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View Full Version : U.S. Issues Motgage Morality Double Standard


BIG_DADDY
08-26-2010, 11:31 AM
http://finance.yahoo.com/tech-ticker/it's-okay-to-walk-away-let's-end-the-%22morality%22-double-standard-on-mortgage-defaults-535365.html?tickers=mac,vno,spg,xhb,vnq,tol,len&sec=topStories&pos=8&asset=&ccode

More and more commercial real-estate companies are doing what many indebted homeowners would like to do: Walk away from mortgages on properties that are now worth a lot less than they paid for them.

Today's Wall Street Journal highlights three major developers - Macerich, Vornado Realty Trust and Simon Property Group - that have recently decided to default on mortgages.

When companies do this, no one bats an eye--it's just "smart business."

When ordinary homeowners think about doing it, meanwhile, the mortgage industry and government begin moaning that a mortgage is more than a business contract. It's a social contract, in which homeowners have a "moral obligation" to pay.

That's bunk. An individual mortgage is no different than a corporate mortgage. If corporations are allowed to walk away from mortgage obligations without feeling shame and guilt, then individuals should be able to do so, too.

The contract homeowners sign when they take out a mortgage spells out exactly what happens if the homeowner stops making payments on the loan. The lender has the right to foreclose on the house, taking the homeowner's downpayment with it. In addition, the borrower's credit rating will usually get destroyed, and, in some states, the lender can come after his or her other assets to recoup the capital the lender has lost.

Those are big penalties. They provide a major incentive for the borrower to continue making his or payments. And that's why the lender, a corporation, put them in the contract.

Importantly, the lender voluntarily entered into the contract--and it did so because it thought doing so was a smart business decision. That it actually turned out to be a lousy business decision is not the homeowner's fault. It's the lender's fault. And the borrower, who is already feeling plenty of pain his or herself, should not have to bear the burden of guilt and shame on top of everything else.

Thinking about walking away from your mortgage? Here's what you should consider >

blaise
08-26-2010, 11:38 AM
I really don't get the point though. People will naturally feel shame and guilt if they default on a mortgage, no matter what the reason. It's just probably not a happy time in your life, and things obviously didn't go as planned. And I don't really think that many people look favorably on commercial borrowers defaulting.

Brock
08-26-2010, 11:55 AM
IMO, there's no shame in walking away from a bad business decision. Banks do it all the time.

BIG_DADDY
08-26-2010, 11:59 AM
IMO, there's no shame in walking away from a bad business decision. Banks do it all the time.

Unethical lending and greed and now they want somebody else held accountible. Typical.

Saul Good
08-26-2010, 12:15 PM
Unethical lending and greed and now they want somebody else held accountible. Typical.

A lot of that was on the part of the people who wrote the loans, not the ones who bought the securities.

BIG_DADDY
08-26-2010, 12:29 PM
A lot of that was on the part of the people who wrote the loans, not the ones who bought the securities.

I love the way the banks are going about refinancing these houses that are under water. 2-3 year terms to keep it off their books temporarily with the ability to escalate those terms after that so they can re-evaluate whether they want the property or want to continue to keep it off their books.

HonestChieffan
08-26-2010, 12:35 PM
I love the way the banks are going about refinancing these houses that are under water. 2-3 year terms to keep it off their books temporarily with the ability to escalate those terms after that so they can re-evaluate whether they want the property or want to continue to keep it off their books.

what you rather see happen?

Garcia Bronco
08-26-2010, 12:38 PM
Unethical lending and greed and now they want somebody else held accountible. Typical.

this about sums it up perfectly

BIG_DADDY
08-26-2010, 12:41 PM
what you rather see happen?

Give them terms they can live with long term instead of trying to take their property from them in 2 or 3 years if the market bounces back.

HonestChieffan
08-26-2010, 12:53 PM
Give them terms they can live with long term instead of trying to take their property from them in 2 or 3 years if the market bounces back.

If they have stayed with the repayment schedule their is no risk of that. The bank will do anything to keep from getting the property back.

Cave Johnson
08-26-2010, 12:53 PM
a) There's an impending wave of commercial defaults/forclosures that makes a double dip recession more likely, and

b) The wealthy currently have a higher default rate than the middle class. Again, it's just a business decision.

BIG_DADDY
08-26-2010, 01:01 PM
If they have stayed with the repayment schedule their is no risk of that. The bank will do anything to keep from getting the property back in the near term but have no problem taking it back if the property is above water in a few years, hence the short term deal.

There, fixed it for you.

