Ethical considerations (none) for defaulting on non-recourse loan.

[analyst]

[quote=patientrenter][quote=analyst]
Lenders were/are not pushed to do anything dangerous or likely to lead to losses.

They are required only to use realistic appraisal values, and maintain appropriate loan-to-value ratios. This is easy, boring, and the path to a reasonable profit, but not the path to riches.

That is why the charlatans who engineered the real estate bubble, and are responsible for all the damage that it caused, were not satisfied with the arrangement.[/quote]

analyst, it sounds like borrowers have no responsibilities, and lenders have them all. I guess I can’t subscribe to a theory that says that the person getting the money has 0 responsibility, and the person giving the money has 100%. In a transaction where you let someone use something of yours of great value, who is more exposed to losses?[/quote]

The borrower gets no money. The money goes to the seller of the home. The borrower gets a home. If the borrower defaults, he gives up what he got, the home. The only reason the borrower is upside-down is because he was deceived about the value of the home. Yes, as with all con games, the borrowers greed plays a role in his falling for the con game. That is not a reason to consider anybody but the con artist as the main culprit.

The money, in the vast majority of cases, was not the lender’s money. It was some investor’s money, who was persuaded by various deceptions to put his money at the disposal of the operators of the real estate bubble Ponzi scheme. The lender took a percentage fee, sent the money to a safe haven, and is out of the loop, unless/until the prosecutors pursue, which is the outcome I am promoting.

In non-recourse jurisdictions, for purchase money loans to owner-occupants, the lender does have 100% of the responsibility, by law, with fair warning.

[analyst]

[quote=patientrenter]
Right now, the world is awash in savings. We can borrow like drunken sailors, and default at phenomenal rates, and it’s OK, we can still borrow more. But that’s not going to last forever. Down the road, world savings will return to normal. When that happens, do you think that people will want to lend to US homeowners? Or to a nation that thinks that it’s up to the lenders to make sure the loan is repaid?[/quote]

Real estate lending to owner-occupants is a very easy, safe business when realistic appraisal values are used and appropriate loan-to-value ratios are maintained. There will never be any NEED for foreign money to fund owner-occupied real estate lending in the United States, if the financial institutions are appropriately regulated, and cease being glorified gambling halls and/or instruments of social policy.

Foreign money found its way into the real estate bubble Ponzi scheme because while one set of con artists were working the borrower community, another set of con artists was working the investor community with fictional descriptions of high return with low risk.

[analyst]

[quote=patientrenter]
Right now, the world is awash in savings. We can borrow like drunken sailors, and default at phenomenal rates, and it’s OK, we can still borrow more. But that’s not going to last forever. Down the road, world savings will return to normal. When that happens, do you think that people will want to lend to US homeowners? Or to a nation that thinks that it’s up to the lenders to make sure the loan is repaid?[/quote]

Real estate lending to owner-occupants is a very easy, safe business when realistic appraisal values are used and appropriate loan-to-value ratios are maintained. There will never be any NEED for foreign money to fund owner-occupied real estate lending in the United States, if the financial institutions are appropriately regulated, and cease being glorified gambling halls and/or instruments of social policy.

Foreign money found its way into the real estate bubble Ponzi scheme because while one set of con artists were working the borrower community, another set of con artists was working the investor community with fictional descriptions of high return with low risk.

[analyst]

[quote=patientrenter]
Right now, the world is awash in savings. We can borrow like drunken sailors, and default at phenomenal rates, and it’s OK, we can still borrow more. But that’s not going to last forever. Down the road, world savings will return to normal. When that happens, do you think that people will want to lend to US homeowners? Or to a nation that thinks that it’s up to the lenders to make sure the loan is repaid?[/quote]

Real estate lending to owner-occupants is a very easy, safe business when realistic appraisal values are used and appropriate loan-to-value ratios are maintained. There will never be any NEED for foreign money to fund owner-occupied real estate lending in the United States, if the financial institutions are appropriately regulated, and cease being glorified gambling halls and/or instruments of social policy.

Foreign money found its way into the real estate bubble Ponzi scheme because while one set of con artists were working the borrower community, another set of con artists was working the investor community with fictional descriptions of high return with low risk.

[analyst]

[quote=patientrenter]
Right now, the world is awash in savings. We can borrow like drunken sailors, and default at phenomenal rates, and it’s OK, we can still borrow more. But that’s not going to last forever. Down the road, world savings will return to normal. When that happens, do you think that people will want to lend to US homeowners? Or to a nation that thinks that it’s up to the lenders to make sure the loan is repaid?[/quote]

Real estate lending to owner-occupants is a very easy, safe business when realistic appraisal values are used and appropriate loan-to-value ratios are maintained. There will never be any NEED for foreign money to fund owner-occupied real estate lending in the United States, if the financial institutions are appropriately regulated, and cease being glorified gambling halls and/or instruments of social policy.

