things go south a little bit, they lay a ton of people off. When their profits soar, they give the CEO, and the highest execs ONLY a huge raise. There is no morality in corporate behavior, only the botttom line, and they rule the United States with an iron fist through the government and the two parties they bought and paid for.

So maybe the foolish people who bought at the peak of the bubble, who are walking away from massive negative equity are immoral.

But I personally think that the PHDs and MBAs at Countrywide and Ameritech and Ditech etc. etc. who threw money at people who they KNEW could not pay back the loans in a market that they KNEW was massively overinflated by rampant speculation were far more immoral.

They knew exactly what they were doing.


And until we have a nation again where corporations are held accountable by law, where people at all economic levels have bargaining power for better wages, where job security is something more than a memory or a bitter joke, this kind of thing is only going to become more and more common.

[gateley]

1. I am in total agreement with what you say. Well done. nt

[distantearlywarning]

2. Immoral? Perhaps. But certainly nothing different than what banks would do to them.

I'd do it in their position too, and not feel very guilty about it.

[roguevalley]

116. people need to try and renegotiate with banks. they don't want the

houses.

[coalition_unwilling]

128. To quote HuckaJesus, Mitt Romeny will smile at you while he

cuts your job. Q.E.D.

[Fresh_Start]

3. are you suggesting we should mirror corporate morality

whenever its to our individual benefit?

I reject that.

[smoogatz]

47. Morality has nothing to do with it. A mortgage is a collateralized loan—

it's not a holy sacrament. If your bank pushes you into a mortgage it knows you won't be able to afford once the rate resets, who's responsible if you walk away and drop the keys in the mail?

[El Pinko]

51. DIND DING DING! Another Excellent point.

I suppose the lenders never imagined for a moment that prices might eventually plunge?

I supposed those PHDs and MBAs were not aware of the history of the 1920s Florida land boom and bust that played out EXACTLY THE SAME WAY?

I'm just an uneducated SLOB and I knew about it, and I knew about the 'tulip craze' too.


So what the hell is the lenders' excuse?

[Fresh_Start]

53. people weren't pushed into mortgages

people shopped around for the cheapest mortgage
banks weren't saying isn't it time for you to buy a big house

Its ludicrous to blame the banks for people buying things they couldn't afford
Maybe you could blame the terms of the loan on the bank....
but the bottom line is that the people chose to buy a home they couldn't afford

I bought two properties in after 2001. Both times I purchased below my buying power and took fixed rate loans.
Why should I need to suffer because other people were greedier than I was?

[El Pinko]

58. That's really not true. Those mortgages were very aggressively marketed.

And once they got someone in the office, they would falsify income, credit, do ANYTHING to get them qualified. Ditech, Countrywide, Ameritech, they all did it - massive mortgage fraud.

Many of them did not adequately explain to the buyers how the rates would increase, and assured the buyers that they would be able to refinance before the rates went up.

[Fresh_Start]

60. the problem is that people bought homes they couldn't afford

they couldn't make a simple 30 year fixed payment on their home

that means they couldn't afford the home to begin with

[El Pinko]

63. That's because in many markets, 85% of the population can't afford the median house price.

That was the case in the SF bay area. With so many people saying "buy now or be priced out forever" and "Rent is like flushin money down the toilet", a lot of people decided to take their chances on risky loans.

Again, the buyers were not the ones with the MBAs and all the answers...

[Fresh_Start]

65. The last two houses I bought are in the bay area

nonetheless, I bought conservatively literally buying homes for half the value that the mortgage companies were willing to lend to me.
We said "what if, one of us loses a job", can we afford to carry the house.

No one broke my arm to make be buy a bigger house
No one broke my arm to make be take an adjustable rate loan

There is personal responsibility in the process.

[El Pinko]

67. You bought knowing that you were buying into a speculation-inflated bubble market.

You must have also known that 60% of the Bay Area mortgages written as of 2005 were subprime and other exotic mortgages. It was in the Chronicle.

So accepting the inevitable drop in the equity in those properties as a result of the inevitable torrent of foreclosures is going to be your responsibility, like it or not.




I can't imagine why anyone would have wanted to buy in the SF Bay area after 2005, though. I'm honestly amazed that the bubble didn't collapse at least a year sooner.

[Fresh_Start]

71. I bought in 9/2001 and 10/2004

I had researched the prior bubble before I purchased to decide whether or not I was willing to take the risk.
So I understood that there was a risk of loss of equity. I calculated that it was unlikely to make me upside down due to down payment etc.

I also bought in an area that had weathered the prior downturn much better, were solidly owner-occupied, historic low vacancy rates, ....

yes, I overkill the analysis including understanding the earthquake risks and trying to locate at safer distance from known faults.

I walked away from properties that i didn't like the result of the research.

[Lance_Boyle]

82. 'a lot of people decided to take their chances'

Precisely - a lot of people decided to GAMBLE, and lost. Why should they be rescued from suffering that loss? I had a chance to be greedy and buy 5X more house with a gimmick mortgage in 2002. I bought what I could afford with a fixed rate mortgage. Why should someone who got greedy be bailed out? And if that greedy SOB gets bailed out, what do I, the responsible borrower, get? Nada? Higher taxes to help fund the greedy SOBS' bailout? No thanks, Hillary. I say we keep with the precedent of contract law in deciding how to handle mortgage defaults. Greedsters get tossed? They gambled, they lost. That's the nature of gambling. Too bad for them.

[nightrider767]

133. El Pinko, you are on your game today!

Good point!

[Joe Fields]

187. So, the buyers are stupid? Is that what you're trying to tell us?

[El Pinko]

188. A lot were unsophisticated...

...they didn't always understand what they were getting into.

The lenders have armies or extremely well-educated analysts and people who came up with these mortgage products. They knew exectly what they were doing and the risks entailed.

And the thousands of agents who falsified income and credit documentation to "just get them into the house" also knew what they were doing.


Saying that borrowers didn't understand what they were being sold is not the same as calling them "stupid".

Although I can't personally fathom what would make a person of limited resources want to by an expensive house at the top of the most explosive real estate bubble in history....


Haven't people heard of "buy low, sell high"?

[Lydia Leftcoast]

114. I didn't buy a house, but the pressure to do so was immense

Everyone--the media, mass mailings, my bank, Internet experts, even my friends and relatives--were telling me how stupid I was not to buy a condo. Fortunately, I did the math, including the fact that I'd be responsible for taxes, homeowner's insurance, and all repairs, as well as association fees, above my mortgage payment. When I saw those numbers, I thought, "No way."

I feel vindicated, but as a self-employed person, I'm in the habit of considering each expense carefully. Not everyone is.

The lenders knew exactly what they were doing. I'm not so sure that the borrowers did in every case.

[scisyhp1]

183. That is not the issue here. Many people walking away from

upside-down mortgages can very well still afford their payments. The question
is does it make sense for them to keep paying after their property's value
dropped below of what they still owe? There are other factors in making this
decision but purely economically forclosure is the best option, and there is
no moral reason for them not to take it.

[snappyturtle]

81. Bingo on the aggressive part. Not only aggressive for their own

benefit but could make "buyers" feel stupid for not taking the "opportunity" that was presented!

[slackmaster]

84. You are mixing apples and oranges - Aggressive marketing is not a crime

Falsifying a borrower's qualifications is fraud, as you stated.

Many of them did not adequately explain to the buyers how the rates would increase, and assured the buyers that they would be able to refinance before the rates went up.

Defective disclosure documents are actionable in court. Borrowers who have signed misleading documents have recourse - Which they don't have if they just up and split.

[nightrider767]

134. Taking the banks to court over complicated, misleading,,

loan documents does not seem to be a realistic option at this point.

For one, if you can't afford your mortgage, is it reasonable to risk what you have on attorneys fee on a case like that.

[slackmaster]

135. There are attorneys who specialize in that kind of thing

If they think you have a case, they'll do it for a straight percentage of your settlement with nothing up front.

[nightrider767]

147. Not my style, but I assume you're right.

I know many attorney's now specialize in getting people out of condo sales contracts.

With the market tanking in Miami, many speculators have been trying to get out of their pre-construction condo contracts. SO when the condo is built, they send their attorney in with a measuring tape. And if the unit is even inches off of what it was supposed to be, they void the contract.

Can you imagine?

Take care.

