Walk away from your mortgage because you were an idiot.

[fade]

Odie,

The difference between this and a deadbeat parent is that people are actually promoting this as a good and right thing to do. There may be walkaways in parenting, but no one says "Hey, good for you Bob! You screwed over your wife and kid." And then Bob goes out and starts a full movement including a website about how to screw your family on their support.

 

[zero]

The only way the bank "loses" money is through depreciated value, but seeing as they're just the avenue of lending, they're not really out anything. They lose money on paper, but not any initial investment out of pocket.

Quite easy... Lend $40000 to mr. John Doe backed by a house you though is worth $60000. All of sudden, that said house is worth no more than $20000. Then, mr. Doe defaults on you, using a clause on your contract that allows him to walk away with his debt by giving you his house. Now, you effectively paid $40000 for a house worth no more than $20000.

I can't even begin to figure how someone could profit from defaulting on a loan. Unless you mean by tax loopholes.

That is very debatable, including what constitutes "to profit". It is evidently profitable to exchange a debt of $40000 for a house worth no more than $20000. Of course, you may argue that mr. Doe effectively "profited" when his property became overevaluated, not when he defaulted on his debt.

 

[TommiR]

Come on... we SUSPENDED the payment for 9 months in 87... And every cent of that debt is now paid.
And notice that even the suspension of the payment produced very bad consequences (As anyone could see at the time). As you said, it took more than 20 years to get our credibility back.

Perhaps one significant issue in why nations and corporations have it easier than private individual in these matters is the scale involved. If one owes the bank say USD100.000 and can't pay it back, it's much the debtor's problem. If one owes the bank several billions and can't pay it back, it becomes a bit of a problem for the creditor as well. In the latter case it is much easier to re-negotiate the contract, which is perfectly legal as I understand. Which I believe is what Brazil did in this case.

About the mortgage, everybody here seems to have forgotten that the "walk away" clause IS PRESENT ON THE MORTGAGE CONTRACT. As those terms were mutually agreed by both parties, I can't see how abiding by them constitute cheating.

Hmm, I did not know that. If the 'walk-away' does not constitute a breach of contract, then I guess all is fair and square.

 

[Tinwhistler]

paying rent (which they will most likely have to do for the rest of their lives because good luck getting a loan after defaulting on a mortgage)

That stuff doesn't stay on your credit report for your entire life, you know.

 

[fade]

You'd have to show me that walkaway clause. I read every page of my mortgage, to the dismay of the titling company, and I don't recall anything like that.

EDIT: I take that back. I see walkaway clause defined, but I don't see it ever implemented.

 

[zero]

You'd have to show me that walkaway clause. I read every page of my mortgage, to the dismay of the titling company, and I don't recall anything like that.

EDIT: I take that back. I see walkaway clause defined, but I don't see it ever implemented.

Well, the walkway clause is the very definition of a mortgage, isn't it?

 

[Adam]

The only way the bank "loses" money is through depreciated value, but seeing as they're just the avenue of lending, they're not really out anything. They lose money on paper, but not any initial investment out of pocket.

This shows a very cursory understanding of banking. The bank loses money several ways on a bad loan like this.

The most obvious is deprecation of value in the original asset. A smart institution will have an allowance for bad debt to a point so this is mitigated slightly. However, the 'walking away' tends to lead to blighted communities - one empty house propagates another, and in most cases, it's the same financial institution (or at least a group of similar FIs) who are responsible for the financing of that neighborhood.

Something a little less known is that to write a mortgage (or any loan) requires a legislated amount of deposits behind it backing it up (Commonly referred to as a reserve ratio or liquidity ratio). Economics nerds will also refer to this as the money multiplier. For a mortgage that is walked away from means that that money is no longer available for lending to someone else. This is direct revenue loss as FIs will keep their ratio as close to the limit as possible to maximize interest revenue. This also hurts the next person who comes in for a mortgage because the likelihood that they'll be declined increases quickly the more bad debt is accrued.

Third, an abandoned property becomes a money pit, requiring upkeep and maintenance all paid for out of pocket by the FI, none of which is cheap. Professional property managers make a mint on these kind of situations. And the type of person who just walks away from a mortgage typically wasn't the type to maintain the property to begin with so there's a lot of 'fixing up' to get it even sellable. As an example, I bought a repo'ed house that didn't have a blade of grass in the entire lot.

Fourth, a primary financial institution is often also the primary insurer, selling Life, Disability, Critical Illness,on that mortgage. All of that revenue (and it is substantial) is lost in an abandoned property.

