Viral Nature of Walking Away

[Arraya]

Dave, what does “fault” have to do with anything. Nobody makes a decision on whether to keep bubble priced home based on “fault” of a poor market timing decision, that is ridiculous. If they want to and do not, it is not because of the righteousness of unnecessarily punishing themselves for a poor market timing decision. That would be masochistic and insane. Especially with a family involved. It’s because of exactly what the paper points out. Commercial strategic defaults are not uncommon at all and for some reason people don’t get in the hissy fit about them and place a “moral” component on it nor do the holders of the mortgage place a “fault” component on their decision to walk. It’s a cost benefit analysis based on their individual financial survival and well being. And perfectly socially acceptable which leads into the norm asymmetry and distributional inequalities component of the argument. Different sets of “social” rules for business practices of people and corporations putting people at a disadvantage.

[lindismith]

I have a friend in 92120 foreclosing on his condo. He and his wife made the decision after watching the value of their home fall by half.

They also have 2 homes in southern Utah they purchased as investments that they are keeping.

They plan to rent for a while, save up some money, and then buy in a few years.

They both have good college degrees, and struggled with the decision, but ultimately decided to default.

[lindismith]

I have a friend in 92120 foreclosing on his condo. He and his wife made the decision after watching the value of their home fall by half.

They also have 2 homes in southern Utah they purchased as investments that they are keeping.

They plan to rent for a while, save up some money, and then buy in a few years.

They both have good college degrees, and struggled with the decision, but ultimately decided to default.

[lindismith]

I have a friend in 92120 foreclosing on his condo. He and his wife made the decision after watching the value of their home fall by half.

They also have 2 homes in southern Utah they purchased as investments that they are keeping.

They plan to rent for a while, save up some money, and then buy in a few years.

They both have good college degrees, and struggled with the decision, but ultimately decided to default.

[lindismith]

I have a friend in 92120 foreclosing on his condo. He and his wife made the decision after watching the value of their home fall by half.

They also have 2 homes in southern Utah they purchased as investments that they are keeping.

They plan to rent for a while, save up some money, and then buy in a few years.

They both have good college degrees, and struggled with the decision, but ultimately decided to default.

[lindismith]

I have a friend in 92120 foreclosing on his condo. He and his wife made the decision after watching the value of their home fall by half.

They also have 2 homes in southern Utah they purchased as investments that they are keeping.

They plan to rent for a while, save up some money, and then buy in a few years.

They both have good college degrees, and struggled with the decision, but ultimately decided to default.

[jpinpb]

Define “walking away.” Not paying? Short sale? Foreclosure?

I personally know 2 people that stopped paying. One did a short sale after not paying for 10 months. Never received a NOD. That was in 92111. Had money to pay mortgage. Value depreciated by 40%.

I know a realtor that has not paid in many months. He is in limbo. Still living in the house. Not listed for sale. No NOD. That’s in 92109. House is worth easily 30% less.

[jpinpb]

Define “walking away.” Not paying? Short sale? Foreclosure?

I personally know 2 people that stopped paying. One did a short sale after not paying for 10 months. Never received a NOD. That was in 92111. Had money to pay mortgage. Value depreciated by 40%.

I know a realtor that has not paid in many months. He is in limbo. Still living in the house. Not listed for sale. No NOD. That’s in 92109. House is worth easily 30% less.

[jpinpb]

Define “walking away.” Not paying? Short sale? Foreclosure?

I personally know 2 people that stopped paying. One did a short sale after not paying for 10 months. Never received a NOD. That was in 92111. Had money to pay mortgage. Value depreciated by 40%.

I know a realtor that has not paid in many months. He is in limbo. Still living in the house. Not listed for sale. No NOD. That’s in 92109. House is worth easily 30% less.

[jpinpb]

Define “walking away.” Not paying? Short sale? Foreclosure?

I personally know 2 people that stopped paying. One did a short sale after not paying for 10 months. Never received a NOD. That was in 92111. Had money to pay mortgage. Value depreciated by 40%.