Foreign money found its way into the real estate bubble Ponzi scheme because while one set of con artists were working the borrower community, another set of con artists was working the investor community with fictional descriptions of high return with low risk.

[analyst]

[quote=patientrenter]
Right now, the world is awash in savings. We can borrow like drunken sailors, and default at phenomenal rates, and it’s OK, we can still borrow more. But that’s not going to last forever. Down the road, world savings will return to normal. When that happens, do you think that people will want to lend to US homeowners? Or to a nation that thinks that it’s up to the lenders to make sure the loan is repaid?[/quote]

Real estate lending to owner-occupants is a very easy, safe business when realistic appraisal values are used and appropriate loan-to-value ratios are maintained. There will never be any NEED for foreign money to fund owner-occupied real estate lending in the United States, if the financial institutions are appropriately regulated, and cease being glorified gambling halls and/or instruments of social policy.

Foreign money found its way into the real estate bubble Ponzi scheme because while one set of con artists were working the borrower community, another set of con artists was working the investor community with fictional descriptions of high return with low risk.

[patientrenter]

Sigh, analyst, you are repeating, but then so am I.

The fact that the person (“lender”) who makes the lending decision is not the person actually and ultimately providing the money and taking the risk doesn’t mean there is no money being loaned. The real lender is the person whose savings have funded the loan. Economically, all the other people are just agents of that principal. (And yes, a good many of those agents are highly culpable and should be prosecuted.) Saying that the entity we commonly refer to as the “lender” isn’t putting any money at risk is a red herring. It doesn’t mean that there’s no person at the other end of a default taking the loss.

As for the borrower “not getting any money”. This fallacy sums up one of the biggest problems that created this bubble, and that we still have. When someone buys a house, the way that it should work is that they agree to pay the price by a certain date, and they then collect the money from their savings, and perhaps some borrowing. If the transaction were viewed this way, people would never allow a bubble to happen. Instead, people started to feel that a bank was buying the house for them. They didn’t really agree to pay $800,000 for that shack. They got the bank to pay $800,000. They only agreed to pay $2500 a month until they “sold” the house “they” bought for $1.2 million.

This mental attitude, that you are not actually agreeing to pay the purchase price, and the money just flies directly from the bank to the seller, is a key reason the bubble inflated, and is still a problem today. People need to be brought back to earth, and reminded that if they agree to pay $800,00 for something, they are supposed to pay it. If they borrow the money, then that’s a loan, and it needs to be repaid on time and with the agreed interest. It is two transactions that we have allowed to become hopelessly muddled.

My own personal suggestion to break this pattern would be to require that interest on home loans in excess of 2 x (65 – Buyer age)% of the home’s value be nondedictible. In other words, make people pay a lot of their own money when they buy. Then instead of feeling that they are an onlooker in some transaction between a bank and a seller, buyer would become real buyers again, and real borrowers, and real repayers of the loans.

[patientrenter]

Sigh, analyst, you are repeating, but then so am I.

The fact that the person (“lender”) who makes the lending decision is not the person actually and ultimately providing the money and taking the risk doesn’t mean there is no money being loaned. The real lender is the person whose savings have funded the loan. Economically, all the other people are just agents of that principal. (And yes, a good many of those agents are highly culpable and should be prosecuted.) Saying that the entity we commonly refer to as the “lender” isn’t putting any money at risk is a red herring. It doesn’t mean that there’s no person at the other end of a default taking the loss.

As for the borrower “not getting any money”. This fallacy sums up one of the biggest problems that created this bubble, and that we still have. When someone buys a house, the way that it should work is that they agree to pay the price by a certain date, and they then collect the money from their savings, and perhaps some borrowing. If the transaction were viewed this way, people would never allow a bubble to happen. Instead, people started to feel that a bank was buying the house for them. They didn’t really agree to pay $800,000 for that shack. They got the bank to pay $800,000. They only agreed to pay $2500 a month until they “sold” the house “they” bought for $1.2 million.

This mental attitude, that you are not actually agreeing to pay the purchase price, and the money just flies directly from the bank to the seller, is a key reason the bubble inflated, and is still a problem today. People need to be brought back to earth, and reminded that if they agree to pay $800,00 for something, they are supposed to pay it. If they borrow the money, then that’s a loan, and it needs to be repaid on time and with the agreed interest. It is two transactions that we have allowed to become hopelessly muddled.