[Chovexani]

149. Not only did they aggressively market them

But they were aggressively marketed in particular to people of color, especially those with no/bad credit. I was considering buying a condo last year (and thank gods I didn't!) and didn't have a credit history to speak of, and EVERY SINGLE mortgage company I went to aggressively fast talked about ARMs and all kinds of exotic shit that I didn't understand. They saw that I was black and thought I was stupid. When I told them I didn't want any of that, I wanted a nice, simple and stable 30 year fixed mortgage, I got the cold shoulder. This literally happened with every company I went to. Every last one.

In the end, they did me a favor, but I don't fault people who got caught in this trap. Yes, the consumer has to be savvy and do their homework but these companies engaged in all kinds of pressure tactic bullshit and outright lies. I can't believe the level of corporate apologizing going on here since this whole subprime thing started. There was shitloads of wrong doing involved on the part of these companies in this fiasco, but the "free market" neo-liberal DLC corporation humpers around here love to blame the victims. Not everyone bought more house than they could afford because they were greedy.

[smoogatz]

98. That's just not true.

Banks and other lenders intentionally relaxed lending standards in order to keep the boom afloat, and to maximize the value their loan portfolios. They did, in fact, lure people into signing up for mortgages that the lenders knew were beyond their means--in clear conflict of interest. You should read Atrios on this subject if you're interested.

[Fresh_Start]

103. no one was walking down the street knocking on doors

saying you must buy a house.
No one held a gun to anyone's head saying 'buy house/condo or you die'.

It was greed all the way around that caused this.
Greedy consumer
Greedy real estate agents
Greedy mortgage brokers
Greedy banks
Greedy investors

[smoogatz]

109. Come on. The mortgage companies, banks and real estate people colluded.

They created whole new classes of bogus mortgages that were designed to lure people into buying houses they couldn't have afforded had the "old" lending standards been applied. They marketed these mortgages and the market itself aggressively by assuring people that housing prices would just keep going up, up, up. It was a scam that was designed to make a few people rich, and the hell with everybody who got caught when the market tanked—essentially a Ponzi scheme. Some of us saw it coming, but a lot of perfectly decent people got suckered. When the smoke clears and the investigations begin, I have no doubt that Countrywide and some of the other big mortgage outfits will turn out to be rotten to the core" the Enrons of the real estate boom. With any luck their officers and executives will go to jail.

[Fresh_Start]

112. Who forced you to buy a house?

Did anyone force you to buy a house? I'm guessing that there wasn't any corporation forcing you to do so

[smoogatz]

113. Nobody forces people into most con games; that doesn't make them legal

or moral. Your argument's ridiculous.

[Fresh_Start]

115. most con games work because the targets are greedy

yes, there are some where the target is impaired. but most cases the targets are willing participants 'to game' someone else

[smoogatz]

117. That doesn't make them legal, or moral.

What's with all the victim blaming? People want to live in nice houses. Stop the fucking presses.

[Fresh_Start]

118. and it doesn't make them innocent either

so its the people were acted responsibly and weren't greedy that are going to be screwed both ways

[smoogatz]

119. How are you getting screwed?

[Fresh_Start]

121. surely you jest

taxes up
government services down
home values down
having to bail out all the idiots all the way around from the greedy consumers all the way up to the greedy investors
deterioration the worth of the dollar
deterioration in the worth of non-real estate investments
potential increases in crime

[smoogatz]

122. So what would you have changed

if you'd had the power, to prevent the whole thing from getting so out of hand? Aside from human nature, that is.

On edit: weren't you the beneficiary of that greed, as long as your real estate kept going up in value?

[nightrider767]

146. Yes,,, the value went up like a rocket

And now people are disappointed that it will fall. That's got a lot of people up in arms and pointing their fingers at the very people who helped them make that money.

Human nature I guess.

I hope the values will not fall too much. I suspect that it won't get too bad.

[nightrider767]

144. Did you complain when the sub-primers,

helped to jack up real estate values in your area?

Most people got a large bump out of the bubble. Many people even decided to lock in their gains last year, sell their house and rent.

And what idiots have you actually bailed out? How was this bailout performed?

Don't you simply pay your mortgage payment every months like the rest of us.

Following your lines of reasoning, you must also take offense by helping the poor, the needy, and the sick. If they where "smarter", then they wouldn't be in their mess.

I see your point, I just suggest you might look at it from another angle.

Take care,

Cheers.

[nightrider767]

139. I thought this was a progressive forum..

listening to some of this I don't know if I got misdirected to the neo-Conservative scorched earth blog.

Funny how the Federal Government seeing the financial institutions go into melt-down went to their aid immediately.

Yet we have people here have little sympathy for our brethren who are in dire straights over this fiasco. Even people bold enough to generalize them as a whole and even inpune their characters.

Do we have some bad apples out their? Yes. But we have a ton of good people who find themselves in this dire predicament while trying to make the best choices they knew.

"so its the people were acted responsibly and weren't greedy that are going to be screwed both ways"

As for that, if you bought now you bought too high. If you bought a while ago, you reaped the benefits of unreal appreciation, some of that is going to go.

This is not a people generated disaster, this is a bank generated disaster. We're all going to take a hit.


Please show some consideration and compassion.

Thanks

[nightrider767]

137. Yes, smoogtz!

Nailed it.

[nightrider767]

136. What an incredible over generalization...

Can you at least consider that yes, some bought for all the wrong reasons, but at the same time, many bought for all the right reasons and are now in an incredible bind?

[Lance_Boyle]

78. bullshit - a mortgage is a contract

if you signed it and you are unable - for whatever reason - to honor your end of it, then you should suffer consequences. Losing the house is itself a consequence, so we go from there. Are any additional consequences for breach of contract in order? Unknown, but doubtful.

Walking away is not escaping. It's giving away your house, then escaping. Not a freebie for most.

[smoogatz]

101. Other consequences? What are you hoping for, debtor's prison?

The collateral on most mortgages is the house: default on the loan and forfeit the collateral. Your credit rating also takes a hit. But it often makes far more sense for people to walk away from their houses in these circumstances than it does for them to stick around and try to pay the mortgage and, you know, not be able to afford to eat. Banks rely, to some extent, on the fiction of the mortgage-as-sacrament, but I certainly would feel no compunction about mailing back my keys if I'd been suckered the way many recent home buyers have been.

[Fresh_Start]

105. the deficit will be taxed as income 1099C

so there is additional consequences

[Lance_Boyle]

107. well, they can be sued for the differential

but I doubt that many lenders in many circumstances would take on the costs of pursuing that owed money. Like I said, other consequences are unlikely - for most. For the most flagrant, though - the professional flippers - hell yeah, let the lenders sue 'em into oblivion and take everything they own and *then* price 'em out of a decent casket.

And the collateral is most often the house/property PLUS the down payment. So that's another consequence already imposed by walking away. Very few could have additional penalties imposed.

You and I disagree, I think, on the extent to which many recent homebuyers were "suckers." I am one of those recent homebuyers. I was not suckered, though I had offers for less reasonable mortgages than the one I took on. Had I been greedy enough to take on one of the gimmick mortgages, then hell yes I should suffer the penalties for it. What gets me about all of this is the responsible borrowers getting shafted while the greedy get bailed out. It's not right.

[smoogatz]

111. How are you getting shafted?

[lumberjack_jeff]

140. A person who does this has duly earned the shitty credit they will have.

They are not credit worthy. Their promises of repayment are not worth anything. If it is a prudent business decision to stop paying, they will.

If I were a lender, I would consider loaning to people who filed bankruptcy, but not someone who made the business decision to walk away from their debt.

[ozu]

173. yes

This is pretty much how I feel about it.

I have no moral qualms with letting someone walk away from their mortgage but those people that choose to do so need to face the repercussions of that action and first and foremost among them is their ability to get a loan in the future.

[Warpy]

4. The problem is the tax law

that says if they walk away from a $600,000 mortgage on a house that's now appraised at $450,000, they owe taxes on the other $150,000. It's completely screwy, but that's the nasty surprise they're all facing.

People who bought at any time in the last three years have my deepest sympathy, but Uncle Sugar is going to have to do something in the way of tax relief for these people if they're ever to get out from under staggering debt.

