Posted on 12/08/2010 6:26:03 AM PST by Palter
You might call it, “Walking away from your home, for dummies.”
Brent White, the University of Arizona law professor who’s made a name for himself by urging more underwater homeowners to consider walking away from their homes, has published a 168-page book to help borrowers who are wrestling with that decision.
In a tone that is both conversational and precise, “Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?” lays out the case for and against walking away from an upside-down mortgage where the home is worth less than the mortgage balance. As is his habit, Mr. White strips away many of the emotional reasons that are often touted to deter walkaways.
Mr. White, who specializes in behavioral economics and the law, touched a nerve with a paper last year that was one of the first to seriously challenge the long-held view that borrowers have a moral obligation to continue making their mortgage payments. He says he’s been inundated with thousands of emails from people that showed him “the real texture of what’s going on—what difficult times people are having, and how people really do struggle with these decisions.”
Mr. White tells readers that he hasn’t set out to recommend any particular course of action. Borrowers need to factor in their personal situation, and the laws in their state. “The bottom line is, people need to make their own call,” he says in an interview. He adds that he wrote the book because he realized “they may need help about how to think about it.”
(Excerpt) Read more at blogs.wsj.com ...
Many mortgages are made with one bank/mortgage company but then it is sold to somene else, If it was sold to someone else do you still have an obligation to the new holder if you did not consent to the sale of your mortgage. Morally I mean, it is sold with out your knowledge or consent
Lets say a corporate executive decides the company has a moral obligation to the borrower to take less that it is legally entitled. I am not talking about a business decision to cut losses -simply a moral obligation. If he acts on that moral compunction, he has reduced the profit available to the company's shareholders and essentially acted immorally towards the shareholders.
Contracts are legal documents and not a codification of moral principals and should be kept that way.
How about,
"Thou shalt not lie". I've bought several houses and no where on any mortgage agreement that I signed did it say "I'll pay the money back, as long as my house isn't upside down. They have all said, "I agree to pay $X amount back." You walk away when you can still pay the mortgage, the your fruits tell that you had lied about your intentions. Once again, there is a difference between not being able to, and not wanting to.
"Thou shalt not steal". People who can pay their mortgage, but walk away, because their investment has gone south have for all intents and purposes stolen the lender's money; leaving them holding a property that is worth less than what was agreed upon. One could also debate that since foreclosures seem to depress prices in any given area that they are stealing from their neighbors, too, as their neighbor's property losses value due to their actions. Once again, there is a difference between not being able to, and not wanting to.
That's been my attitude too for some while now. My payment is only a couple hundred more than it'd cost to move into a comparable rental. I'm too lazy to pack boxes for that amount of money.
It's a contract, that allows this activity. Nobody made the banks do it either.
Well stated.
Late last year a case went through the AZ court. The law now is that a creditor can issue a 1099-C, then STILL, seek any deficiency from foreclosure sale.
The only way to get rid of the debt now is to settle, and the creditor has little motivation to, or for the borrower to file a Chapter 7.
Amazing.
If the contract, or state law, which is incorporated into the contract, permits one to walk away, it is not stealing. The lender surely was aware of this risk at the time the mortgage was given and adjusted its rates or closing fees to account for this.
The bottom line here is that the housing supply has outstripped the market demand for many years now. Banks, assesors, and mortgage companies lied to buyers in a very DU fashion and there are some freepers applauding them for doing so.
Now, I forecast that this would come crashing down starting in 2002 when I did some contract work for a McMansion builder. I have done my level best for years to help people not get caught. I have suggested renting until the market falls.
I value people more than banks.
I am not going to excuse the culpability the financial institutions hold for lying outright in a communist fashion as you do.
Thank you for connecting positions held on the housing bubble to political ideology. It exposes you personally.
If the banks had not lied about home values to begin with, there would be no bubble. Granted, there would have been no construction nor the economic activity and illegal immigration that came from it either.
Because my morality does not depend upon the behavior of others but is a matter between me and God.
The Left: we have a moral obligation to ______ (fill in the blank with dozens of leftist causes, from the welfare state to allowing illegal immigration—all of which can be supported with the Bible), so we must do these things even though they aren’t in the Constitution (our national contract as a people).
vs.
The Right: We are a nation of laws based on the Constitution.
When your logic of “contract morality” is applied to the Constitution it opens a pandora’s box of problems.
You are actually arguing the hard, liberal left’s position when it comes to legal agreements (whether it be the constitution or contracts in general).
