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Old 07-08-2011, 09:17 AM
 
8,598 posts, read 9,093,828 times
Reputation: 5934

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Quote:
Originally Posted by stan4 View Post
It was meant tongue in cheek.
Putting someone in jail for debt is pointless.
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Old 07-08-2011, 09:17 AM
 
5,762 posts, read 11,616,036 times
Reputation: 3870
Quote:
this is what is called Moral Relativity
Well, yes. That's the whole point. But perhaps not in the way you mean.

To begin with, "walking away" from any mortgage isn't really a "moral" decision at all. "Walking away" isn't a legal term; the term is "breach." And a mortgage isn't a moral contract with your spouse or church or friends; it's a financial agreement between you (personified as an income-generation and payment system) and a financial institution (usually a bank of some sort, though in theory just about anyone or any business could extend you a residential mortgage).

In traditional business or financial relationships, breaches of contract happen all the time. They are so common that we have entire systems of law and courts just to manage them. In a mortgage contract, breach usually means that the bank gets the house back after a period of time. The bank knew this going into the agreement.

You can make an argument that if you have an agreement with a smaller, local credit union that goes out of its way to help local customers, that you ought to also apply the "golden rule," and go out of your way to make your payments.

Personally, I think it's a strong argument. I like the idea of contributing to a local credit union's performing loan percentage.

But when you get into the realm of the national banks, they don't even treat your mortgage as a singular "thing" - they devised bizarre and arcane ways to chop up your mortgage note into slices and to take out insurance and default swaps against it, and then to top it all off, they sucked down torrents of funds from Uncle Sam when times got tough, rather than throwing themselves upon the mercy of the "free market."

Moral relativism applies here more than ever. Think of it this way - how would the bank behave if it were in YOUR position?

The answer is simple - it would try to cheat you every way it could. And it would always do what is in its own financial interest.

So be it. Sometimes, consumers can do the same.
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Old 07-08-2011, 09:44 AM
 
5,365 posts, read 6,319,444 times
Reputation: 3360
Quote:
Originally Posted by stan4 View Post
Immorality like this is what's way past the limit.

Almost everything you buy devalues the second you buy it. Does that mean you stop paying for it?

This is clearly a mental thing. Who cares what your house is worth now? It's where you live and you agreed to pay a certain price for it. The only time it matters is when you go to sell it. And who knows what it will be worth then. You are not supposed to be guaranteed to make money on your residence.
Morals can suck it at this point.

With the financial catastrophe that home owners are in today morality is seriously the last thing on their (and my) minds. People have to survive. If survival is contingent on leaving someone's much devalued home, then so be it.

But, by all means, stay in your home that is worth half the price you paid for it. I hope the outcome of doing so is not the destruction of any prospects for financial security in your life. But hey, even if it does, no worries because you still have your morality, right?
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Old 07-08-2011, 10:21 AM
 
Location: Texas
44,256 posts, read 64,216,996 times
Reputation: 73924
That's the thing about character and morals and integrity. They are easy to have when times are good. It's when the chips are down that the real test of character comes out. Anyone can be upstanding in a vacuum.
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Old 07-08-2011, 11:56 AM
 
Location: Santa Barbara
1,474 posts, read 2,914,147 times
Reputation: 967
Quote:
Originally Posted by stan4 View Post
Immorality like this is what's way past the limit.

Almost everything you buy devalues the second you buy it. Does that mean you stop paying for it?

This is clearly a mental thing. Who cares what your house is worth now? It's where you live and you agreed to pay a certain price for it. The only time it matters is when you go to sell it. And who knows what it will be worth then. You are not supposed to be guaranteed to make money on your residence.
I totally agree. The bolded part is what people are forgetting. If homes increased in value people would CERTAINLY and HAPPILY accept the increase. You must also accept the loss in value. You thought the house was worth what you paid, took out a mortgage on that price, and now you want to complain because it didn't work out in your favor? If one loses money in the stock market or Vegas you don't get to walk away from what you owe just because it wasn't supposed to work out that way.
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Old 07-08-2011, 12:31 PM
 
13,053 posts, read 12,930,013 times
Reputation: 2618
Quote:
Originally Posted by stan4 View Post
It was meant tongue in cheek.
Putting someone in jail for debt is pointless.
*chuckle*

I was thinking as much, but responded to be sure.
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Old 07-08-2011, 12:38 PM
 
13,053 posts, read 12,930,013 times
Reputation: 2618
Quote:
Originally Posted by InsaneTraveler View Post
Morals can suck it at this point.

With the financial catastrophe that home owners are in today morality is seriously the last thing on their (and my) minds. People have to survive. If survival is contingent on leaving someone's much devalued home, then so be it.

But, by all means, stay in your home that is worth half the price you paid for it. I hope the outcome of doing so is not the destruction of any prospects for financial security in your life. But hey, even if it does, no worries because you still have your morality, right?

/sarcasm

I know what you mean, this is a dog eat dog world and when it comes down to it, the concept is those who are left standing are those who win.