Eventually, banks are going to wise up to the fact that they can't increase those ARMs as steeply as they've tried to do. Until then, people are facing the choice of servicing an upside down mortgage they can't possibly afford or servicing an IRS debt they can't possibly afford while paying rent on a substandard apartment. That's the choice they're facing and I feel terribly sorry for them, even if greed was the motive that trapped them into buying just before the market conked out.

[coalition_unwilling]

131. I'm not sure I understand. If you walk away from a $600,000 property

that's now appraised at $450,000, haven't you actually suffered a capital loss (not a capital gain)? How can you be taxed on a capital loss? I simply don't understand, although I'm a renter in SoCal, so have never dealt with the issue.

[Warpy]

145. Not if you financed the full $600,000

which is what a lot of those jumbo ARMs represent. You got $600,000. You are returning property only worth $450,000, giving you a net income gain of $150,000. At least that's the way the IRS is reading the law these days.

In fact, you've taken a capital loss equal to the capital gain. They just won't allow you to claim it as such.

That's why the law needs to be changed. An anaemic attempt has been started to do so, but it hasn't gotten very far.

[coalition_unwilling]

175. That is really perverse, to say the least. Yes, you may have

"got $600,000". But you acquired a liability of $600,000 at the same time. The asset you acquired with that liability was valued at $600,000. Now the asset you acquired is now only worth $450,000, giving you a capital loss on your asset of $150,000.

Makes me want to vote for HuckaJesus only to abolish the IRS. (I'm joking of course, but the IRS is truly a perverted reading of basic accounting principles.)

[Fredda Weinberg]

5. What does morality have to do w/it? Creative destruction is

inherent in all ecosystems.

[ORDagnabbit]

6. considering the banks make money out of thin air its not immoral

www.moneyasdebt.net

www.freedomtofascism.com

[Hydra]

9. Thanks for pointing that out

Too many people forget that our money is just paper. What kind of ethics do we owe paper?

[Horse with no Name]

179. And not only that--but the money the feds pump back into the magic act

is OUR money as well.
The banks really didn't risk anything.

[Hydra]

7. This is going to be a non-issue soon

As we go into a full blown depression brought to us by morons who thought they could steal our bottom dollar and then more, people will be more worried about how to feed their families than whether someone else is making an ethical decision to "allow" their homes to go into foreclosure.

Amazing how small your area of interest is when you have to fight to live.

[islandmkl]

8. you have it right...it isn't about moral or not moral...

it's about when the corporatists rip you off, it's just business....when you get over on them (like being bankrupt, foreclosed, etc. just to keep your head above water - the water they are pouring on you non-stop) it is a crime. Power makes Law. Law sustains Power. Great equation if you are the Power. Otherwise, it pretty much sucks. It's time for a change.

[rubberducky]

10. When Countrywide said my home was worth $276,000 , 2 years ago. I knew

something was wrong. Bought my home in `94 for $90,000. Put a lot of money into my "fixer-upper". But, no way that much money accumulated on my fixer- upper. Common sense tells you what it isworth. I feel very bad for the people who bought at inflated prices and lost ssssoooo much equity. MI is in very bad straights. MI is in a world of hurt.

[nightrider767]

11. I wouldn't be too quick to judge the "walkers".

Ask any bank, it's just business to them. Can't pay your mortgage? Sorry, here come the sheriff's department. You're being kicked out. Oh but I have so many kids!?! Too bad!!!

We don't begrudge the banks for that, as we know, it is business. But cut those "walkers" some slack, as it is a business on their side too. They must protect their own assets too. It's their responsibility, like it's the bank's responsibility.

Are they going to be unpopular to neighbors? Yes. Will people dislike them? Yes. Will they lose some honer? Yes.

But as a head of a household, with kids and college costs on the horizon, if I'm looking down the road at a reset mortgage rate that I can't afford, i'm not going to wait till two years down the road when all my savings are gone and then have the bank repossess the property. I'm walking now. We can't count on our jobs, we can't count on the government to provide affordable health care or college for our kids. It's worse than a jungle, and any families assets must be protected.

On my end, I'm definitely right-side-up on a nice little house I recently purchased. I'm just presenting the other side of the argument.

Good discussion you brought up. many angles to view it from.

Cheers.

[renate]

14. you make a good point

I hadn't thought of it that way, but of course you're right--it's just business to the banks, and they wouldn't sit around wringing their hands about what's the right thing to do.

It'd be one thing if people purposely set out to defraud the bank, of course--that's clearly wrong. But I don't think anybody deliberately, with malice aforethought, decided to buy a home that would end up being less than they owed on it.

[nightrider767]

16. It certainly is a complicated matter.

The original poster brought up the matter of "honer". Now that's certainly not something to sneeze at, but from my angle, harder to balance out in this equation.

Businesses and financial institutions have no sense of honer or shame, they go by "sound business principals". SO it sort of puts us at a disadvantage.

And it gets even more complicated with kids.

"Kids, I have good news and bad news. The good news is that I've decided to protect my honer and continue paying $5000/month on this 2 bedroom, 1 bath house. The bad news is, when it's time for college, you guys are on your own".

Oh what to do?

An interesting ethical question.

[El Pinko]

20. Exactly - I was in the same position a couple years ago with Credit Card debt.

My choice was to continue paying over $500 per month (that was just the total of the minimums) PLUS $150 on my student loan, PLUS my $1100 rent out of my $2000 monthly paycheck and not be able to afford even a pair of Wal-Mart shoes for my kids (let alone food) or to walk. I chose to walk. I still pay the student loans because there is absolutely no getting out of them, but I feel I made the right choice. One of the best I ever made in fact. I sure as hell don't miss the cards at all. We moved back to El Paso where the cost of living is lower and are much better situated and I've lost 100 lbs that I had gradually gained due to stress and depression.

[nightrider767]

25. Ahh stress...

My "silent partner", the life sapper.

If we could only find the button to turn that feeling off.

[PRETZEL]

27. "Honor" as you put it was my own personal downfall,

I knew a year ago that the house I had owned for close to 20 years was drowning me. I did the "honorable" thing and used all my savings, refinanced, cut back as much as I could, held off needed repairs thinking that we'd get through it.

We didn't.

By the time all was said and done, we didn't even have enough money to file bankruptcy.

We moved out over the weekend. The bank got the property at sheriffs sale on Thursday and we were out over the weekend.

My "honorable" ethical beliefs cost me everything I've worked practically my entire life for. I ended up walking anyway.

[nightrider767]

30. My condolences friend...

Never thought my "theoretical" would hit on reality.

We should pay our depts. That's something we all agree on. But what happens when it's really going to sink you?

Banks protect themselves, and I say, so should families.

But it certainly can get complicated, and I readily agree that their are alternate points of view.

Good luck to you.

Cheers.

[El Pinko]

31. Tell me about it. My wife inherited almost ten grand when her mom died.

I talked her into using a big chunk of it on paying down some of the credit cards. "Paying down debt is the best investment" - Suze Orman had convinced me. In the end it made no difference. Bills kept coming, rent kept going up, income NEVER went up and we had no choice but to use the cards for everyday survival items.

I wish I had defaulted then and let her keep the money (her mom lived in Japan, so the US government didn't know about the money).

Doing the right thing nearly killed me and I'm not joking - I was 100 lbs overweight and drinking myself into a stupor on weekend nights. No way for a young father to be, but I felt trapped in a vise.

[Dorian Gray]

70. Even if the govt did know about the ten thousand dollars

they wouldn't have taxed her on it. It's not enough to be hit with inheritance taxes.

[El Pinko]

75. It would have been overseas income anyway.

So yes, either way, it wouldn't have been taxed.

[El Pinko]

17. I do think some of them made very foolish decisions.

A lot of these people thought that 15% annual appreciation would continue forever and expected to flip their house in a year or two, so they didn't mind having a wacked-out loan.

That's just stupid as hell, but that's why lenders are SUPPOSED to have standards...

[nightrider767]

22. I have a personal "bubble" indicator...

When your average Joe shmoe, barber, pilot, librarian start investing in the market in a big way, when they talk about it constantly, tell you how much they've made and try to sell you on it, whether it be the real estate or the stock market, that means that the market is overheated and about to fall.

Lot's of bad decisions for people buying in. People all knew that it was going to come to an end, it's just that nobody knew when. And in the mean time that 20% annual appreciation on the $300,000 home was hard to pass up. $60,000 in the bank in three years! Hello retirement!