Fifth, writing a mortgage is a time consuming process. Lenders, lending committees, paperwork, all of those costs are amortized over the life of the property to make it affordable to start the mortgage process.

But hey, as long as the banks are the bad guys, booooya.

 

[GasBandit]

Personally, I see this as the natural outcome of the progression that our society has perpetrated for the last few generations - the "I should be able to do what I want and hang the consequences" mentality that not only infests our teenagers but our bankers, our homeowners, everybody. Somewhere along the line we decided that nothing bad should be allowed to happen to us, even if it was our own fault, simply because we decided it. You see it everywhere - the burglar who sues the burgled for injuries sustained in their house. The sub-prime mortgage given to someone who has absolutely no realistic hope of making the payments if the market fluctuates - which it always does. It's a systemic dysfunction.

Americans in particular have forgotten the point behind the founding of our very country, of the point of sailing across the ocean into untamed wilderness to begin with. Previous to our grand experiment, what you were born into was what you were all your life, and you only possessed what your betters deemed you worthy of possessing. Those who came to America were looking for the chance to thrive or wither by their own machinations - to take their own destiny into their hands and accept the rewards and the consequences because nowhere else could you hope to do that. That means if you screw up, there are consequences - potentially life ruining ones. And just like in more feudal days, misfortune can also find you and ruin you through no fault of your own. But your success was up to you, and you earned your success and kept it. Now we've just regressed back into a desire to be kept, a feudal mentality. Bread and circuses are the order of the day, and so long as we're safe and have cheap food and goods from wal-mart and American Idol to watch on TV at night, we're happy to have surrendered the steering of our own destiny and the reaping of the rewards of our efforts.

 

[Dave]

If you guys knew the fights I've been going through to save my house...

I understand both sides. Many a time I have wanted to just walk away. But I have nowhere to go and this is home, man!

 

[Covar]

But hey, as long as the banks are the bad guys, booooya.

Remember they're the evil assholes who deserve to be punished because they foreclose on houses of people who a) walk away from it and b) somehow get loans they should have never signed off on in the first place.

I'm sorry, I feel no sympathy for a person who looses their house because they can't be bothered to actually know what they were doing when they borrow massive sums of money.

 

[MindDetective]

Personally, I see this as the natural outcome of the progression that our society has perpetrated for the last few generations - the "I should be able to do what I want and hang the consequences" mentality that not only infests our teenagers but our bankers, our homeowners, everybody. Somewhere along the line we decided that nothing bad should be allowed to happen to us, even if it was our own fault, simply because we decided it. You see it everywhere - the burglar who sues the burgled for injuries sustained in their house. The sub-prime mortgage given to someone who has absolutely no realistic hope of making the payments if the market fluctuates - which it always does. It's a systemic dysfunction.

Said the Libertarian. A free society allows people to be selfish jerks more than in any other type of society. 'Tis the pains of living free.

 

[fade]

You'd have to show me that walkaway clause. I read every page of my mortgage, to the dismay of the titling company, and I don't recall anything like that.

EDIT: I take that back. I see walkaway clause defined, but I don't see it ever implemented.

Well, the walkway clause is the very definition of a mortgage, isn't it?[/QUOTE]

Mine seems to be the exact polar opposite of the definition of walkaway clause.

 

[sixpackshaker]

These guys that walk away from a mortgage only have to keep their credit clean for seven years. At that point your defaults fall off your credit history. If some one is so upside down on their house that there is no way for them to make their money back in 10 years, they should walk.

My house note is not very bad, and my area has a stable housing market(actually there is not enough housing in town.) That even if I have to sell my house for a loss, I will still get some of my money back. Unlike moving after paying 10 years of rent, of which you get none of it back.

 

[zero]

Please... the moral angle has nothing to do with this particular issue. Nor the banks are all selfish jerks, nor people executing the "walk away clause" on their mortgage contracts are thieves or crooks who want to escape the consequence of their acts.

The banks aren't loosing money because they are being ripped-off by the borrowers. They are loosing money because they overvaluated the security of their lendings. And that's certainly NOT the borrower's fault!

 

[fade]

Personally, I see this as the natural outcome of the progression that our society has perpetrated for the last few generations - the "I should be able to do what I want and hang the consequences" mentality that not only infests our teenagers but our bankers, our homeowners, everybody. Somewhere along the line we decided that nothing bad should be allowed to happen to us, even if it was our own fault, simply because we decided it. You see it everywhere - the burglar who sues the burgled for injuries sustained in their house. The sub-prime mortgage given to someone who has absolutely no realistic hope of making the payments if the market fluctuates - which it always does. It's a systemic dysfunction.