I know a realtor that has not paid in many months. He is in limbo. Still living in the house. Not listed for sale. No NOD. That’s in 92109. House is worth easily 30% less.

[jpinpb]

Define “walking away.” Not paying? Short sale? Foreclosure?

I personally know 2 people that stopped paying. One did a short sale after not paying for 10 months. Never received a NOD. That was in 92111. Had money to pay mortgage. Value depreciated by 40%.

I know a realtor that has not paid in many months. He is in limbo. Still living in the house. Not listed for sale. No NOD. That’s in 92109. House is worth easily 30% less.

[UCGal]

[quote=davelj][quote=zk]
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.
[/quote]

I agree with your first and second sentences above. Your last sentence is clearly written from the perspective of someone who has never sat on the loan committee of a bank. Yes, you require collateral and cashflow as the fundamental basis for the loan. But if you think that the “character” of the borrower (as explained in court by JP Morgan back in the 1930s) isn’t a big issue, you’re mistaken. (Although, admittedly, the character issue is much more important at the community bank level than at the national bank level.)

[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]

I will agree with you that it was lending standards that changed MORE than moral standards (among the pool of total borrowers). Lending standards really went into the shitter and I agree that that is indeed the crux of the problem. But it’s pretty clear to me that moral standards have changed too. Although, one could argue that the lax lending standards allowed a large group of folks into the borrowing pool that never should have been there in the first place and gave them every incentive to act in an immoral manner.

Having said all that, I’m clearly biased about this “character” issue because I deal with it all the time. Bank of America, et al, however, probably don’t give it much thought as a result of how their business is run.[/quote]

Character might have played a part in olden days… but when I refi’d last year I never met my mortgage broker in person (it was all on the phone, fax, email.) The underwriter was a nameless person in another state who looked at me from a numbers perspective – I had the income/capacity and good credit and the LTV was less than 50%. Character NEVER came into it – how could it when the only person I met, face to face, during the process, was a notary that came out for doc signing.

How can you tell character? FICO score is about credit worthiness, not character. LTV is about debt levels, not character. Income is about capacity not character. No one asked me my views on paying off debt.

Once the mortgages started being sold off to agencies to be securitized, character stopped being a factor. It was about arbitrary mathematical criteria. And with banks (or brokers) making a percentage of every loan made – but little risk if the loan goes south a few years later – character became a total non issue. Character might matter if the banks actually HELD the paper – but that doesn’t happen anymore.

[UCGal]

[quote=davelj][quote=zk]
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.
[/quote]

I agree with your first and second sentences above. Your last sentence is clearly written from the perspective of someone who has never sat on the loan committee of a bank. Yes, you require collateral and cashflow as the fundamental basis for the loan. But if you think that the “character” of the borrower (as explained in court by JP Morgan back in the 1930s) isn’t a big issue, you’re mistaken. (Although, admittedly, the character issue is much more important at the community bank level than at the national bank level.)

[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]

I will agree with you that it was lending standards that changed MORE than moral standards (among the pool of total borrowers). Lending standards really went into the shitter and I agree that that is indeed the crux of the problem. But it’s pretty clear to me that moral standards have changed too. Although, one could argue that the lax lending standards allowed a large group of folks into the borrowing pool that never should have been there in the first place and gave them every incentive to act in an immoral manner.

Having said all that, I’m clearly biased about this “character” issue because I deal with it all the time. Bank of America, et al, however, probably don’t give it much thought as a result of how their business is run.[/quote]

Character might have played a part in olden days… but when I refi’d last year I never met my mortgage broker in person (it was all on the phone, fax, email.) The underwriter was a nameless person in another state who looked at me from a numbers perspective – I had the income/capacity and good credit and the LTV was less than 50%. Character NEVER came into it – how could it when the only person I met, face to face, during the process, was a notary that came out for doc signing.

How can you tell character? FICO score is about credit worthiness, not character. LTV is about debt levels, not character. Income is about capacity not character. No one asked me my views on paying off debt.