I think they knew that the bubble was definitely going to burst a couple years ago when they passed the new bankruptcy laws...

[El Pinko]

26. LOL - little did they know the law wouldn't make a bit of difference!

The lenders who wrote the law (Credit Card Thug MBNA) thought people would just muddle through and keep paying them so as not to lose their homes. But these people would just as soon lose their homes as be shackled to them, so now, not only with the credit card companies be stuck with tons of bad debt, the mortgage lenders will be stuck with bad debt, plus a bunch of stucco shacks that can't be sold for dimes on the dollar.

Good thinking, debt-peddlers!

[Lance_Boyle]

86. NEVER follow the "dumb money."

It's a good lesson for staying out of trouble, but it doesn't tell you how to be ahead of the "dumb money," which is where the REAL money is.

[nightrider767]

125. Warren Buffet once said,,,,

In investing, very often the time to buy, is when your instincts tell you not to.

At some point, when everything is in ruin, we will be at that point.

[Fresh_Start]

95. actually I don't think they knew the bubble would burst

because the new bankruptcy legislation is increasing the risk of foreclosure
banks do not want to own real estate from foreclosure - there are huge carry costs involved

[nightrider767]

126. Many of the banks who gave the loans out, sold them..

they didn't care if people had any intention at all of paying. The loans were sold to other banks, and also packaged as large dept instruments and sold all over the world.

Many was freely printed and distributed.

The scam of the cetury...

[lumberjack_jeff]

142. Hold on a minute.

From the lenders perspective, they are holding up their end of the bargain.

A better analogy would be if the bank forecloses on a borrower because it's in the lenders interest to steal the borrowers house.

[El Pinko]

159. Many of the lenders falsified documentation to get borrowers approved.

It was in their interest to get that commission on the sale, they couldn't care less about the mortgage, which was bundled as a CDO and sold off to some other sucker.

This was not up-front company policy, but it was standard operating procedure at all the subprime lenders. The funny thing is, they got more and more wore willing to do so in 2006 as the bubble started to deflate and pressure from corporate to keep volume up increased. So in order to keep the sagging balloon inflated, they kept adding MORE bad debt.

[NightWatcher]

12. how does it help your property value if the bank forecloses and kicks them out

people lose homes for all kinds of reasons, not just jumping in over their heads.

I'm sorry that it brings down the value of nearby houses, but sometimes Shit Happens.

[nightrider767]

13. Plus in fairness,,,,

How much was the local housing value jacked up by sub-primers, flippers, and live-in home speculators...

[blondeatlast]

15. Let them stay in their homes--and I bought with a traditional mortgage last year with a big down, to

This is the home we dreamed of--neighborhood, style, everything. We bought a HOME, not an investment, and so did our neighbors.

Now I see my neighbors worried about having to leave. Schools, friends (my son's best friend will be a likely victim), desperate lives and the possibility of squatters, vandalism, and crime. I'd rather they stay, making what payments they can muster, and not allow neighborhoods to be ruined and families destroyed. It's painful for those of us who bought traditionally, but in the end, it helps EVERYONE.

Yes, I'm a bit resentful, but I can see the bigger picture. Let them stay and make what payments they can. I don't want an influx of rentals or worse yet, squatters or abandoned homes.

They should be allowed to stay--the banks are not going to make a dime on a glut of unsellable houses. They get to stay, properties get maintained, and the banks have already written off the debt anyway.

[nightrider767]

18. Too late for many in Detroit...

Whole neighborhoods have been devastated.

A tragedy of the first order for good home owners.

What a shame.

It's just hard to fathom, since the financial institutions will now take ownership of this now highly devalued property, why do they continue this practice, when it's hurts them just as much as it hurts us?

It's just perplexing.

[blondeatlast]

23. Seriously, the smart thing for ALL is to not foreclose and let them make payments.

Of course, then we face the problem of what happens when (if?) the crisis shakes out, but in the meantime this is devastating--and not just to those with ARMs.

If we had local banks (ah, yes, I'm old enough to remember those) it might be possible, but no more.

[Ganja Ninja]

19. As the saying goes, you can't squeeze blood from a turnip. n/t

[Lance_Boyle]

88. if only you couldn't buy a house as a turnip... n/t

[nightrider767]

129. Or in this case, a "Tulip"

The New Millennium Tulip craze.

[karlrschneider]

21. Morality isn't a consideration if there's no alternative. Even the price of money tree seeds

has gotten too high.

[taught_me_patience]

24. Completely and totally immoral

I have ZERO sympanthy for anybody that goes into foreclosure. Foreclosures are happening because of zero-down loans and home equity extraction. People sign contracts to pay their debt, reap all the benefits of owning a home (equity appreciation, tax deductions, steady payment, etc) but have zero risk when their homes decline in value? I don't think so.

[El Pinko]

28. They lose their home and their credit rating.

That's hardly zero risk.

[jgraz]

32. The upper class counts on this kind of attitude to help them make their yacht payments

Unfortunately, they don't have the same morality directed downwards. The wealthy will seize on any chance to fuck over the middle class for yet more money they don't need. Why the hell should we keep supporting them?

[nightrider767]

40. Brilliant jgraz!

You hit the nail on the head!

"Unfortunately, they don't have the same morality directed downward"

They don't direct morality downward. Perfectly put and goes a long to describe the problems in our country. Everything from health care costs to exporting jobs overseas...

How much better would this country be if morality also went downward?

[taught_me_patience]

69. This post is plain ignorant of the situation

you mean the 1000's of upper class people with yacht payments that got laid off from Countrywide? No, it's just a lot of honest, middle class people who once worked for the loan companies are getting hurt by this.

[El Pinko]

73. I think the poster meant Countrywide's well-heeled investors.

From what I've read, "honest" is not a word often associated with a lot of Countrywide's employees.

http://www.orlandosentinel.com/business/orl-bk-countrywide013108,0,7399919.story?track=rss


Employees at Countrywide and other subprrime lenders routinely falsified income and credit reports to get people into the loans.

[jgraz]

77. Yes, that's exactly who I meant when I said "upper class"

:eyes:

[KansDem]

181. Well, the home owners lose their home...

The bank/mortgage company takes it back. It's all part of the contract, which both parties signed.

What's "immoral" about honoring a contract?

[Angela Shelley]

34. Buying a home is a speculation.

It´s more comfortable to think that it´s a privilege, but it´s actually a risky business.

[nightrider767]

44. Hopefully not in the future.

The real estate markets will stabilize when people buy homes as a place to live and the expense is comfortable within their budget.

[El Pinko]

46. Remember when a mortgage payment was not supposed to exceed 30% of monthly income?

Boy did that go out the window. Along with 20 year mortgages.

Why the hell should people even have to go THAT DEEP IN HOCK just to buy a little ticky-tacky HOUSE?!

[blondeatlast]

41. And when your neighborhood is full of abandoned homes and squatters, what then?

I bought traditionally--a home I loved--not an investment--and I know many in my 'hood will face the ARM mess.

I want them to stay and make what payments they can rather than have the banks foreclose on homes that won't sell for years and will go to seed.

I'll happily assist with their yardwork and fix-ups as it protects my property values and it's just, well--nice.

Those homes won't sell for years--is that REALLY what you want?

[taught_me_patience]

66. Do you want prices to stay perpetually high

at, what is now an obviously unsustainable level and have new buyers not be able to enter the market?

[El Pinko]

68. Exactly. RE income trends, it will be at least 10 yrs before median income justifies 2006 prices

Median home price at 7X local median income is NOT SUSTAINABLE. PERIOD.

[blondeatlast]

123. I didn't realize that would be the result of it. There needs to be a middle ground

to protect the value (which I know is currently inflated) for those of us who did it the right way.

I don't see how foreclosed, abandoned homes help anyone and I'm not sure what the solution is.

As I say, as a traditional mortgage holder on a modest new home, I hate what's happened for so many reasons--but I'm not looking for revenge, either.

But yes, it angers me, too, that people are planning to walk away--I'm pretty certain that our immediate neighbors will. We did it the hard way but can easily manage our debt (barring unforeseens, of course) and I see my neighbors with their three homes (now all for sale) and their BMWs and Rav4s that they intend to keep and it pisses me off too.

Just exploring some ideas.

