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

[sdduuuude]

I’d add to this and say that if the contract doesn’t specifically say that not paying the loan is breach of contract, then what is the problem ?

I mean if it says something to the effect of “if the borrower cannot pay the loan, then x, y, and z happens” then there are no ethical issues at all because not paying the loan is covered in the contract. If it says the borrower will make good faith efforts to pay, regarless of circumstances, then there may be some ethical issues. That is – the ethics involved vary directly with the contract signed.

Also, keep in mind that, because the bank knows it is a non-recourse loan, the interest rate is likely higher than if it were a recourse loan, so the borrower is really paying for the right to walk away without recourse and should have the right to do so without any ethical encumberances.

Being a fan of choice, I’d like to see buyers have their choice of recourse or non-recourse loans, where the interest rate spread between a recourse and non-recourse loan changes based on the market’s perception of the risks involved.

[sdduuuude]

Isn’t the unethical part of the fraudulent transacion the up-front committing of the fraud itself and not the walking away ?

[sdduuuude]

Isn’t the unethical part of the fraudulent transacion the up-front committing of the fraud itself and not the walking away ?

[sdduuuude]

Isn’t the unethical part of the fraudulent transacion the up-front committing of the fraud itself and not the walking away ?

[sdduuuude]

Isn’t the unethical part of the fraudulent transacion the up-front committing of the fraud itself and not the walking away ?

[sdduuuude]

Isn’t the unethical part of the fraudulent transacion the up-front committing of the fraud itself and not the walking away ?

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[analyst]

[quote=Daniel][quote=analyst]

If a lender does not detect borrower fraud, it is because the lender is not trying, perhaps because the lender is itself engaging in fraudulent activities.[/quote]

Absolutely so, analyst. But here comes the legal question: if borrowers signed fraudulent documents (with the full or partial complicity of other parties, like mortgage brokers, etc), are they liable? I’d say they are. I’m not an attorney, but I think fine print is there for a reason. They could claim that they were encouraged to file a false application (I’m sure it happened a lot). But I don’t think that claim would stand up in court. The “rep and warranty” business is a very serious legal business, the whole secondary market depends on it. No bank would buy a loan without a “rep and warranty”. They need to have someone to sue if fraud turns up. And the lawsuits could come down the chain all the way to the person who signed on the application (the borrower).

I perfectly understand and agree with your point about the non-recourse provisions of the law, but I really think it doesn’t cover fraud. If I go to H&R Block and collude with my preparer to file a fraudulent tax return, I don’t get a free pass just because the preparer cajoled me into it.[/quote]

My original post did not speak to the question of intentional misstatements. Absent intentional misstatements, everything stands as written.

Now let’s examine the case of intentional misstatements. It is not plausible to me that borrowers in any significant numbers can successfully misrepresent their financial capabilities if the lender seriously attempts to verify them. So I do not accept the concept of one-sided misrepresentation by the borrower. For all lenders where misrepresentation is a recurring theme, I believe there was material participation by the lender.

I would further predict that, since borrowers know that any misrepresentations can be easily discovered by the lender, joint (lender and borrower) misrepresentation was instigated by the lender, not the borrower, in the vast majority of cases.

If there is joint misrepresentation, I would expect that the lender (co-conspirator) has no case against the borrower. So as between lender and borrower, the effect of the non-recourse laws would not be altered, and decisions about the progression of events leading to a foreclosure sale by auction would be unaffected.

The difficulty of ultimately determining who misrepresented what to whom is the reason, I believe, why the non-recourse laws were written, to avoid the need to ever debate the matter with respect to owner-occupants. Just do a proper appraisal and maintain a proper loan-to-value ratio, and there will never be a problem.

The failure of the “professionals” to do their jobs, and the lax regulation environment which allowed them to operate in that manner, are the causes of the problem that people should be focused on. Focusing on the greedy owner-occupant-borrowers detracts from the time spent discussing the regulatory rules which need to be imposed on the people who work every day in businesses related to owner-occupied real estate.

[Ricechex]

[quote=Russell][quote=UCGal][quote=SK in CV]

What your are talking about UCgal, has possible shades of ethical gray. The “diner and dasher” didn’t put down a payment for a fine steak and get Hamburger. What if the person feels entitled to use the free rent as repayment of the down payment they were “tricked’ into putting into a good sound investment that wasn’t. What if they feel entitled to recoup just for the inconvenience of it all?

I think some people figured that if they could borrow money, it meant it was a good idea because the great U.S. doesn’t do stupid things.Some people trusted. Stretching things a bit, it was even patriotic to get in game. There must be a reason for it all?

We can’t realistically expect that every bubble buyer had an idea of just how foolish the goings on were or how significant the consequences would be(even though piggs did).I don’t think most were trying to game anything from the onset.

Many of the subprime people were immigrant ,first generation homeowners.Some were just very unsophisticated. All the people “analyst” mentions in his opening thread were goading them into buying and lying to them when they asked questions about the viability or the investment.

Just trying to put myself in someone elses shoes.Not sure I want to blame them for taking a break if it is legal , even though I take the idea of personal ethics very seriously.[/quote]

Russell, I completely concur. I know several people underwater and they are ALL paying their mortgages. Some friends sold a condo and bought a house in 2006, and while in escrow, the lender kept attempting to get them to get a subprime loan, when in fact, they were fully qualified for a 30 year fixed. They were fighting with this lender to stay with the 30 year, and the lender continued to badger them about getting the subprime loan. They switched lenders, got the 30 year fixed, and that was that. Now, how many people could have been snowed with lender’s salespitch to get the subprime loan? This couple happenned to be more knowledgeable and experienced.