HonestChieffan
08-26-2010, 01:04 PM
Tinfoil hate of a lender....the lender doesnt own the mortgage at that point and no one wants the property back. They make way way way way more if the borrower pays off the loan in the full length of the loan term. IF they did what you suggest, they make almost squat even if they have substantial appreciation. They have no interest in such things, you are afraid of a spook on this one and trust me there are no spooks under the bed so go to sleep.

BIG_DADDY
08-26-2010, 01:06 PM
HCM,

Bottom line is there is a lot of blame to pass around here and we have to fix the situation by looking forward. That involves both parties stepping up to the table and and making compromises. The consumer is being asked to pay on a house that is WAY under water and not make the more intelligent business decision by just walking away. If the bank expects consumers to do that they need to provide terms that work long term instead of trying to take advantage of the situation/consumer.

HonestChieffan
08-26-2010, 01:22 PM
HCM,

Bottom line is there is a lot of blame to pass around here and we have to fix the situation by looking forward. That involves both parties stepping up to the table and and making compromises. The consumer is being asked to pay on a house that is WAY under water and not make the more intelligent business decision by just walking away. If the bank expects consumers to do that they need to provide terms that work long term instead of trying to take advantage of the situation/consumer.


Im no fan of banks. But the bank looking forward is making an effort and the borrower has agreed. So there is a contract they both expect to be carried out. The table was laid in plain sight so if one party decided to not repay then the borrower is the one who is at fault. The consumer bought the house with no guarantee the value would stay the same, they assumed it would go up and it didn't. It happens every day in life in business. You roll the dice and sometimes you shoot craps...that is not the banks fault. If Im not mistaken the banks wherever they can are bending over backwards to avoid defaults because they loose their ass on a default.

BIG_DADDY
08-26-2010, 01:25 PM
Im no fan of banks. But the bank looking forward is making an effort and the borrower has agreed. So there is a contract they both expect to be carried out. The table was laid in plain sight so if one party decided to not repay then the borrower is the one who is at fault. The consumer bought the house with no guarantee the value would stay the same, they assumed it would go up and it didn't. It happens every day in life in business. You roll the dice and sometimes you shoot craps...that is not the banks fault. If Im not mistaken the banks wherever they can are bending over backwards to avoid defaults because they loose their ass on a default.

I'm just telling you how they are attempting to do it. I would walk away too just like all the big developers if they tried doing that shit to me. Depending on how badly I am under water I probably would anyway. If banks keep this shit up there are going to continue to eat more of these defaults. The learning curve is just starting to happen for consumers in this area.

Stewie
08-26-2010, 02:39 PM
Im no fan of banks. But the bank looking forward is making an effort and the borrower has agreed. So there is a contract they both expect to be carried out. The table was laid in plain sight so if one party decided to not repay then the borrower is the one who is at fault. The consumer bought the house with no guarantee the value would stay the same, they assumed it would go up and it didn't. It happens every day in life in business. You roll the dice and sometimes you shoot craps...that is not the banks fault. If Im not mistaken the banks wherever they can are bending over backwards to avoid defaults because they loose their ass on a default.

These are non-recourse loans. The banks and the gov't (Fannie, Freddie) kept driving real estate investment. It was nothing but a giant Ponzi scheme. The last buyers were left holding the bag and watched their investment drop precipitously. There were no new buyers (investors) to keep the game going, so anyone that bought in or about 2006-ish got completely screwed. They might be lucky to lose only a few thousand dollars. They won't see their real estate suddenly gain in value because the pool of qualified buyers is greatly diminished and that won't change moving forward.

Commercial real estate is different. This is driven by professionals and their banks. They'll get their money back, for sure, using the too big to fail scenario.

HonestChieffan
08-26-2010, 02:55 PM
Oh there is no doubt government and the regulators and rule makes are at the very heart of this. The burden of responsibility falls on Freddie and Fanny, the program pushers and those who put banks in an untenable position with rules that were terribly counterproductive.

I think your prediction of doom is wrong, the demand fr housing will return and we will see a recovery but it will be tied directly to employment not to some new scheme this bunch cooks up.

Cave Johnson
08-26-2010, 02:56 PM
Not sure this is completely on point, but..... whelp.

http://andrewsullivan.theatlantic.com/the_daily_dish/2010/08/after-the-bubble.html

BIG_DADDY
08-26-2010, 03:08 PM
Oh there is no doubt government and the regulators and rule makes are at the very heart of this. The burden of responsibility falls on Freddie and Fanny, the program pushers and those who put banks in an untenable position with rules that were terribly counterproductive.

I think your prediction of doom is wrong, the demand fr housing will return and we will see a recovery but it will be tied directly to employment not to some new scheme this bunch cooks up.

Rising interest rate may have something to say about that.

HonestChieffan
08-26-2010, 03:15 PM
Rising interest rate may have something to say about that.

It may...if we ever get to that point.