[taught_me_patience]

130. Here's my idea

let the bank foreclose and sell the homes cheap. You're property value will decline as well (on paper), but people (like me -waiting to buy a first home) will move in who will have put down 20% and will love their home and honor their mortgage contracts. Over the long run, the housing values of the neighborhood will increase as people take care of their homes and remodel or fix them up.

The alternative is to let these deadbeats stay. They will not take care of the homes and blight will set in. In the end they will eventually moved out, leaving a completely blighted neighborhood that will take years and years to come back.

It's like removing a bandage. You wanna do it quick and get it over with then prolong the agony.

[blondeatlast]

138. I see some sense in that. My concern would be keeping investors out, though.

My neighborhood is priced about right still and although there are several homes for sale, prices haven't dropped alarmingly--at least not yet. It's entirely built out and there have actually been some closings recently. It looks like we may weather the worst of it. Because it's stable, investors will wait just a little longer (I'm talking REALLY wealthy types) and feast on it, I fear.

Don't mistake me, either--it infuriates me to see what my immediate neighbors have done (I won't elaborate, but they own three homes they live in and can't afford and a SLEW of BMW's and Rav4s--but they have to sell at least one home now to pay for the kid's kidney surgery :eyes: (I'm not heratless--the kid is fine; he's my son's best friend!)

No health insurance for their kid but they own three homes (all for family reidences, to their credit) but a lotfull of luxury cars. This is an upper-middle area, but no one drives Bimmers by any means.

But the nice single mom down the street got sold a bridge in Lake Havasu and she's otherwise responsible (unlikely to walk away, too).

I'd welcome people like you but I can see that being a tasty morsel for investors to jump on.

[El Pinko]

158. blondeatlast, the fact that you "did it the right way" doesn't make you entitled...

...to rising equity, or even any guarantee that your equity won't plunge.


If you bought before the bubble, you will only be losing illusory bubble equity on paper. If you bought during the bubble, I'm surry, but how anyone could bave bought in 2003-2006 and not know they were buying in a speculative bubble is really hard for me to fathom. I'm not an especially savvy person and I knew it.


I understand your anger - but it really should be directed at the lenders who engineered this whole debacle. They did it KNOWING this would happen sooner or later, but they didn't care because the money was too good. The government also should have been providing regulation and oversight and didn't.


If you wan't to blame fools who bought into the whole flip this house get rich quick BS for getting out before they go under, that's up to you, but I personally think that most of them were naive and did not intend to do this at the beginning.

As for the neighbors' cars - obviously we can't peer into everyone's finances, but my guess is that most people who decide to keep the BMW and leave the house are doing so because they can afford the $400 BMW payment, but they're not anywhere close to affording the $5000 reset house payment.

I know you've suggested that the lenders should help these people stay in their homes. Maybe so. If the lenders offer to keep them at the low teaser rates indefinitely. With the economy going the way it is, putting off the resets for a year or two will only postpone the foreclosure, because most of these people never had prospects for that kind of income in the first place.

If you can afford you payments, bully for you. Eventually you'll have more equity in your home again. Runaway inflation and dollar devaluation may bring that day sooner, especially if working and middle class wages finally start to pick up.

[Lance_Boyle]

89. tear 'em down and let the lot go to the lender

If they can't pay what they contracted to pay to own the house, then HELL NO they don't get to stay in the house and pay whatever they feel like. That's not how contracts work. Nor should the lender who forecloses be permitted to sit on the house forever waiting for unrealistic returns. Give the foreclosing lender 6 months to move the house, then if it hasn't sold, let the local fire department practice on it. All of a sudden there's a brand new lot there, owned by the original lender. Who can decide what to take for it when someone else decides to build on it.

[conflictgirl]

55. What about people who can't make payments due to job loss, not bad loans?

We have a traditional fixed rate mortgage on a $125,000 house. Not subprime, not zero down, we never took an equity loan or any of that. But my husband lost his job and was out of work for 10 months, and when he finally found another job it offered no benefits and paid less than half of what his previous job did. We're in Michigan where you can't just go get any old fast food job to earn an extra couple hundred bucks a month, either. At the time that we bought our house the payments were very manageable. After living with the results of a job loss and never getting back up to the same standard, our house payment is now about 60% of our income and that is TERRIFYING. We haven't fallen behind on the payments yet but we know that we're in a very precarious situation nonetheless. We're considering selling the house but aren't encouraged - there are two houses for sale on our street that have been on the market for months and just aren't selling. The price of homes was never as grossly overinflated here as in places like California, but based on the current selling prices here we would still lose money by the time we paid realtor commissions. We are trapped and we thought we were being very responsible at the time we bought this. Not everyone who goes into foreclosure got a bad loan or was living beyond their means.

[taught_me_patience]

64. First off, I'm sorry about your situation

I feel terrible about the state of the economy and the destruction of jobs by greedy corporations. However, you do not sound like a foreclosure candidate. It sounds as if you could still cut the price and sell your home (especially if you have 20% equity from a down payment). If the selling price of the home is still lower than your mortgage, if you put 20% down, then, sorry to say, your home was way overpriced just like california.

[knitter4democracy]

148. Are you talking with the bank?

Do they know? They might be far more interested in working with you to get the payments more realistic than in taking the house, especially if they're a local bank and know what's going on here in Michigan. The banks don't want more property to have to try to liquidate.

Whereabouts in MI? We're in Battle Creek. I could keep my ear out for something if you're nearby.

[conflictgirl]

150. We tried that, but they don't help until you're behind

We're still on top of the payments and haven't fallen behind. Several months ago we tried to contact them and explain the situation and see if they could help, and they would only work with us if we were already behind on the payments. Since we're not behind yet we're just hanging on and hoping it doesn't get to that point.

We're in the Bay City/Saginaw area.

[knitter4democracy]

152. Man, that just plain sucks.

You'd think they'd want to make sure of their money instead of wait until it's most likely too late.

I've been hearing that Saginaw's really, really hurting. It's not just Flint that's dying anymore but the whole Tri-Cities area now. It's terrible.

[Phoebe Loosinhouse]

153. Share your housing

Invite someone you know who needs temporary housing to move in with you and share the bills. Maybe a co-worker or a wayward nephew or someone you know who wants to move to the area. You help them, they help you.

I remember reading a very moving post on this site about a single father who was about to lose his home who wished he had invited someone in to share the housing and expenses but who didn't because he feared the loss of privacy for is daughter. He said "When you're homeless, you don't have privacy."

[Xithras]

29. One of my co-workers just did this.

Owed $400,000 on a house he liked, but which was only appraised at $290,000 now (I live at ground zero for the implosion, and some neighborhoods have seen a nearly 50% decline). His home was originally sold for $199,000 in 2003, at the peak (when he bought it) it appraised at $450,000. He could afford it, he had a good fixed rate loan, and there were no issues.

Still, he walked away from it last month. A similar bank-owned home just around the corner from his was posted at $300,000. He offered $250,000, they accepted, and he moved into that home before any delinquency from his first showed up on his credit. As far as I'm aware, his only regret is that he didn't wait a little longer and that he missed this last round of rate cuts.

Is it immoral? Possibly, but most of the price rise was driven by banks in the first place, since their loan programs encouraged speculation and unsustainable home purchases that drove the market up. His purchase screws his bank, and will screw his credit for quite a few years, but he ended up with a nicer home in the same neighborhood for $150,000 LESS than he still owed on his old home. Seems like a fair deal to me.

I'd do it myself if it weren't for the fact that I have a rather large HELOC outstanding on my property. Under California law lenders cannot pursue you for losses on mortgage debt after a home has been forclosed, but they CAN sue you for HELOC's as if they were unpaid credit debt...and HELOC's must be paid in full when the property changes hands. This is partially why Countrywide and others started pushing HELOC's so hard when it became apparent that the mortgage market was in trouble. HELOC's keep Californian's from walking away by saddling them with hard to shed debt.

[BoneDaddy]

33. So because corporations are unaccountable

it gives permission for everyone to be unaccountable?

That leaves us with a world where no one is accountable. I understand your thinking and the situation you describe is one I have seen with my own eyes. I am not sure I agree with the answer though.

[jgraz]

36. Until we can effect change in our government and society, this is the only weapon people have

Expect them to use it more and more often as things get worse.

[Angela Shelley]

37. If the corporations started stabbing each other,

then we could finally do that too!