Once the mortgages started being sold off to agencies to be securitized, character stopped being a factor. It was about arbitrary mathematical criteria. And with banks (or brokers) making a percentage of every loan made – but little risk if the loan goes south a few years later – character became a total non issue. Character might matter if the banks actually HELD the paper – but that doesn’t happen anymore.

[UCGal]

[quote=davelj][quote=zk]
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.
[/quote]

I agree with your first and second sentences above. Your last sentence is clearly written from the perspective of someone who has never sat on the loan committee of a bank. Yes, you require collateral and cashflow as the fundamental basis for the loan. But if you think that the “character” of the borrower (as explained in court by JP Morgan back in the 1930s) isn’t a big issue, you’re mistaken. (Although, admittedly, the character issue is much more important at the community bank level than at the national bank level.)

[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]

I will agree with you that it was lending standards that changed MORE than moral standards (among the pool of total borrowers). Lending standards really went into the shitter and I agree that that is indeed the crux of the problem. But it’s pretty clear to me that moral standards have changed too. Although, one could argue that the lax lending standards allowed a large group of folks into the borrowing pool that never should have been there in the first place and gave them every incentive to act in an immoral manner.

Having said all that, I’m clearly biased about this “character” issue because I deal with it all the time. Bank of America, et al, however, probably don’t give it much thought as a result of how their business is run.[/quote]

Character might have played a part in olden days… but when I refi’d last year I never met my mortgage broker in person (it was all on the phone, fax, email.) The underwriter was a nameless person in another state who looked at me from a numbers perspective – I had the income/capacity and good credit and the LTV was less than 50%. Character NEVER came into it – how could it when the only person I met, face to face, during the process, was a notary that came out for doc signing.

How can you tell character? FICO score is about credit worthiness, not character. LTV is about debt levels, not character. Income is about capacity not character. No one asked me my views on paying off debt.

Once the mortgages started being sold off to agencies to be securitized, character stopped being a factor. It was about arbitrary mathematical criteria. And with banks (or brokers) making a percentage of every loan made – but little risk if the loan goes south a few years later – character became a total non issue. Character might matter if the banks actually HELD the paper – but that doesn’t happen anymore.

[UCGal]

[quote=davelj][quote=zk]
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.
[/quote]

I agree with your first and second sentences above. Your last sentence is clearly written from the perspective of someone who has never sat on the loan committee of a bank. Yes, you require collateral and cashflow as the fundamental basis for the loan. But if you think that the “character” of the borrower (as explained in court by JP Morgan back in the 1930s) isn’t a big issue, you’re mistaken. (Although, admittedly, the character issue is much more important at the community bank level than at the national bank level.)

[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]

I will agree with you that it was lending standards that changed MORE than moral standards (among the pool of total borrowers). Lending standards really went into the shitter and I agree that that is indeed the crux of the problem. But it’s pretty clear to me that moral standards have changed too. Although, one could argue that the lax lending standards allowed a large group of folks into the borrowing pool that never should have been there in the first place and gave them every incentive to act in an immoral manner.

Having said all that, I’m clearly biased about this “character” issue because I deal with it all the time. Bank of America, et al, however, probably don’t give it much thought as a result of how their business is run.[/quote]

Character might have played a part in olden days… but when I refi’d last year I never met my mortgage broker in person (it was all on the phone, fax, email.) The underwriter was a nameless person in another state who looked at me from a numbers perspective – I had the income/capacity and good credit and the LTV was less than 50%. Character NEVER came into it – how could it when the only person I met, face to face, during the process, was a notary that came out for doc signing.

How can you tell character? FICO score is about credit worthiness, not character. LTV is about debt levels, not character. Income is about capacity not character. No one asked me my views on paying off debt.

Once the mortgages started being sold off to agencies to be securitized, character stopped being a factor. It was about arbitrary mathematical criteria. And with banks (or brokers) making a percentage of every loan made – but little risk if the loan goes south a few years later – character became a total non issue. Character might matter if the banks actually HELD the paper – but that doesn’t happen anymore.

[Author]

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