Viral Nature of Walking Away

[zk]

60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.

[davelj]

[quote=zk]60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.[/quote]

Likewise, when you sign a lease agreement, legally you only have to pay rent, and you get evicted if you don’t. But the eviction process generally takes at least a few months. And many people take advantage of this reality.

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place. (And clearly there should be less lending, generally, but that’s a separate issue.)

Also, it’s interesting that in quite a few states (I think it’s 40+), if you walk away from your mortgage, that borrowing agreement allows the lender to come after ALL of your assets, not just your house. Unfortunately, among the 10 or so that only permit non-recourse mortgages are some of the most bubblicious states (that’s probably not a coincidence).

As I’ve said before here at the Pigg, the fault for greater than 50% of this crisis must be placed at the feet of home buyers. No one forces someone to take out a mortgage to buy a house. The buyer/borrower is the Prime Mover in the transaction. Clearly, the dumb lenders also played a MAJOR role as enablers (and deserve to suffer mightily). And the mortgage bankers, developers… and Goldman Sachs… etc etc all deserve some of the blame. But at the very top of that list must be the Prime Mover in every transaction: The buyer/borrower. And as the Prime Mover, in my view there’s some moral obligation to inconvenience yourself to pay back the lender… so long as you’re able.

If folks only did the minimum to meet their legal obligation in every interaction with other humans we’d be in pretty sad shape.

[davelj]

[quote=zk]60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.[/quote]

Likewise, when you sign a lease agreement, legally you only have to pay rent, and you get evicted if you don’t. But the eviction process generally takes at least a few months. And many people take advantage of this reality.

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place. (And clearly there should be less lending, generally, but that’s a separate issue.)

Also, it’s interesting that in quite a few states (I think it’s 40+), if you walk away from your mortgage, that borrowing agreement allows the lender to come after ALL of your assets, not just your house. Unfortunately, among the 10 or so that only permit non-recourse mortgages are some of the most bubblicious states (that’s probably not a coincidence).

As I’ve said before here at the Pigg, the fault for greater than 50% of this crisis must be placed at the feet of home buyers. No one forces someone to take out a mortgage to buy a house. The buyer/borrower is the Prime Mover in the transaction. Clearly, the dumb lenders also played a MAJOR role as enablers (and deserve to suffer mightily). And the mortgage bankers, developers… and Goldman Sachs… etc etc all deserve some of the blame. But at the very top of that list must be the Prime Mover in every transaction: The buyer/borrower. And as the Prime Mover, in my view there’s some moral obligation to inconvenience yourself to pay back the lender… so long as you’re able.

If folks only did the minimum to meet their legal obligation in every interaction with other humans we’d be in pretty sad shape.

[davelj]

[quote=zk]60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.[/quote]

Likewise, when you sign a lease agreement, legally you only have to pay rent, and you get evicted if you don’t. But the eviction process generally takes at least a few months. And many people take advantage of this reality.

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place. (And clearly there should be less lending, generally, but that’s a separate issue.)

Also, it’s interesting that in quite a few states (I think it’s 40+), if you walk away from your mortgage, that borrowing agreement allows the lender to come after ALL of your assets, not just your house. Unfortunately, among the 10 or so that only permit non-recourse mortgages are some of the most bubblicious states (that’s probably not a coincidence).

As I’ve said before here at the Pigg, the fault for greater than 50% of this crisis must be placed at the feet of home buyers. No one forces someone to take out a mortgage to buy a house. The buyer/borrower is the Prime Mover in the transaction. Clearly, the dumb lenders also played a MAJOR role as enablers (and deserve to suffer mightily). And the mortgage bankers, developers… and Goldman Sachs… etc etc all deserve some of the blame. But at the very top of that list must be the Prime Mover in every transaction: The buyer/borrower. And as the Prime Mover, in my view there’s some moral obligation to inconvenience yourself to pay back the lender… so long as you’re able.

If folks only did the minimum to meet their legal obligation in every interaction with other humans we’d be in pretty sad shape.

[davelj]

[quote=zk]60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.[/quote]

Likewise, when you sign a lease agreement, legally you only have to pay rent, and you get evicted if you don’t. But the eviction process generally takes at least a few months. And many people take advantage of this reality.

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place. (And clearly there should be less lending, generally, but that’s a separate issue.)

Also, it’s interesting that in quite a few states (I think it’s 40+), if you walk away from your mortgage, that borrowing agreement allows the lender to come after ALL of your assets, not just your house. Unfortunately, among the 10 or so that only permit non-recourse mortgages are some of the most bubblicious states (that’s probably not a coincidence).

As I’ve said before here at the Pigg, the fault for greater than 50% of this crisis must be placed at the feet of home buyers. No one forces someone to take out a mortgage to buy a house. The buyer/borrower is the Prime Mover in the transaction. Clearly, the dumb lenders also played a MAJOR role as enablers (and deserve to suffer mightily). And the mortgage bankers, developers… and Goldman Sachs… etc etc all deserve some of the blame. But at the very top of that list must be the Prime Mover in every transaction: The buyer/borrower. And as the Prime Mover, in my view there’s some moral obligation to inconvenience yourself to pay back the lender… so long as you’re able.

If folks only did the minimum to meet their legal obligation in every interaction with other humans we’d be in pretty sad shape.

[davelj]

[quote=zk]60 minutes kept talking about whether it’s amoral or whether it should bother your conscience to walk away when you can afford to pay, but only briefly touched on what, to me, is the most important point in this debate. When you sign a contract to borrow money on a house, you’re not saying, “I’ll pay you as long as I can afford it.” You’re saying, “I’ll make payments on the loan or I’ll give you the house back.” When you strategically default, you are fulfilling your part of the contract (as long as you don’t stay in the house when they come to get it).