[El Pinko]

42. I don't think it is a sustainable answer.

The corporations and the government broke the social compact with the dawn of the Reagan years.

Things like regular raises and job security and benefits were replaced by easy credit.

Without a return to a society where people can make a living wage without massive debt where corporations and the rich have to pay their fair share (which means that wages at the top shouldn't be 1000 times wages at the bottom) it's not going to change.

But I don't think people who walk away are "unaccountable" - they lose their credit rating, which is a big inconvenience in today's America, and they lose their home.

[baldguy]

35. Sub-prime mortgages are a scam. These people are the VICTIMS.

These mortgages are designed to keep people in the maximum amount of debt possible for the greatest length of time. The fact some are walking away from their property and that the whole housing market is imploding just proves how unsustainable they were to begin with.

But don't feel sorry for the banks - they're the ones who pushed for them to be made legal in the first place.

[littlecryinggirl]

61. What flavor

What type of sub-prime lending are you refereeing to as being a scam? All loans made to those with bad credit? Zero down loans? Adjustable rate? Interest only? Bullet notes? Cash out? My point is you make a blanket statement that any loan to a sub-prime borrower is a scam by the financial institution. What about a sup-prime fully amortizing 80% 30 year note? Based on your statement no lending should be given to sub-prime borrowers.

Actually the problem is not even with default rates on sub-prime real estate loans. The problem is withe the way they were packaged and sold to investors that were ill equipped to deal with the long term risk associated with them. If the originating lending institution had kept these assets in their portfolio, in a reasonable proportion to other assets, they would have been more than able to reserve for the losses.

[Angela Shelley]

87. Yippee! Littlecrying girl hits the nail on the head!

:yourock:

[El Pinko]

161. The problem wasn't necessarily to whom the money was loaned

First off, a lot of the subprime lenders falsified paperwork to get people with bad credit into homes. That's just straight-up fraud.

But then there are all of these people who were only making 30K per year who were given half million dollar mortgages. Should lending in these amounts be extended to borrowers like this? HELL NO. The lenders knew these borrowers' incomes could barely pay the teaser payment, and would never afford the reset payment, but they coaxed them into it by telling them they could refinance before the rates reset. A lot of these buyers were uneducated, low-paid workers, and the mortgage peddlers' spiel sounded believable to them.

I agree that the packaging of loans was part of the problem, but I don't think it is ever justifiable to give a $500K loan to someone making $30K per year. That is NOT the way to get people into the housing market. Homes need to be made available in their price range, not outsize loans that they will never be able to pay.

[littlecryinggirl]

185. Mucho debt

If what you claim has actually happened I agree. But, I seriously doubt anyone lent 500k to someone making 30k, at lease on a large scale. Debt service as interest only would be 40k, 10k more than someones gross 30k. I would probably agree that some predatory lending has and does take place but not on this scale. Besides, this whole sub-prime issue does not effect a borrower, only the institutional investor. My only point here was to say that screaming about the "sub-prime" mess as being something in itself that harms the consumer (note holder)is not the case. The news is mostly about "write downs" investors have made, based on asset quality. These write downs are not the same as a hard loss on the balance sheet, the asset is just offset by a reserve for loan loss, they effect income for the investor (interest payments applied to principal on the books, non-accural whatever you want to call it) not equity or the balance sheet side , yet at least. I guess from a political standpoint it sounds good but is not really accurate.

That second to last sentence is poorly written and unclear, sorry but I am in a hurry. Gotta run.

[El Pinko]

186. On paper they made it look like they were earning 60 or 80K

Everything I've read was that Countrywide and Ameritech were letting their agents falsify income as standard operating procedure, especially in 06 as things started to go south.


And it's not just institutional investors being hurt - the loss of confidence has dried up liquidity all over the whole economy and it's hurting everyone.

[slackmaster]

104. Sub-prime financing has allowed a lot of people to buy homes, establish credit

People who otherwise would never have been able to. If financial instituations could only lend to prime borrowers, a lot of poor people would be stuck without credit for life.

My first loan was a $900 personal loan from Beneficial, to buy a side of beef that I split with my roommate. That loan got me into the credit rating agencies' files, and allowed me to subsequently get an unsecured credit card, which allowed me to get a car loan and so on.

If you have good income and make your payments on time, you build creditworthiness then at some point should be able to refinance at more desirable rates.

[El Pinko]

162. You bought a side of beef?

What did you guys do with it? Sell it to restaurants?

Just curious.

[slackmaster]

165. Had it cut up into usable-size pieces and kept it in a large freezer

My friend's mom had a monster freezer. It took us 16 months to consume the whole thing, eating beef pretty much every day.

[El Pinko]

166. You guys must have really loved beef...

...or really wanted to establish that credit rating.

:) :hi:

[slackmaster]

180. We got very tired of it after a year

We hosted weekend grilling parties just to get people over to help consume it.

All in all it was a good deal for us. It would have been a much better deal for a large family, or a college fraternity or sorority, or a church choir, or something.

[slackmaster]

38. They signed a contract

Of course walking away from it is immoral. Nobody ever promised them their homes would continue increasing in value, or that somebody would bail them out if they ended up over a barrel financially.

Walking away from a secured debt hurts a lot of people, including themselves.

[alstephenson]

72. Yes, they signed a CONTRACT....

and the contract said that if you don't pay your payments the bank can take your house. So, they haven't "broken" a contract, they have defaulted on their payments, for which there is clear and defined recourse in the loan documents. There is certainly nothing immoral about giving a house back before its foreclosed on (it's called a deed in lieu of foreclosure). The result is the same and many banks would prefer this route - they save the costs of foreclosure. I just don't see the moral implications - the bank made a bad deal.

[slackmaster]

80. Just walking away from the house is not the recourse defined in the loan docs

Read a set of them some time. Borrowers who are unable to make payments have an obligation to contact the lender and try to work something out.

There is certainly nothing immoral about giving a house back before its foreclosed on (it's called a deed in lieu of foreclosure).

Sure, but I didn't get the impression that was the kind of situation the OP was asking about.

[El Pinko]

92. Well, I wasn't trying to be specific...

I suppose giving the house back is more "moral" than squatting in the house for months and months, not making payments and saving up money for your new place, and there certainly are people doing that.

But I really don't want to quibble too much about those distinctions because either way the lender gets stuck with a hard-to-sell house worth a lot less than it was bought for.

[slackmaster]

96. Yes, and a lot of lenders are being very stupid with their REOs at the moment

There are some good bargains to be found for sure, but a lot of the lenders aren't lowering their asking prices nearly fast enough to keep up with the down market. IMO that will hurt them in the long run, and delay the needed market corrections.

[alstephenson]

102. I agree, but I still don't think it's a morality issue.

I just thank my lucky stars that I'm not in this situation and I feel badly for those who are.

[slackmaster]

106. It's a generational thing - The reason I'm not in that situation is that I am over 50 years old

I took advantage of good conditions for home buyers that occurred in 1994, at which time I was in my late 30s and happened to have stable employment.

The most valuable financial lesson my parents taught me was not to borrow money I couldn't pay back, even if that meant renting for a long time.

[lumberjack_jeff]

143. The contract is based on more than "so long as it is prudent".

I would hesitate to enter into any contract with anyone who will only uphold their end of the bargain so long as it is profitable.

[KansDem]

182. They walk away, they lose their home...

The bank/mortgage company takes the home back. It's in the contract, which both parties signed.

What's "immoral" about honoring a contract?

[slackmaster]

184. If you have a loan, please look closely at the documents

Simply walking away from your house is not what you have agreed to do if you expect trouble making a payment; if you do so YOU have broken the contract. I guarantee there is something in there about contacting your lender to try to make some kind of arrangements, rather than turning tail and running away.

Foreclosing is literally the last thing your lender wants to do in that situation.

[Angela Shelley]

39. I find it interesting that people

complain about the "power" which corporations have, but on the other hand, "if the corporations can do it, so can we".

It´s a double standard.

[nashville_brook]

43. there is no framework for morality in this -- there's moral responsibility to your family. period.

had there been some sort of "morality" in the arena that brought us this giant economic disaster, then yeah, people would be held to a "moral standard." but it's beyond irresponsible for "morality" to fall ONLY to the backs of people who are struggling to feed their families.

reality check -- the first people to "walk away" from these responsibilities are the investors -- the FLIPPERS.

i saw the same bullshit morality arguments you did, and i'm glad you posted about it.

