[quote=sdduuuude]
The fact of the matter, is, however, that neither the banks nor the borrowers really gave much thought to what would happen if they went upside-down and I think they kind of deserve each other. I can’t imagine for a second that the banks, from a business perspective, really believe people will continue to pay this mortgage on an upside-down-and-depreciating asset.[/quote]
I agree that the borrowers and lenders “deserve each other.” I do believe, however, that the lenders believe now (and believed when the loan was underwritten) that most folks will continue to pay a mortgage on an upside-down loan assuming they are capable of doing so. That might seem naive, in retrospect. But that doesn’t change the fact that it’s the case.
I know the president of a local S&L who has SFR loans – some of which are underwater by varying degrees – on his balance sheet that his bank underwrote and held onto. I’ve spoken to him about this issue and he was clear in his belief that he assumes most folks will continue to pay regardless of how underwater they are assuming they are able. Again, he might be stupid. But that’s what he thinks.
[quote=sdduuuude]
It it is wise for the banks to evaluate people based on their ethical make-up, (or “character” as davelj says) in addition to their financial means. But, they failed in this regard. At least they failed to realize that people with strong character may actually choose to default on an loan for an upside-down-and-depreciating asset.
In giving loans to people with poor capital, capability and character, the banks have done nothing ethically wrong. They have done something stupid. [/quote]
Agreed.
[quote=sdduuuude]
And now, they turn to pressuring the borrowers into “ethical” behavior as a way out. Banks are now trying to make up for their own ineptitude by making this an ethics issue. This is wise on the part of the banks, but I think anyone is a fool to buy into it.[/quote]
Now it’s turning into a religious discussion again… opinions and all regarding ethics.
[quote=sdduuuude]
My biggest problem with davelj’s perspective is that he gives the “ethical OK” if you can’t pay the mortgage and walk away, but does not give the “ethical OK” if you can pay the mortgage but choose not to. I don’t see that as an important distinction because many people who “can’t pay the mortgage” have chosen not to by making stupid financial decisions in the past that underly their current ability to pay. Either that, or they simply made a promise they couldn’t keep, which is no different from breaking a promise you knew you could keep. (Ignorance doesn’t get you off the hook either.) Also, if you can afford to pay the mortgage, you can easily put yourself in a position to not pay the mortgage by choosig to spend your remaining cash on a bunch of other stuff. So, from my perspective, “can’t” and “won’t” are the same, except in extremem cases of “bad luck”. I say either give them all the “ethical OK” to walk or none of them.[/quote]
Each situation is different. Just like in every other aspect of life. Clearly the most unethical are the folks who can’t pay because they were living well beyond their means.
[quote=sdduuuude]
What is really unethical is using taxpayer money to bail out the banks who made stupid decisions. Walking away pales in comparison to this.[/quote]
Along with countless other things that occur in our representative democracy.