Americans in particular have forgotten the point behind the founding of our very country, of the point of sailing across the ocean into untamed wilderness to begin with. Previous to our grand experiment, what you were born into was what you were all your life, and you only possessed what your betters deemed you worthy of possessing. Those who came to America were looking for the chance to thrive or wither by their own machinations - to take their own destiny into their hands and accept the rewards and the consequences because nowhere else could you hope to do that. That means if you screw up, there are consequences - potentially life ruining ones. And just like in more feudal days, misfortune can also find you and ruin you through no fault of your own. But your success was up to you, and you earned your success and kept it. Now we've just regressed back into a desire to be kept, a feudal mentality. Bread and circuses are the order of the day, and so long as we're safe and have cheap food and goods from wal-mart and American Idol to watch on TV at night, we're happy to have surrendered the steering of our own destiny and the reaping of the rewards of our efforts.

I had some elaborate treatise here about how the differences in a tight republic and a libertarian ideal are semantic and illusionary to the common man (something I've given a LOT of thought to lately), but it would be better presented in person.

All that doesn't mean that (gasp!) I don't agree with you on the point you're making here. Americans in general have become fat lazy slobs looking for handouts. We need to remember the benefits of hard work. We need some national pride again.

---------- Post added at 05:24 PM ---------- Previous post was at 05:21 PM ----------

Please... the moral angle has nothing to do with this particular issue. Nor the banks are all selfish jerks, nor people executing the "walk away clause" on their mortgage contracts are thieves or crooks who want to escape the consequence of their acts.

The banks aren't loosing money because they are being ripped-off by the borrowers. They are loosing money because they overvaluated the security of their lendings. And that's certainly NOT the borrower's fault!

The moral issue is the entire point! I don't care about the bank's bottom line directly. I care about the out and out theft of walking away from something you agreed to pay for because basically you don't feel like doing it.

 

[sixpackshaker]

I think our government remembers quite well why many came to these shores... to get the hell out of debtor's prison. That is why it is not a crime to owe money. The bank agreed that the house is worth 400,000 dollars when they made the loan, then they can sell the house for $400,000 to reap their rewards.

 

[zero]

Here, let me try to explain in simpler terms...

The thing is, the whole "mortgage" concept add a lot of economic complexity, not to mention the emotional charge associated with the word, so let's forget for a while about it.

Let's suppose GB owns a house. Let's suppose I like GB's house very much, and would like to buy it from him.
I take a good look at the house, and find it's worth, let's say, $200000. In fact, even the market seems to back me up, as many similar houses have been sold for similar prices.
I offer GB 180000 for his house. He, noticing his neighbourhood is becoming infested with leftists like me, doesn't think twice and takes the deal.
A month latter, the prices of the houses plummet and I can't find even $100000 for GB's house.

Now, was GB being a thief for accepting $180000 for a house that's not even worth $100000 now? Was I being a selfish jerk for offering $180000 for a house I though worth over $200000? Are leftists really moving next to GB?

Not one thing, nor another, it's just the way the market works. Now, replace the sale operation for a mortgage operation. Remember, a mortgage is a lend secured by a property, where you either repay the borrowed amount with interests OR transfer the property to the owner. Usually, the value of the property is higher than the debt, but every once and then, the lender will make an evaluation mistake. Is that the burrower's fault? Of course not! Is he allowed to walk away from his debt by transferring his property to the lender? Of course he is!

 

[sixpackshaker]

Walking away is not theft. Squatting in the house and not paying for it is theft. Walking away is to keep from ruining your life over a major mistake.

 

[zero]

The moral issue is the entire point! I don't care about the bank's bottom line directly. I care about the out and out theft of walking away from something you agreed to pay for because basically you don't feel like doing it.

And there's where you're wrong.

What was REALLY agreed upon was to either:
1. Pay the debt with interests.
2. OR transfer the property of the house to the lender.

As the borrower is fully complying with his obligations (by picking option "2"), there's no way this can be considered theft.

 

[Shakey]

So, instead of taking responsibility for your major mistake it's OK to dump it on someone else.

 

[zero]

So, instead of taking responsibility for your major mistake it's OK to dump it on someone else.

Who's mistake? The only mistake made was during the evaluation of the security. Who made this mistake isn't the borrower, but the lender.

 

[Shakey]

The borrower didn't agree that the property was worth what it was evaluated as?

 

[zero]

The borrower didn't agree that the property was worth what it was evaluated as?

Again, check my previous example... If I offer to buy your house for TWICE what it's worth, won't you take it? Would you consider immoral someone who does so?