My own personal suggestion to break this pattern would be to require that interest on home loans in excess of 2 x (65 – Buyer age)% of the home’s value be nondedictible. In other words, make people pay a lot of their own money when they buy. Then instead of feeling that they are an onlooker in some transaction between a bank and a seller, buyer would become real buyers again, and real borrowers, and real repayers of the loans.

[patientrenter]

Sigh, analyst, you are repeating, but then so am I.

The fact that the person (“lender”) who makes the lending decision is not the person actually and ultimately providing the money and taking the risk doesn’t mean there is no money being loaned. The real lender is the person whose savings have funded the loan. Economically, all the other people are just agents of that principal. (And yes, a good many of those agents are highly culpable and should be prosecuted.) Saying that the entity we commonly refer to as the “lender” isn’t putting any money at risk is a red herring. It doesn’t mean that there’s no person at the other end of a default taking the loss.

As for the borrower “not getting any money”. This fallacy sums up one of the biggest problems that created this bubble, and that we still have. When someone buys a house, the way that it should work is that they agree to pay the price by a certain date, and they then collect the money from their savings, and perhaps some borrowing. If the transaction were viewed this way, people would never allow a bubble to happen. Instead, people started to feel that a bank was buying the house for them. They didn’t really agree to pay $800,000 for that shack. They got the bank to pay $800,000. They only agreed to pay $2500 a month until they “sold” the house “they” bought for $1.2 million.

This mental attitude, that you are not actually agreeing to pay the purchase price, and the money just flies directly from the bank to the seller, is a key reason the bubble inflated, and is still a problem today. People need to be brought back to earth, and reminded that if they agree to pay $800,00 for something, they are supposed to pay it. If they borrow the money, then that’s a loan, and it needs to be repaid on time and with the agreed interest. It is two transactions that we have allowed to become hopelessly muddled.

My own personal suggestion to break this pattern would be to require that interest on home loans in excess of 2 x (65 – Buyer age)% of the home’s value be nondedictible. In other words, make people pay a lot of their own money when they buy. Then instead of feeling that they are an onlooker in some transaction between a bank and a seller, buyer would become real buyers again, and real borrowers, and real repayers of the loans.

[patientrenter]

Sigh, analyst, you are repeating, but then so am I.

The fact that the person (“lender”) who makes the lending decision is not the person actually and ultimately providing the money and taking the risk doesn’t mean there is no money being loaned. The real lender is the person whose savings have funded the loan. Economically, all the other people are just agents of that principal. (And yes, a good many of those agents are highly culpable and should be prosecuted.) Saying that the entity we commonly refer to as the “lender” isn’t putting any money at risk is a red herring. It doesn’t mean that there’s no person at the other end of a default taking the loss.

As for the borrower “not getting any money”. This fallacy sums up one of the biggest problems that created this bubble, and that we still have. When someone buys a house, the way that it should work is that they agree to pay the price by a certain date, and they then collect the money from their savings, and perhaps some borrowing. If the transaction were viewed this way, people would never allow a bubble to happen. Instead, people started to feel that a bank was buying the house for them. They didn’t really agree to pay $800,000 for that shack. They got the bank to pay $800,000. They only agreed to pay $2500 a month until they “sold” the house “they” bought for $1.2 million.

This mental attitude, that you are not actually agreeing to pay the purchase price, and the money just flies directly from the bank to the seller, is a key reason the bubble inflated, and is still a problem today. People need to be brought back to earth, and reminded that if they agree to pay $800,00 for something, they are supposed to pay it. If they borrow the money, then that’s a loan, and it needs to be repaid on time and with the agreed interest. It is two transactions that we have allowed to become hopelessly muddled.

My own personal suggestion to break this pattern would be to require that interest on home loans in excess of 2 x (65 – Buyer age)% of the home’s value be nondedictible. In other words, make people pay a lot of their own money when they buy. Then instead of feeling that they are an onlooker in some transaction between a bank and a seller, buyer would become real buyers again, and real borrowers, and real repayers of the loans.

[patientrenter]

Sigh, analyst, you are repeating, but then so am I.

The fact that the person (“lender”) who makes the lending decision is not the person actually and ultimately providing the money and taking the risk doesn’t mean there is no money being loaned. The real lender is the person whose savings have funded the loan. Economically, all the other people are just agents of that principal. (And yes, a good many of those agents are highly culpable and should be prosecuted.) Saying that the entity we commonly refer to as the “lender” isn’t putting any money at risk is a red herring. It doesn’t mean that there’s no person at the other end of a default taking the loss.