As long as you bought a home you like, and you can afford the mortgage, who cares what it is worth on paper? The only effect you will have is a possible lowering of property taxes.
If you lose your job, that is an employment problem, not a mortgage problem.
Edd, if you can’t accept what scripture says, be honest enough to snip out the parts you don’t like. Browbeating the messenger doesn’t change anything.
And if you think Kos promotes personal responsibility and integrity, you have bigger problems than just your finances.
Market risk was present back when home prices were increasing rapidly, but historical market trends minimized this risk in the minds of the purchasers. Buying a home is an investment, just like buying stocks or commodities. The bank is not responsible if the value of the property goes down, and would not be rewarded if the value of the property goes up. The borrower is responsible for the value of the underlying asset.
If a bank loans a teenager the funds to buy a new Hummer and gas prices suddenly go to $10/gallon, is the bank responsible for the decreased value of the Hummer? Market conditions changed during the life of the loan in this case. The teenager would not have anticipated the decreased value of his asset before initiating the loan. Should the teenager be allowed to walk away from the loan because the value of his asset decreased?
If an individual purchases 100 shares of GM stock with borrowed funds, is it the lender’s fault when the price of those shares fall considerably? Did the bank’s responsibility increase because many people lost money when the price of GM stock fell? If the price of GM stock had doubled rather than fallen, the bank would not have been given additional compensation/reward for making the loan. If the bank offered very generous rates and terms when providing the loan, did they become more responsible for the loss or gain associated with the underlying asset? In this case the bank made a loan to the borrower in good faith, and the loss of the borrower’s value on the asset used with the proceeds of the loan is not the lender’s fault or responsibility. The fact that this loss also affected many other people does not make the lender any more responsible for the value of the underlying asset. The lender did not require the borrower to initiate the loan; the lender agreed to make the loan to the borrower on mutually agreed terms.
It’s hard for some people to separate the emotional aspects of the home purchase, because of their close personal daily interaction with their investment. They let irrelevancies cloud their judgment when considering the situation. The bank making the home loan did not require the homeowner to make the purchase; they agreed to make the loan the homeowner requested on mutually agreed terms. The bank is not responsible for the change in value of the property, and would not have shared in the increase if the market value of the property had increased.
The anger of underwater homeowners is misdirected. Instead of blaming the bank that made the loan on mutually agreed terms, they should blame those responsible for the overinflated prices.
* The Federal Reserve played a major part in reducing and maintaining interest rates at very low levels, which caused unrealistic market price increases. More people could afford loans, which lead to more demand, and higher prices.
* The Fair Housing Act pressured banks to make loans to un-creditworthy borrowers, which increased demand and raised prices. People who could not otherwise buy homes were now capable.. this increased demand and raised prices.
* In order to meet the demands of the Fair Credit Housing act, new loan instruments such as interest-only loans and aggressively adjustable rate mortgages made larger mortgages more affordable, which increased demand and raised prices.
* Congress created and expanded the Secondary Mortgage Enhancement Act, the Tax Reform Act of 1986, and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 — These enhanced and expanded the creation of Mortgage Backed Securities which further encouraged loan origination.
All of this resulted in an overheated/overpriced housing market and unrealistic expectations of future price expansion in the home market.
In states and contracts where the owner has recourse to return the home in lieu of payment, the homeowner is well within their rights to return the home if they choose. No moral issue exists — the bank accepted the risk that the home might be returned when they accepted the loan. Any bank that would make a loan under these conditions deserves the consequences of their actions.
When the homeowner does not have recourse to return the home under the terms of regulation or their mortgage contract, they have the legal and moral obligation to conform to the terms of their agreement. The bank does not have any greater responsibility because housing prices fell, or the value of the stock went down, or the value of the Hummer tanked. The emotional attachment to the asset associated with the loan doesn’t increase the bank’s obligation.
In other words, it’s time to stop blaming the banks, and using that blame as an excuse to avoid legal obligations.
A mortgage is a contract. You’ve agreed to pay certain moneys each month, for a certain number of years. Breaking such an agreement is immoral.
Breaking an agreement is immoral, but is exercising a clause in the contract (that both parties agreed to at the time the contract was signed) immoral? That is really the question at hand.
Mortgage contracts have a clause that describes what happens when the person borrowing the money fails to make payments. Why they fail to make the payments is never discussed; loss of job or just don’t feel like it; the reason isn’t party of the contract. BOTH parties agree to this at the time of the contract.