60 minutes bias is usually quite obvious. In this case, I think they’ve been more subtle, making it look like they’re slanting it one way when, in actuality, they’re slanting it the other.[/quote]

Likewise, when you sign a lease agreement, legally you only have to pay rent, and you get evicted if you don’t. But the eviction process generally takes at least a few months. And many people take advantage of this reality.

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place. (And clearly there should be less lending, generally, but that’s a separate issue.)

Also, it’s interesting that in quite a few states (I think it’s 40+), if you walk away from your mortgage, that borrowing agreement allows the lender to come after ALL of your assets, not just your house. Unfortunately, among the 10 or so that only permit non-recourse mortgages are some of the most bubblicious states (that’s probably not a coincidence).

As I’ve said before here at the Pigg, the fault for greater than 50% of this crisis must be placed at the feet of home buyers. No one forces someone to take out a mortgage to buy a house. The buyer/borrower is the Prime Mover in the transaction. Clearly, the dumb lenders also played a MAJOR role as enablers (and deserve to suffer mightily). And the mortgage bankers, developers… and Goldman Sachs… etc etc all deserve some of the blame. But at the very top of that list must be the Prime Mover in every transaction: The buyer/borrower. And as the Prime Mover, in my view there’s some moral obligation to inconvenience yourself to pay back the lender… so long as you’re able.

If folks only did the minimum to meet their legal obligation in every interaction with other humans we’d be in pretty sad shape.

[zk]

[quote=davelj]

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place.
[/quote]

I’m not sure how you figure that.

First of all, most loans are paid back regardless of any moral component. They’re paid back because the consequences of not paying outweigh the consequences of paying. I’d say precious few loans are made where the lender is counting on the moral standards of the borrower. Lenders know that a certain percentage of borrowers won’t repay them, and that that percentage of borrowers changes as things such as the credit scores of the borrowers and the type of collateral put up change. They charge interest accordingly.

What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.

[zk]

[quote=davelj]

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place.
[/quote]

I’m not sure how you figure that.

First of all, most loans are paid back regardless of any moral component. They’re paid back because the consequences of not paying outweigh the consequences of paying. I’d say precious few loans are made where the lender is counting on the moral standards of the borrower. Lenders know that a certain percentage of borrowers won’t repay them, and that that percentage of borrowers changes as things such as the credit scores of the borrowers and the type of collateral put up change. They charge interest accordingly.

What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.

[zk]

[quote=davelj]

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place.
[/quote]

I’m not sure how you figure that.

First of all, most loans are paid back regardless of any moral component. They’re paid back because the consequences of not paying outweigh the consequences of paying. I’d say precious few loans are made where the lender is counting on the moral standards of the borrower. Lenders know that a certain percentage of borrowers won’t repay them, and that that percentage of borrowers changes as things such as the credit scores of the borrowers and the type of collateral put up change. They charge interest accordingly.

What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.

[zk]

[quote=davelj]

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place.
[/quote]

I’m not sure how you figure that.

First of all, most loans are paid back regardless of any moral component. They’re paid back because the consequences of not paying outweigh the consequences of paying. I’d say precious few loans are made where the lender is counting on the moral standards of the borrower. Lenders know that a certain percentage of borrowers won’t repay them, and that that percentage of borrowers changes as things such as the credit scores of the borrowers and the type of collateral put up change. They charge interest accordingly.

What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.

[zk]

[quote=davelj]

My point is that if there were absolutely no moral component to the idea of paying lenders back, despite the availability of options that allow borrowers to avoid payment, there would be precious little lending that would take place.
[/quote]

I’m not sure how you figure that.

First of all, most loans are paid back regardless of any moral component. They’re paid back because the consequences of not paying outweigh the consequences of paying. I’d say precious few loans are made where the lender is counting on the moral standards of the borrower. Lenders know that a certain percentage of borrowers won’t repay them, and that that percentage of borrowers changes as things such as the credit scores of the borrowers and the type of collateral put up change. They charge interest accordingly.

What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.

[briansd1]

[quote=zk]
What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.[/quote]

Add to that the financial tools that allowed originators from walking away from the underwriting decisions they make. The minute a loan is originated, it’s sold off to someone else and the originator washes his hands of the consequences of loan default.

When originators have no skin the game, all they care about is making the commissions and originating as many loans as possible.

[briansd1]

[quote=zk]
What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.[/quote]

Add to that the financial tools that allowed originators from walking away from the underwriting decisions they make. The minute a loan is originated, it’s sold off to someone else and the originator washes his hands of the consequences of loan default.

When originators have no skin the game, all they care about is making the commissions and originating as many loans as possible.

[briansd1]

[quote=zk]
What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.[/quote]

Add to that the financial tools that allowed originators from walking away from the underwriting decisions they make. The minute a loan is originated, it’s sold off to someone else and the originator washes his hands of the consequences of loan default.

When originators have no skin the game, all they care about is making the commissions and originating as many loans as possible.

[briansd1]

[quote=zk]
What changed over the last 7 years
wasn’t moral standards, it was lending standards. If you have adequate lending standards, there will be plenty of loans made and enough of them will be paid back that we won’t end up in a mess like the one we’re in.[/quote]

Add to that the financial tools that allowed originators from walking away from the underwriting decisions they make. The minute a loan is originated, it’s sold off to someone else and the originator washes his hands of the consequences of loan default.

When originators have no skin the game, all they care about is making the commissions and originating as many loans as possible.

[Author]

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