[americanstranger]

45. It has to do with the Bankruptcy laws as well.

Hard to believe, but a foreclosure is now somehow less harmful than declaring yourself bankrupt.

And these people who walk will likely end up renting homes that other owners have walked from, at cheaper prices than their mortgage payments.

Talk about upside-down.

- as

[nightrider767]

50. Very interesting point!

I think the banks are dropping the ball here with foreclosures.

They're hurting themselves...

When this all pans out,,,, heads will roll. Because however bad it was for banks, they made things worse.

[blondeatlast]

57. Their lack of foresight is going to tax already struggling local government as well.

Police, fire, sanitation are all going to take a hit. I used to work for my city and I found out for the first time they are considering widespread layoffs in an already crappy economy.

Just a little cooperation between corpration. government, and citizens would have a tremendous impact.

It will NEVER happen, though. :(

[sinkingfeeling]

48. I'm sure this post is in response to an article I posted from Truthout.

It was about people not involved with sub-prime loans but those defaulting on their mortgages because of reduced appraisals of the property, who could afford their payments.

I'm 'old school'. I truly believe in the rule of law. A contract is a legally binding agreement between two parties. Those who took out mortgages borrowed money. They have an obligation to pay it back. By most comments so far on the topic, it seems that no matter how upright the lender was in entering the contract, it's OK to screw them.

Then I must ask, why not just default on your student loans as well? They can't take back that education you got anyway. How about just stopping paying your taxes? And of course, somebody held a gun to all of those who ran up $5,000 to $50,000 on their Visa cards, so shouldn't we just shrug it off because those mean old, credit card companies deserve it?

It would appear that many here would like to emulate corporate 'ethics' in their personal lives. On the other hand, I also believe that if you bought stuff on credit and then refuse to pay the bill or sale the stuff to pay the bill, you stole it.

[El Pinko]

52. See this post-

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=2825613&mesg_id=2826052

[nightrider767]

56. Certainly a legitimate point of view

Ethically correct by any measure.

I'd split this debate into two sides.

One side being families who are looking at jacked up mortgage rates and are going broke.

And the other side, those who've made a commitment and now find it inconvenient.

[Gormy Cuss]

62. There is a difference between those who walk away because they can't pay

and those who walk away to mitigate investment loss. The former aren't immoral in my book, the latter are about as moral as the sleazy mortgage industry actors who fueled this bubble.

[alstephenson]

97. They aren't "screwing the lender"...

The lender gets the house back. That was the deal - that's what the lender agreed to in the contract. Unsecured debt is different.

[Vektor]

49. You also can't get blood out of a turnip.

If you simply do not have the money, you may not have much of a choice but to walk.

Also, where on earth can one get a $600,000 home with a mortgage of only $3000 a month? Even with good credit, and a decent interest rate, once you add in all the taxes and insurance fees and what not, I think it would be higher than that. :shrug:

[El Pinko]

54. I didn't do any math on that...

Although I know many of these subrprime loans did have low "teaser" payments in the first year. Feel free to research...

[Vektor]

110. Yeah you may be right.

I was thinking of the standard 30 yr. fixed, which would be a lot higher.

Your stats are probably correct regarding those teaser loans.

[mod mom]

59. "corporations are held accountable by law" EXACTLY which is why we need candidates

working for the people instead of the powerful.


This crisis didn't happen overnight. Those great 90's that the Clinton's tout-we're paying the price now. The stock market soared due to NAFTA and overseas trade agreements but it also meant outsourced well paying jobs. It also allowed for the banking industry mergers. The local banks who had handled mortgages for generations were eaten up with mega mergers. Demand for quick profit fueled unorthodox loans. It's not all Clinton's fault, but he was PART OF THE PROBLEM!

It's not exactly an advertisement for the working-class hero, or a picture her campaign freely displays. Her lengthy support for the Iraq War is Clinton's biggest liability in Democratic primary circles. But her ties to corporate America say as much, if not more, about what she values and cast doubt on her ability and willingness to fight for the progressive policies she claims to champion. She is "running to help and restore the great middle class in our country," Wolfson says. So was Bill in 1992. He was for "putting people first." Then he entered the White House and pushed for NAFTA, signed welfare reform, consolidated the airwaves through the Telecommunications Act of 1996 (leading to Clear Channel's takeover) and cleared the mergers of mega-banks. Would the First Lady do any different? Ever since the defeat of health care reform, Hillary has been a committed incremental, describing herself as a creature of the "moderate, sensible center" whom business admires and rewards. During her six years in the Senate, she's rarely been out front on difficult economic issues. Given her proximity to money and power, it's not hard to figure out why she keeps controversial figures close to her--even if their work becomes a liability for her campaign.

-snip
http://www.thenation.com/doc/20070604/berman

[Wcross]

74. The bank will sue for any deficiency after the auction.

You can walk away but you are likely to have a judgement against you for the deficiency. Thanks to the new bankruptcy laws people will eventually pay.

[El Pinko]

76. Even if they garnish wages....

There is a limit by law to how much creditors can garnish, and in most cases, that amount would be a pittance compared to the huge payments they would have been saddled with.

[Fresh_Start]

85. the part they didn't pay may be considered taxable income

1099C

[cottonseed]

79. Doesn't matter - Fannie and Freddie's bailing out the whole thing anyways.

yea... that's our tax dollars.. bailing out home owners, investment banks, investment insurance companies, you know... they guys who got billions in Christmas bonuses the last couple years...

[Fresh_Start]

83. thats what really burns me

I'm going to have to pay for the fools, the greedy, the fraudsters, the gamers and the corporations bailout

[cottonseed]

94. Tell me about it. Privatize the profits, socialize the risk. Great system if you're the "Has mores"

Hey, that's Bush's base.

[Mountainman]

90. I'm not going to say I wouldn't walk away from a situation like that but if people were foolish to

sign up for payments like that then that's were the immorality began. You can't be forced to take out a loan. You know how much money you make, you know the expectations that you will earn more income.

I don't think people were forced into these loans. Rather they wanted a big house because of status and materialism.

The thing that is also immoral is that the lenders did not exercise judgment when they loaned the money. They should never have let people borrow knowing they did not qualify for the loan with the income they had. People were use to letting the lender make that decision and this time it was buyer beware. People do not take personal responsibility when materialism is the driving force behind their pursuit of happiness.

[slackmaster]

93. Since most new mortgages are immediately sold, the problem extends beyond lenders

To investors who were willing to buy into pools of defective loans, and a lax regulatory environment on the part of the government.

[newportdadde]

91. Best bet would be a 'short sale', barring that a 'Deed in lieu Of Foreclosure, then

Foreclosure last.

From a moral aspect the only thing that bothers me is seeing someone who is foreclosed on destroy a house... ie urinates on the walls, take out each light fixture/socket etc... basically destroys the place.

[Fresh_Start]

99. start with trying to renegotiate the terms on the mortgage

if you're not so far upside down that its not worth doing

[Commie Pinko Dirtbag]

100. It's physically impossible to screw a bank in an immoral fashion.

Well, perhaps armed robbery. Perhaps.

[DadOf2LittleAngels]

108. Ugg this is a hard one

Thanks to our cooperate overlords we are in a real jam..

Every foreclosure on the market pushes other homes closer to being upside down, that being said how can you piss on someone who rally cant afford their home because of a lost job or medical problem? It has really hurt my neighborhood as we used to be a slum but about a quarter of the buildings went condo and things started to get better not as much crime fewer police calls. The condo owners became leaders at picking the neighborhood up strengthening the building owners association (which included codo owners and those who rented their buildings..

One or two people walked away from buildings because we made it too hard to slum lord (only 25% of a building could be section eight) and all units section eight or not were subject to a criminal background check. These actions got a brothel out of the neighborhood and a drug house but when the owners who let their buildings go to crap for years had to look for renters who lived their rather than just ran their 'business' they discovered that their units were worth less than half of what other units were getting. They walked away blaming their mortgage and the building were bought cheaply by people who *can* afford to rent them at slum lord prices and still pay the fines imposed for doing so.

Suffice it to say my home has lost some real value this past year and that is *after* some nice upgrades.

