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…
If there were no securitization market and if little community banks were the only ones making loans, mortgages would be *much* more expensive than they are now and you wouldnt likely be able to get a 30 year fixed rate mortgage. Securitization is a good thing, with proper regulation and risk management (which obviously has been lacking in recent years).
Also this idea that community banks are somehow more virtuous than Wall St banks is total garbage, many made even more boneheaded risk management decisions, just at a smaller institution. And your local community banker is also trying to make a buck any way he can, he just likely couldnt get a job at one of the money center banks.
Personally I dont have a problem with people deciding to walk away from their loans if it gets to be too much, as Blodgett points out it’s an arm’s length transaction. But then don’t blame Wall St or anyone else for the mess the country’s in, because you’re making your own little contribution to it right there.
Folks;
Greetings from San Francico! (business trip);
Great discussion! I nominate this thread as one of the most thoughtful on Brownstoner.
I can’t add to the points that have already been made. I agree with those who say that the decision to walk away, for a household, is a financial/contractual decision, and should e made on that basis.
Regarding the issue of morality that Tybur6 and Montrose raise. I don’t think the decision to walk away, for a household, has a moral dimension. HOWEVER, I recognize that for society at large, a large number of walk-aways does have a deleterious efect. The whole concept of thrift has been flushed down the toilet in this country.
It is arguable how we came to this debacle over the past 6 years. While it’s easy to point fingers at the banks and securitization, more investigation needs to be done. The ratings agencies had a large role to play, and let’s not forget Fannie Mae’s role. History will sort it out.
However, if, imo, you want to see something immoral going on, it is that RIGHT NOW, our federal government, via the FHA, is continuing to make very-low-down payment loans. Last I read, more than half the loans are being originated through the FHA. In my opinion, this is being done for nothing else than for political reasons – to prop up the housing market for the time being, and kick the can further down the road. These folks know full well that they are creating another group of marginal “owners” who represent a further risk to our financial system. This, to me, is immoral.
Finally, and most importantly, I hope that Montrose is back on her feet in no time.
Way too much fuss about what is really a basic decision.
If “walking away” is better for you than “staying put”, walk away.
The trick is knowing what is better for you.
The only moral obligation I see is that you should not willfully damage the property if you are going to walk away.
Definitely roll with the punches…. If nothing else, at least the crap market is forcing your bank to act *as if* they actually cared. That’s some consolation.
Best of luck. I’ve been through the unemployment thing twice now. I wouldn’t wish it on my worst enemy. (Well, maybe my worst enemy.)
I know, Tybur, and if it was 3 years ago, the company I worked for wouldn’t be out of business, which they are now. That said, one must roll with the punches and keep going. Hopefully, the job market is indeed opening up again, I get hired somewhere, and I will be able to better fulfill my obligations. Believe me, this is not how I envisioned my life.
FSRQ and Montrose –> That’s exactly the thing. And Montrose, you are VERY right. If this was 3 years ago… you’d be royally screwed.
Because of fractionalization and securitization of loans, the banks financial risk was diffused all over the place. Defaults weren’t that big of a deal… so they could basically give away cash like crazy and it took a lot of defaults for it to have a real impact on their balance sheet.
Well… LO AND BEHOLD!!! There are now A LOT of potential defaults. If they didn’t negotiate with the good borrowers like Montrose, then they would go bankrupt fast(er).
It is a business decision albeit one that you should not engage in lightly.
Thing is, borrowers would not be “screwing” the banks if the banks had required adequate financial information about the borrowers and of course required a 20% down payment. The reason for the traditional 20% down payment was to ensure that if the borrower defaulted, the bank would still have enough money to process the foreclosure and to protect itself from most depreciation. By not following basic time tested lending guidelines and common sense, the banks have created the situation where they are adversely impacted by defaults.
“they figured OUT that they’d be better off financially by working things out with you.”
And I’m just glad they did, fsrg, whatever the underlying reasons.
Boerum – I understand the theory, I just think that applying that theory blanket across an entire state is insane – many borrowers *even on single family homes) are not naive unsophisticated sheep and granting them blanket immunity for insufficient collateral is crazy…..that being said the lack of interest rate spread in these states certainly proves that the Banks make the loans based on collateral & income, not based upon the morality of the borrower.