As for the borrower “not getting any money”. This fallacy sums up one of the biggest problems that created this bubble, and that we still have. When someone buys a house, the way that it should work is that they agree to pay the price by a certain date, and they then collect the money from their savings, and perhaps some borrowing. If the transaction were viewed this way, people would never allow a bubble to happen. Instead, people started to feel that a bank was buying the house for them. They didn’t really agree to pay $800,000 for that shack. They got the bank to pay $800,000. They only agreed to pay $2500 a month until they “sold” the house “they” bought for $1.2 million.

This mental attitude, that you are not actually agreeing to pay the purchase price, and the money just flies directly from the bank to the seller, is a key reason the bubble inflated, and is still a problem today. People need to be brought back to earth, and reminded that if they agree to pay $800,00 for something, they are supposed to pay it. If they borrow the money, then that’s a loan, and it needs to be repaid on time and with the agreed interest. It is two transactions that we have allowed to become hopelessly muddled.

My own personal suggestion to break this pattern would be to require that interest on home loans in excess of 2 x (65 – Buyer age)% of the home’s value be nondedictible. In other words, make people pay a lot of their own money when they buy. Then instead of feeling that they are an onlooker in some transaction between a bank and a seller, buyer would become real buyers again, and real borrowers, and real repayers of the loans.

[CA renter]

PR,

If we just let the lenders fail (as we should, IMHO), then they will have learned a most valuable lesson: don’t lend money to people who can’t pay it back, AND know the value of the collateral backing the loan.

It really is that simple. We (the taxpayers) don’t need to do a thing.

Mortgages are secured loans. If the borrower doesn’t pay, then the lender has the right to foreclose. That’s what’s supposed to protect them in the event of a default.

While I agree with you that a borrower should be expected to pay back a loan, it was the lenders who willingly and knowingly volunteered to lend money to people who were unlikely to pay it back. The onus is on the lender to evaluate the borrower and collateral and weigh the risks. The borrowers would not take loans they couldn’t pay back if the lender didn’t make those loans available (even push those loans through incessant advertising pitches targeted directly at the least informed borrowers) in the first place.

[CA renter]

PR,

If we just let the lenders fail (as we should, IMHO), then they will have learned a most valuable lesson: don’t lend money to people who can’t pay it back, AND know the value of the collateral backing the loan.

It really is that simple. We (the taxpayers) don’t need to do a thing.

Mortgages are secured loans. If the borrower doesn’t pay, then the lender has the right to foreclose. That’s what’s supposed to protect them in the event of a default.

While I agree with you that a borrower should be expected to pay back a loan, it was the lenders who willingly and knowingly volunteered to lend money to people who were unlikely to pay it back. The onus is on the lender to evaluate the borrower and collateral and weigh the risks. The borrowers would not take loans they couldn’t pay back if the lender didn’t make those loans available (even push those loans through incessant advertising pitches targeted directly at the least informed borrowers) in the first place.

[CA renter]

PR,

If we just let the lenders fail (as we should, IMHO), then they will have learned a most valuable lesson: don’t lend money to people who can’t pay it back, AND know the value of the collateral backing the loan.

It really is that simple. We (the taxpayers) don’t need to do a thing.

Mortgages are secured loans. If the borrower doesn’t pay, then the lender has the right to foreclose. That’s what’s supposed to protect them in the event of a default.

While I agree with you that a borrower should be expected to pay back a loan, it was the lenders who willingly and knowingly volunteered to lend money to people who were unlikely to pay it back. The onus is on the lender to evaluate the borrower and collateral and weigh the risks. The borrowers would not take loans they couldn’t pay back if the lender didn’t make those loans available (even push those loans through incessant advertising pitches targeted directly at the least informed borrowers) in the first place.

[CA renter]

PR,

If we just let the lenders fail (as we should, IMHO), then they will have learned a most valuable lesson: don’t lend money to people who can’t pay it back, AND know the value of the collateral backing the loan.

It really is that simple. We (the taxpayers) don’t need to do a thing.

Mortgages are secured loans. If the borrower doesn’t pay, then the lender has the right to foreclose. That’s what’s supposed to protect them in the event of a default.

While I agree with you that a borrower should be expected to pay back a loan, it was the lenders who willingly and knowingly volunteered to lend money to people who were unlikely to pay it back. The onus is on the lender to evaluate the borrower and collateral and weigh the risks. The borrowers would not take loans they couldn’t pay back if the lender didn’t make those loans available (even push those loans through incessant advertising pitches targeted directly at the least informed borrowers) in the first place.

[Author]

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