When you quit paying your mortgage, you are exercising a part of the contract that both parties agreed to—BOTH PARTIES.
If both parties agree to something ahead of time, how is it immoral if one of the parties does it?
The lie became transparent over time.
The keyword housingbubble appeared here with people who saw through the lie explaining the collapse it was going to bring, and people like you claiming no collapse was coming.
You all lied, either by intent or twisted thought process. The collapse came. There is no easy fix.
That's the point, this Brent White guy lays out walking away from a house that is upside down, as a way to get out from underneath a bad investment, NOT as a last resort. That leads us to address your first assertion:
If they did not intend to pay for the house when they signed the mortgage - that would be a lie.
If you CAN pay the mortgage, and you are walking away to lessen the damage of what has become a bad investment, leaving the lender(s) holding the bag, then by default you have made a liar of yourself, and have not fulfilled your end of the bargain in good faith.
I am not talking about the family that is down and out due to circumstances that are not of their own making, or have spiraled out of their control; even if the root cause was a bad decision they made. I am talking about people looking to lessen the loss they are taking on their house, who have the means to fulfill their contract.
Do the Mortgage holders have a moral obligation to provide the correct paperwork and proof that they actually own the property and legally own the Mortgage?
No, they have a LEGAL obligation.
Brookhaven, your premise is bogus because you are referring to collective morality or collective salvation. That, indeed, is an argument that the left tries to use to promote socialism.
Conservatives argue for personal responsibility, both spiritually and in secular matters.
That includes keeping your promises, whether they’re in written contract form or just with a handshake. Old fashioned? Sure. The bedrock of our founding values? Absolutely.
I don’t know, and I don’t care, what you mean by “contract morality.” I just know right from wrong, a promise made is a promise to be kept, my word is my bond, and sometimes life is hard.
My grandparents and their children worked like slaves to prevent foreclosure on their dusty old Texas farm during the 30s. Times were much tougher then than now, although we may be headed there. The end result, 80 years later? Descendants who have heard the tales of hunger and sacrifice, but have seen in their elders a character that has served as an example for three generations.
We are not quitters. You don’t walk away from a promise, whether it’s on paper or just words. You have a responsibility to take the high and hard road. Others are watching.
If the bank throws you out, at least you’ve tried to hold up your end of the bargain. Walking away is a shameful path.
If you, my FRiend, are in a mortgage mess, I wish you well in digging out of it and preserving your integrity in doing so.
You are absolutely correct. I am more interested in how even I fell for what appears to be a sucker's bet. The bank making the home loan is not only getting paid for the loan (through interest, front loaded), but is also entitled to seize the property (at any value) if the borrower defaults, and can pursue a negative variance (in the event of decreased value) through seizure of other personal assets.
The borrower has a very easily defined upside and downside. The lender, on the other hand, will either break even (through asset seizure) or make a tidy profit in interest. A simplification, sure, but definitely in the lender's favor.
Conservatives argue for personal responsibility, both spiritually and in secular matters.
That includes keeping your promises, whether they’re in written contract form or just with a handshake. Old fashioned? Sure. The bedrock of our founding values? Absolutely.
Actually, I’m the one arguing that people should keep their promises—both sides of a contract.
You’re arguing that only one side should keep their promises.
If a mortgage didn’t have language that allowed it to be terminated in extreme circumstances (by either party), 90 percent of mortgages would never get signed. The mortgage industry wouldn’t exist. People don’t sign on for lifetime obligations they can never escape.
If the lender promised (in writing no less) that I could get out of my mortgage by exercising a clause of the contract. One that becomes active when I quit making payments.
Yes, people should keep their promises—that includes lenders. They agreed to the out clause, and benefited from including it in the contract (because I and millions of others would have never borrowed money from them in the first place without it).
You’re the one arguing that the lender doesn’t have to keep their promise.
Not a sucker's bet, really. You got the loan because you thought the house was worth it when you asked for the loan. You probably expected the value to go up. When you signed up for the loan, you borrowed so much money for so much time, and agreed to pay it all back. You also agreed to let the bank collect the money using other means if you chose not to pay.
If the value of your house had doubled, you would have made lots of money and the bank would have only gotten paid the amount you agreed in the mortgage. If housing prices skyrocketed, I think you would have been offended if the loan officer knocked on your door after few years wanting extra money from you commensurate with the increased property value.
The bank is just expecting you to pay what you agreed to pay -- the loss in the value of your home is not their fault or concern.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.