Viral Nature of Walking Away

[davelj]

[quote=wooga]

But what if instead of losing value, my house had increased to $500k. If I walked away then, the bank would be getting title to a $500k property on only a $360k loan. The bank would be making a tidy profit. Would walking away be “immoral” in that instance? Would the bank be acting immorally by taking the property?
[/quote]

The bank would not be making “a tidy profit.” It would have to pay you the difference between the net received on the property (after all expenses) and the price for which it was sold. The situation you describe would never occur.

[davelj]

[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.

[davelj]

[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.

[davelj]

[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.

[davelj]

[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.

[davelj]

[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.

[davelj]

[quote=sdduuuude][quote=davelj]But it’s pretty clear to me that moral standards have changed too.[/quote]

Did they ? Or did the situation change? i.e. are borrowers more up-side-down than ever before and the “morality” of paying off the loan in underwater conditions has not been tested to this extent before.

Or, perhaps the availability of ez credit drew in more people of a lower moral standard than ever before.[/quote]

I think it’s a combination of all of these things and, to make it more complicated, they are inter-related.

[davelj]

[quote=sdduuuude][quote=davelj]But it’s pretty clear to me that moral standards have changed too.[/quote]

Did they ? Or did the situation change? i.e. are borrowers more up-side-down than ever before and the “morality” of paying off the loan in underwater conditions has not been tested to this extent before.

Or, perhaps the availability of ez credit drew in more people of a lower moral standard than ever before.[/quote]

I think it’s a combination of all of these things and, to make it more complicated, they are inter-related.

[davelj]

[quote=sdduuuude][quote=davelj]But it’s pretty clear to me that moral standards have changed too.[/quote]

Did they ? Or did the situation change? i.e. are borrowers more up-side-down than ever before and the “morality” of paying off the loan in underwater conditions has not been tested to this extent before.

Or, perhaps the availability of ez credit drew in more people of a lower moral standard than ever before.[/quote]

I think it’s a combination of all of these things and, to make it more complicated, they are inter-related.

[davelj]

[quote=sdduuuude][quote=davelj]But it’s pretty clear to me that moral standards have changed too.[/quote]

Did they ? Or did the situation change? i.e. are borrowers more up-side-down than ever before and the “morality” of paying off the loan in underwater conditions has not been tested to this extent before.

Or, perhaps the availability of ez credit drew in more people of a lower moral standard than ever before.[/quote]

I think it’s a combination of all of these things and, to make it more complicated, they are inter-related.

[davelj]

[quote=sdduuuude][quote=davelj]But it’s pretty clear to me that moral standards have changed too.[/quote]

Did they ? Or did the situation change? i.e. are borrowers more up-side-down than ever before and the “morality” of paying off the loan in underwater conditions has not been tested to this extent before.

Or, perhaps the availability of ez credit drew in more people of a lower moral standard than ever before.[/quote]

I think it’s a combination of all of these things and, to make it more complicated, they are inter-related.

[sdduuuude]

[quote=davelj]Clearly the most unethical are the folks who can’t pay because they were living well beyond their means.[/quote]

I’ll buy into the “sliding scale” of unethical behavior. It isn’t black and white. I suspect my scale is a little different than yours. I don’t think any walkers-away are very far down the unethical path.

I want to agree that those who stop making payments, then rent out the place are acting unethically, but I’m not sure I can – just because, again, the banks are stupid enough to let it happen.

I just don’t understand why the banks, after two years of this, have not staffed up to a point where they can foreclose more rapidly on these people. I bought the “not enough staff” line last year, but with a high unemployment rate, it seems the banks should come through with some bodies to hammer out these foreclosures. Maybe we need a new thread for that one, though.

[sdduuuude]

[quote=davelj]Clearly the most unethical are the folks who can’t pay because they were living well beyond their means.[/quote]

I’ll buy into the “sliding scale” of unethical behavior. It isn’t black and white. I suspect my scale is a little different than yours. I don’t think any walkers-away are very far down the unethical path.

I want to agree that those who stop making payments, then rent out the place are acting unethically, but I’m not sure I can – just because, again, the banks are stupid enough to let it happen.

I just don’t understand why the banks, after two years of this, have not staffed up to a point where they can foreclose more rapidly on these people. I bought the “not enough staff” line last year, but with a high unemployment rate, it seems the banks should come through with some bodies to hammer out these foreclosures. Maybe we need a new thread for that one, though.

[sdduuuude]

[quote=davelj]Clearly the most unethical are the folks who can’t pay because they were living well beyond their means.[/quote]

I’ll buy into the “sliding scale” of unethical behavior. It isn’t black and white. I suspect my scale is a little different than yours. I don’t think any walkers-away are very far down the unethical path.

I want to agree that those who stop making payments, then rent out the place are acting unethically, but I’m not sure I can – just because, again, the banks are stupid enough to let it happen.

I just don’t understand why the banks, after two years of this, have not staffed up to a point where they can foreclose more rapidly on these people. I bought the “not enough staff” line last year, but with a high unemployment rate, it seems the banks should come through with some bodies to hammer out these foreclosures. Maybe we need a new thread for that one, though.

[sdduuuude]

[quote=davelj]Clearly the most unethical are the folks who can’t pay because they were living well beyond their means.[/quote]

I’ll buy into the “sliding scale” of unethical behavior. It isn’t black and white. I suspect my scale is a little different than yours. I don’t think any walkers-away are very far down the unethical path.

I want to agree that those who stop making payments, then rent out the place are acting unethically, but I’m not sure I can – just because, again, the banks are stupid enough to let it happen.

I just don’t understand why the banks, after two years of this, have not staffed up to a point where they can foreclose more rapidly on these people. I bought the “not enough staff” line last year, but with a high unemployment rate, it seems the banks should come through with some bodies to hammer out these foreclosures. Maybe we need a new thread for that one, though.

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