[izzybeans]

120. Yeah but it's not all about me. Selfish ol' me.

:sarcasm:

Great post.

[Dawggie]

124. Heh. How can be walking out on a deal with a bank be immoral?

They were surviving. The bank took a risk and they lost.

[coalition_unwilling]

127. Is Capitalism "moral"??? If one says 'yes, capitalism is moral,' then

one must define exactly how capitalism is moral before one can say that walking away from negative equity is 'immoral'.

Personally, I take the approach that lenders lend money at their own risk. If there were no risk to lending money (the "risk premium"), then people who lend could not command higher interest rates than the general rate of inflation.

[nightrider767]

132. Capitalism is moral,,,,

by their own measure. Part of their defined morality is walking away from bad deals.

AKA upside down houses.

Buyers beware and loaners beware.

Simple.

Next they'll do their homework before raining down money on people buying huge homes in a shitty economic environment.

[PassingFair]

141. What about the guy whose credit was ALREADY TRASHED?

It was actually cheaper for some people to buy a house
(sometimes a BIG house) for no money down, no income
verification, interest only payments (or LESS), than it
was to RENT in some areas.

If you moved from Michigan to Nevada or Florida, and your
credit was already in the pooper, took a job paying $12.00
an hour, you couldn't afford rent in a safe school district,
but you could "buy" a home for next to nothing.

Even if you had to "walk away" from it later on, you were
WAY better off than paying exorbitant rents....
and your credit is already TRASHED.

:shrug:

[Ilsa]

151. I worked in a "Work-out bank." The rich always walked away

and and left the FDIC and middle america to pay for their excesses and they were happy to do so if it meant their families didn't "suffer" for it.

I wouldn't criticize middle-america homeowners for doing it. "Character" doesn't have anything to do with ability to repay a loan, and that isn't what the bank looks for.

[Old_Growth]

154. What's immoral is..

Houses sitting empty while many go homeless.

[El Pinko]

163. Hear hear.

It's so screwed that even a crappy studio apartment goes for $1K in many cities now.

What the hell is going in with the price of putting a lousy roof over one's head?

[Phoebe Loosinhouse]

155. Strange, but in the real estate downturn of the late eighties/early ninties

there were defined regional differences in different parts of the country. This era was part S&L problems and part regional real estate bubbles - they were separate yet co-existsting problems at the same time.

People in the S&L part of the equasion were willingly walking away from houses and mortgages (Texas , for example) In many cases they were newcomers to an area and felt no particular tie or longing to hang in.


In contrast, New Englanders hung on and suffered. Very few of them "walked away". They had long-standing ties to the area and planned on staying - it definitely affected their behavior.

[sendero]

156. I consider..

.... walking away from something you cannot pay for not exactly competence-affirming but morally neutral.

The fact is our financial system is designed to deal with such things, and there is a punishment meted out for those who decide to use jungle-mail, that is bad credit.

Their ability to borrow in the future will be seriously hamstrung, and when they do borrow it will cost more in interest.

This housing mess is going to play out about the same whether everyone hunkers down and tries to pay or whether they don't. Huge numbers, maybe even most, of these folks have no choice - they simply cannot pay.

The poster above who suggested talking to the leinholder, well I totally agree. If something can be worked out, that is better for everyone. My personal past experience with banks is that you'll be wasting your time, they have a set of strictures they operate under and they don't change them for anyone because they have no policies and procedures in place to handle "shades of gray".

In any event let me reiterate, we are in the first inning of this mess. It is going to be a long game.

[PRETZEL]

168. That may be changing a little now, imho

at the time I fell 3 months behind (which is where Act 91 kicks in) the mortgage company I had really had little in the way of a work out department. This was over a year ago when things were first just starting to really downturn. Their idea of a workout was to spread the payments over a 3 - 5 year period. That wouldn't have done me any good since it was already too expensive to live in the house anyway. (and as an aside, it's not just the mortgage that causes a house to be too expensive, its the taxes, utilities, food, etc. that also has gone up at a exponentially higher rate than wages have).

Before I lost my house, it had been on the market for 8 months, I dropped the price twice thus eliminating any hope of getting anything out of it. I made it very, very clear to anyone who inquired about it (including short sale companies) that the only thing I wanted was to walk away with a clean title. But remember the mortgage company/bank will want to wait as long as they can in the hope that a note would be paid in full rather than written off in full or in part. Short sales aren't what banks are looking for.

[Rosemary2205]

157. Love your name - love your post - kick

[El Pinko]

164. Thanks. I was surprised nobody else had it already.

I'm a red-diaper baby pinko from El Paso, so it seemed fitting.

:-)

[LWolf]

160. In the early 90s

the area I lived in suffered a big drop in real estate prices, leaving many people "upside down." I've always called that time "The George I recession." There were many foreclosures and empty houses after a big housing boom which was fueled by speculators buying up many houses in new developments, waiting a few months, and then selling them at a profit. When the housing market caved in, people didn't WALK away from their mortgages, they stampeded.

Locally, jobs were also scarce; the local industry was aerospace, which runs with the contracts and often requires relocating when one contract runs out and the next begins. People who needed to transfer to keep their jobs left houses behind because they couldn't sell them for what they owed. People who just lost their jobs couldn't pay the mortgage, and also couldn't sell to get out from under the mortgage.

I didn't then, and don't now, consider any of that "immoral."

My family held on to our little ramshackle homestead, but the drop in prices meant that we delayed a planned move out of state because we couldn't sell the place. It took ten years for the local market to recover sufficiently, and by that time I was divorced and had lost the place to the ex anyway.

[guitar man]

167. The mortgage companies

....took a risk when they lent the money. That's what the lending and investment business is whe you boil it down to it's simplest elements. Bottom line is, they got greedy, took bigger and bigger risks until they finally got burned. Kinda like some stock I invested in several years ago, I thought it was going to be a high climber but it went into the toilet. Such is life.

I'm sure the good people that bought those homes would love to stay in them and pay for them, but, $3 gasoline, grocery prices doubling, the dollar falling through the floor etc. while wages and salaries remain stagnant (for those who haven't lost their jobs yet) have taken their toll. The lenders were betting against the aforementioned economic tragedies rendering the borrowers unable to pay. They lost.

[fedupconservative]

169. People need to take more responsibility for themselves

It's seems quite dishonest for people to just walk away from an obligation because their payments might rise or their home's value might have decreased. IT shows a total lack of character which seems prevalent nowadays.

[guitar man]

172. I'm not saying

that the homeowners don't have a part in this, they most certainly do. Buying a home that was pushing the boundaries of their means before the crunch we're experiencing wasn't the smartest thing to do for a lot of them.

And by all means, people that are walking away that still have the ability to pay for the home, but just don't want to simply because the value of their investment isn't what they want it to be are in an entirely different class than those who have found that they simply cannot pay for the home any more because their circumstances have changed so drastically over the last couple years.

Still, all in all, the mortgage companies have to bear a certain amount of responsibility in taking the risks they took when they made a lot of these loans.

[Lars39]

174. Is it somehow more dishonest to choose to feed your kids

or to pay medical bills in the hope that your doctor will continue to see you?

[guitar man]

176. exactly

some people just don't understand how far some of us in the middle class have fallen in spite of our best efforts to stay afloat. I know that in the past 7 years I have never worked so hard in my life to have so little come from it. :(

[Horse with no Name]

170. Companies do it all the time

and the government bails some of them out.
I am not going to judge someone because this country is in the crapper.
The fallout lies squarely in the hands of the republican-run government and their croney network.

[Horse with no Name]

171. Another VERY important point

Black homebuyers and White homebuyers with identical credit and buying power.
More often than not, Blacks were given the risky subprime mortgages. THIS is a huge problem that still has NOT been addressed as to WHY.
The first I heard of it? From John Edwards.
Has Hillary or Obama addressed this issue?

[El Pinko]

177. Obama is making a point of avoiding racial identity politics.

It's one of the things that impresses me about him - he is directing his message overwhelmingly to ALL Americans.

And I'm confident that he's aware of that and intends to do what he can when elected, but I think he wants to avoid painting himself into a corner of being portrayed as a civil rights leader rather than a national leader.

Kind of off-topic, but there you go.

[Horse with no Name]

178. That doesn't cut it

The racial inequality in these mortgages is a national topic and shouldn't be ignored.
So there YOU go.