Yeah, I get you, what we are concerned with is survival. NOTHING else matters, that means if you or anyone else gets in the way of me breathing, regardless if my situation is of my complete and own doing, I blast them away, I will kill them, I will destroy them, because all that matters is that I survive! Screw everyone else and the fact I may have given my word, this is about me, and if I said I would save you and it comes up to me making a decision that would worsen me for such an obligation, then well... you die arsehole! That is how I roll, that is my means, that is my direction! I will screw anyone and everyone who gets in my way to achieving what it is I want and I don't care if I make bad decisions, I will lash out and DESTROY all those who get in my way of survival!!

/sarcasm off

Don't be surprised if people come to hang you from a tree.
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Old 07-08-2011, 03:04 PM
 
8,598 posts, read 9,093,828 times
Reputation: 5934
Quote:
Originally Posted by tablemtn View Post
Well, yes. That's the whole point. But perhaps not in the way you mean.

To begin with, "walking away" from any mortgage isn't really a "moral" decision at all. "Walking away" isn't a legal term; the term is "breach." And a mortgage isn't a moral contract with your spouse or church or friends; it's a financial agreement between you (personified as an income-generation and payment system) and a financial institution (usually a bank of some sort, though in theory just about anyone or any business could extend you a residential mortgage).

In traditional business or financial relationships, breaches of contract happen all the time. They are so common that we have entire systems of law and courts just to manage them. In a mortgage contract, breach usually means that the bank gets the house back after a period of time. The bank knew this going into the agreement.

You can make an argument that if you have an agreement with a smaller, local credit union that goes out of its way to help local customers, that you ought to also apply the "golden rule," and go out of your way to make your payments.

Personally, I think it's a strong argument. I like the idea of contributing to a local credit union's performing loan percentage.

But when you get into the realm of the national banks, they don't even treat your mortgage as a singular "thing" - they devised bizarre and arcane ways to chop up your mortgage note into slices and to take out insurance and default swaps against it, and then to top it all off, they sucked down torrents of funds from Uncle Sam when times got tough, rather than throwing themselves upon the mercy of the "free market."

Moral relativism applies here more than ever. Think of it this way - how would the bank behave if it were in YOUR position?

The answer is simple - it would try to cheat you every way it could. And it would always do what is in its own financial interest.

So be it. Sometimes, consumers can do the same.
Brilliant.
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Old 07-08-2011, 04:30 PM
 
Location: Itinerant
8,278 posts, read 6,255,705 times
Reputation: 6681
You know... With all this talk of morality, have some of you guys bothered to look at who the losers are in a foreclosure, because if you do the math, unless there's some serious financial mismanagement it's not the banks.

For instance suppose you buy a home for $250k, you put 10% deposit, and you have a $225k principle loan, for 30 years, at say 4% (and lets be honest that's the opening rate on most 30 year ARMS at the height of the sub-prime stupidity).

Ok, great, after four years, you default, lets ignore the reasons why, just you do.

So you've been paying about $1200 per month to the mortgage lender. On a property valued BY THEM at $250k, that's roughly $57.5k they were paid in 48 months. Plus they repo the $250k asset. So they're running at assets of $307k, on a $225k initial investment, or 36% growth over four years. Compare that growth rate to $432k over 30 years well if we look simply that's 92% growth over 30 years, without compound it's 3% per year, so after 4 years we'd expect 12%, not 36%. So by paying off your mortgage over the entire loan timeline you're not helping out bank profits any.

Ok so it's possible the market fell, and the house is no longer worth $250k, so how much is it worth? If its more than $167k they made a profit. If not hey guess what, they can rent it out, or hold on to it, or do any other thing that people recommend homeowners do in these straits.

However, the morality claims are that the homeowner should just suck up any unrealized losses, because it's the moral thing to do. But the losses are ALL on the homeowner in the first place. They've already lost their $25k initial investment, plus any other investments they made before the defaulted like remodeling, new appliances, landscaping, etc.

<sarcasm>However lets not look at the financials behind the curtain, because you have a moral obligation to pay for a loan. </sacasm>

I'm also ignoring any risk mitigation that the mortgage lender performed on the back end that could up that gain from 36% to significantly higher. Indeed they could have actually taken out a derivative betting on your default.

So what about financial mismanagement...?
Lets look at average and median house prices...
Peak Median 2007 $247.9k
Peak Average 2007 $313.6k

Current Median (2010) $221.8k
Current Average (2010) $272.9k

Housing depreciate (median) is 11%
Housing depreciation (mean) is 14%

So for our $250k example the expected Maximum depreciation (using the mean depreciation) would be $217.5k plus change. For a Corporate bank profit of $74.5k in four years. That's assuming that there were no additional investments by the defaulting homeowner on the property. Now it is possible that the bank didn't make that money, they might have loaned $225k on a property worth $80k in Compton, that's not the homeowners problem, that's the banks problem for not mitigating the risk by not allowing the loan in the first place.

Oh and of course lets not forget the billions of tax payer dollars that were paid to the mortgage lenders, that were "too big to fail". How moral is that, there's nothing I've written here that's rocket science, and nothing here that is false, its math. The billions were to tide over the financial sector because of a cash flow problem, they had fixed assets that they couldn't move and many still do, hey you know what the credit consumer does at times like these...? Most people economize and/or take out a loan.
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Old 07-08-2011, 04:34 PM
 
12,999 posts, read 18,851,211 times
Reputation: 9236
Considering that over 20% of mortgages are underwater, the banks are lucky that so few homeowners are defaulting.
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