 

[sixpackshaker]

So, instead of taking responsibility for your major mistake it's OK to dump it on someone else.

You are not dumping it on some one else, you are vacating the bank's property. It is not your property until you finish that last payment.

 

[Shakey]

The borrower didn't agree that the property was worth what it was evaluated as?

Again, check my previous example... If I offer to buy your house for TWICE what it's worth, won't you take it? Would you consider immoral someone who does so?[/QUOTE]

Mortgages are made with the expectation that it will be paid back. The ability to walk away from the loan is there to help protect people. Taking advantage of that because you bought property at the wrong time is immoral to me.

 

[sixpackshaker]

And both lender and customer are facing the same risks of buying during a hot market. So morality is out the window.

 

[zero]

Mortgages are made with the expectation that it will be paid back. The ability to walk away from the loan is there to help protect people. Taking advantage of that because you bought property at the wrong time is immoral to me.

No, no, no... Mortgages are made PRECISELY because there's the expectation the debt won't be paid back. Otherwise, there wouldn't be any need for a security, now would it?

Now, you may not be aware of it, but outside of real-state, this kind of trading on securities is pretty much common place... ever heard of the term "stock option"?

 

[Shakey]

Mortgages are made with the expectation that it will be paid back. The ability to walk away from the loan is there to help protect people. Taking advantage of that because you bought property at the wrong time is immoral to me.

No, no, no... Mortgages are made PRECISELY because there's the expectation the debt won't be paid back. Otherwise, there wouldn't be any need for a security, now would it?

Now, you may not be aware of it, but outside of real-state, trading of securities is pretty much common place... ever heard of the term "stock option"?[/QUOTE]

Stores expect people to steal, that's why they have security cameras and tags. Because there is an expectation that I will steal it is not immoral to steal from them.

 

[zero]

Stores expect people to steal, that's why they have security cameras and tags. Because there is an expectation that I will steal it is not immoral to steal from them.

You're pushing it and you know it... There's no contract between the store and the thief that states that they can get whatever they want as long as they don't get cough.

On a mortgage, there is a contract between the borrower and the lender stating explicitly that the lender will pardon the debt as long as the property of the security is transferred to him.

 

[Shakey]

Of course I'm pushing it.

I still think it is a stupid thing to do. If you can afford the property you bought, but decide to walk away from it because it's not worth as much as you want it to be worth, you're taking advantage of something put in place to protect people.

 

[Chibibar]

If you guys knew the fights I've been going through to save my house...

I understand both sides. Many a time I have wanted to just walk away. But I have nowhere to go and this is home, man!

I feel the same way. I don't think I can walk away since it is my only home but then again, I do make careful decision before even getting into the whole deal. (i.e. like refinancing) I got in a good deal for like 4.75% for 15 years.. woot!!

 

[zero]

I still think it is a stupid thing to do. If you can afford the property you bought, but decide to walk away from it because it's not worth as much as you want it to be worth, you're taking advantage of something put in place to protect people.

Don't be naive... you really think lenders never make profit by executing the securities? In fact, that's precisely what usually happens!!! Often, the debt total is worth a fraction of the security value, and a default on the debt is usually great news for the lender. Of course, sometimes that system fails (such as now).

But I don't see why should the lender take all the benefits and no risks from the mortgage system. In fact, THAT would be immoral in my view.

 

[Chazwozel]

I don't know about you monkeys but I was pretty proud of myself for being a home owner at age 24 through my own grit and grime. I'll be damned if I ever rent again.

 

[Shakey]

I'm not saying you should never walk away from your mortgage. What I'm saying is if you take advantage of the situation by walking away from a mortgage you can afford simply because it's not worth as much as you want, it is not right. Twist it any way you want, it's still wrong.

I never said there should be no risks to the banks.

 

[zero]

I'm not saying you should never walk away from your mortgage. What I'm saying is if you take advantage of the situation by walking away from a mortgage you can afford simply because it's not worth as much as you want, it is not right. Twist it any way you want, it's still wrong.

I see your point, but consider the following scenario...

I owned a house valued in $200000. I did a mortgage on such house amounting to $180000. Right after that, prices plummeted, and the mortgaged house isn't worth more than $100000 now.

I ask you... why should I pay to a bank $180000 for a house not worth more than $100000??? Again, to simplify it, forget the debt and consider I am BUYING the house. It doesn't make sense to pay $180000 for something worth $100000 just because I can afford it, now does it?

A mortgage is in no way different than that. You either pay and have the security property, or don't pay and let the lender have the security. Quite and simple.