On Walking Away
Is it okay to walk away from your mortgage for no other reason than it doesn’t make financial sense to keep throwing your hard-earned money away? There’s no universal answer here, but in most cases, the answer is “Yes.”Importantly, the reason is not that “Wall Street deserves it” or “We’ve got to teach the banks…
It might be semantics but the “morality” in the abortion debate isnt about pro/anti abortion….it is the application of the (constant) morality of – tho shall not kill – the difference is defining “killing” and when is it “human life”
In your second example honor is not morality.
Finally I am not saying that various groups do not have different morals – what I am saying is that if your “rules” change based on circumstance etc…(on an individual basis) then it isnt morality – I say this in response to your comment “morality is a fluid thing” – morality may differ from place to place – culture to culture but if it is truly “moral” then it really should be too fluid on an individual basis
tybur6–well, I dont know about you but personally I’d like my mortgage rate to be low. In terms of for society at large I guess it makes home ownership more affordable. So to the extent it advances that goal I’d say it’s a good thing. I would agree with you that owning the loans should generally make the bank underwrite more carefully–but I think you can do the same with securitization by making the originator retain a piece of the loan. Also, one of the largest and stinkiest masses of crappy loans that was assembled in this debacle was put together by one CA- then NC-based institution who also owned every loan.
I’m not an expert on the mortgage market but I’m told 30 year fixed rate mortgages are only made possible in any great quantities becuase they can be pooled and risk-managed with derivatives. I dont think you can get a loan with that long of a fixed rate outside of the US for instance.
“It comes down to the morality of honoring the contract vs the morality of providing for your family. Difficult all around,”
What is so difficult about it? You take care of your family and damn the consequences.
fsrg- indeed it is. Societies define morals differently. As a Jew, my religion does not think abortion is inherently immoral. But for Catholics, it is. In some societies it is considered moral to punish a woman for being raped, to save the honor of her family.
“And morality is a fluid thing- it changes with circumstances, culture, history. ”
then it isnt morality.
Ty;
I tend to agree with you on your latter point. Although I think securitization can be justified as a business model, I am skeptical that it has lowered rates. All of these defaults that have ocurred represent a cost that will just be passed to the diligent borrower.
Your story above reminded me of a famous businessmen in Japan (I work for a Japanese company). He started a money-lending business on his own, starting with personal loans. Because he himself came from a poor background, his mother made him promise that he would never evict a person who defaulted – she had seen it in her own life and knew the pain. He therefore made only unsecured personal loans.
Given that the risk was on him, he needed a way to assess a person’s character. You know what he did? He would go to visit the applicant personally at their home, and look at two things: the number of bills (or lack thereof) stacked up in their mailbox, and the orderliness of their bathroom. If these two were Ok, he would give them the loan.
He had very few defaults, and built a money-center empire from these humble beginnings.
I believe in honoring contracts- but when it comes to survival or pragmatism, I imagine many people feel they no longer have a choice but to walk. It’s got to be a horribly painful choice, And worse, if you’ve always been a responsible provider, even if you feel you are making the right decision, it is an untenable position. And morality is a fluid thing- it changes with circumstances, culture, history. It comes down to the morality of honoring the contract vs the morality of providing for your family. Difficult all around, and with serious consequences that go far beyond the mortgageholder.
Woodys…. I would have to disagree about one of your points. Yes, mortgage rates would probably be a bit higher. Is that a bad thing, really? BUT why wouldn’t you be able to get a 30 year mortgage? You probably just wouldn’t be able to get a 30 year mortgage for $1.8 million! That’s the difference.
The net result would be very rich people would buy the cream of the crop homes (like they always have) with a suitcase full of cash. And then the rest of the housing stock would get price tags that reflect what people can afford (i.e., what banks are willing to loan them). More concentrated risk would cause, hopefully, more rational thinking on the part of the loan officer. And probably have a moderating / tempering effect on home values. Something that would be a long-term positive for everyone (except the flipper).
Did anyone remember the story/interview about the banker in Amish country? It was NPR… maybe This American Life. He’s not Amish. But operates according to the traditional rules. Fully vetting borrower and property, larger down payments… AND he still OWNS every single loan he has made. He’s doing very well. Steady business. And low default rates (not zero, but low).
Montrose, I hope everything works out. As for the topic at hand, there is a significant difference in your circumstances: Your house is valuable to you for a number of reasons, one of which is that your monthly costs are lower than they would be if you were to rent now on the open market — plus you probably couldn’t get a comparable property.
Whereas Blodgett is talking about people who got a bad loan at the height of the boom for nothing down and now owe $4,000 a month but could rent the same place for $1100. Very different.