[Ricechex]

[quote=Russell][quote=UCGal][quote=SK in CV]

What your are talking about UCgal, has possible shades of ethical gray. The “diner and dasher” didn’t put down a payment for a fine steak and get Hamburger. What if the person feels entitled to use the free rent as repayment of the down payment they were “tricked’ into putting into a good sound investment that wasn’t. What if they feel entitled to recoup just for the inconvenience of it all?

I think some people figured that if they could borrow money, it meant it was a good idea because the great U.S. doesn’t do stupid things.Some people trusted. Stretching things a bit, it was even patriotic to get in game. There must be a reason for it all?

We can’t realistically expect that every bubble buyer had an idea of just how foolish the goings on were or how significant the consequences would be(even though piggs did).I don’t think most were trying to game anything from the onset.

Many of the subprime people were immigrant ,first generation homeowners.Some were just very unsophisticated. All the people “analyst” mentions in his opening thread were goading them into buying and lying to them when they asked questions about the viability or the investment.

Just trying to put myself in someone elses shoes.Not sure I want to blame them for taking a break if it is legal , even though I take the idea of personal ethics very seriously.[/quote]

Russell, I completely concur. I know several people underwater and they are ALL paying their mortgages. Some friends sold a condo and bought a house in 2006, and while in escrow, the lender kept attempting to get them to get a subprime loan, when in fact, they were fully qualified for a 30 year fixed. They were fighting with this lender to stay with the 30 year, and the lender continued to badger them about getting the subprime loan. They switched lenders, got the 30 year fixed, and that was that. Now, how many people could have been snowed with lender’s salespitch to get the subprime loan? This couple happenned to be more knowledgeable and experienced.

[Ricechex]

[quote=Russell][quote=UCGal][quote=SK in CV]

What your are talking about UCgal, has possible shades of ethical gray. The “diner and dasher” didn’t put down a payment for a fine steak and get Hamburger. What if the person feels entitled to use the free rent as repayment of the down payment they were “tricked’ into putting into a good sound investment that wasn’t. What if they feel entitled to recoup just for the inconvenience of it all?

I think some people figured that if they could borrow money, it meant it was a good idea because the great U.S. doesn’t do stupid things.Some people trusted. Stretching things a bit, it was even patriotic to get in game. There must be a reason for it all?

We can’t realistically expect that every bubble buyer had an idea of just how foolish the goings on were or how significant the consequences would be(even though piggs did).I don’t think most were trying to game anything from the onset.

Many of the subprime people were immigrant ,first generation homeowners.Some were just very unsophisticated. All the people “analyst” mentions in his opening thread were goading them into buying and lying to them when they asked questions about the viability or the investment.

Just trying to put myself in someone elses shoes.Not sure I want to blame them for taking a break if it is legal , even though I take the idea of personal ethics very seriously.[/quote]

Russell, I completely concur. I know several people underwater and they are ALL paying their mortgages. Some friends sold a condo and bought a house in 2006, and while in escrow, the lender kept attempting to get them to get a subprime loan, when in fact, they were fully qualified for a 30 year fixed. They were fighting with this lender to stay with the 30 year, and the lender continued to badger them about getting the subprime loan. They switched lenders, got the 30 year fixed, and that was that. Now, how many people could have been snowed with lender’s salespitch to get the subprime loan? This couple happenned to be more knowledgeable and experienced.

[Ricechex]

[quote=Russell][quote=UCGal][quote=SK in CV]

What your are talking about UCgal, has possible shades of ethical gray. The “diner and dasher” didn’t put down a payment for a fine steak and get Hamburger. What if the person feels entitled to use the free rent as repayment of the down payment they were “tricked’ into putting into a good sound investment that wasn’t. What if they feel entitled to recoup just for the inconvenience of it all?

I think some people figured that if they could borrow money, it meant it was a good idea because the great U.S. doesn’t do stupid things.Some people trusted. Stretching things a bit, it was even patriotic to get in game. There must be a reason for it all?

We can’t realistically expect that every bubble buyer had an idea of just how foolish the goings on were or how significant the consequences would be(even though piggs did).I don’t think most were trying to game anything from the onset.

Many of the subprime people were immigrant ,first generation homeowners.Some were just very unsophisticated. All the people “analyst” mentions in his opening thread were goading them into buying and lying to them when they asked questions about the viability or the investment.

Just trying to put myself in someone elses shoes.Not sure I want to blame them for taking a break if it is legal , even though I take the idea of personal ethics very seriously.[/quote]

Russell, I completely concur. I know several people underwater and they are ALL paying their mortgages. Some friends sold a condo and bought a house in 2006, and while in escrow, the lender kept attempting to get them to get a subprime loan, when in fact, they were fully qualified for a 30 year fixed. They were fighting with this lender to stay with the 30 year, and the lender continued to badger them about getting the subprime loan. They switched lenders, got the 30 year fixed, and that was that. Now, how many people could have been snowed with lender’s salespitch to get the subprime loan? This couple happenned to be more knowledgeable and experienced.

[Author]

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