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Old 06-13-2008, 11:24 AM
 
2,197 posts, read 7,371,721 times
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Quote:
Originally Posted by ViewFromThePeak View Post
However, you can walk away from a call option. The contract on owning a home is similar to a call option, with your credit score being the only premium placed on the contract.
I see your point, but you're adding pears to those apples and oranges. The average investor doesn't even know what a call option is and fewer actually trade them.

My point is that we should either bail out everybody or nobody. Lots of people have losses, selective and preferential treatment isn't fair and both are tinkering with a free market economy. Although does anybody really think we have that?
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Old 06-13-2008, 11:25 AM
 
2,197 posts, read 7,371,721 times
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Quote:
Originally Posted by AliceT View Post
I beg to differ.
Okay. You don't even have to beg.
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Old 06-13-2008, 11:27 AM
 
151 posts, read 525,632 times
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Quote:
Originally Posted by kevcrawford View Post
It's business, but it's also ethics to pay what you agreed to. You only lose money if you sell.

What happens if we were able to walk away from every investment we had that showed a little downturn?
We are able to. Do you think a business stays in a neighborhood when business is bad, just because it is the "right" thing to do for the community? Why should individuals be expected to? Like the other poster said, the contract said pay the mortgage or forfeit the property. They chose the latter. Ethics have no direct role in free markets, that is why we have regulations.
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Old 06-13-2008, 11:41 AM
 
151 posts, read 525,632 times
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Quote:
Originally Posted by leavingbyron View Post
It's not business, it's irresponsibility. That's why they should never be allowed a home mortgage again. Ever.
Not that I disagree with you, but if we applied this standard to the business world, there would be a hell of a lot former business owners asking "Would you like fries, that?" I have two people in my family alone who "walked" away from businesses, and the debts they incurred, via bankruptcy, not once but twice! Now both of them own new businesses, live in million dollar homes and would probably be the first to scream about unethical politicians who raise their taxes. You can say my examples are merely anecdotal, but it is naive to believe this is not how our economy works.
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Old 06-13-2008, 12:03 PM
 
151 posts, read 525,632 times
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Quote:
Originally Posted by leavingbyron View Post
Oh yeah... And the bank is jumping from the frying pan into the fire by letting these people BUY A NEW HOUSE knowing full well the borrower is planning to walk from their old one!
How is that EVEN possible?
Because the bank is betting that they will make money off the deal. You could say it is a stupid bet, but they could care less about the ethics of the borrowers, only the likelyhood of them paying their mortgage this time around. It is possible because there is no regulation to prevent it.
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Old 06-13-2008, 12:39 PM
 
3,763 posts, read 12,497,812 times
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The whole point of collateralized loans is that the loan is backed by the value of the home. If you can no longer afford it (lost a job, health emergency) and you had to walk away from it - the bank was protected because it had the House. And, of course, you were responsible for taxes on any amount that was "forgiven".

If its okay for people to walk away in emergencies, its okay for them to walk away in non-emergencies. Are judgemental tendencies may say "but that was a commitment" - but honestly, no, it wasn't - it was an agreement backed by a real asset. And part of that agreement was that if you did not make your payments, the bank would get the property back.

It doesn't say in your mortgage contract "YOU MUST LIVE HERE AND MAKE PAYMENTS NO MATTER WHAT. THERE IS NO OUT. YOU WILL DIE HERE IF YOU CANNOT SELLL IT. MWAHAHAHAHAHHA"

They'd never be able to enforce that. So every loan is in affect a bargain - the bank is supposed to be charging you the correct amount of interest to make profit and cover the loss if you walked away. However now, the numbers are all out of whack. That does not in fact mean that the deal is wrong - it just means temporarily it may be better for the buyers to walk away than it is for the bank.

Lets say I borrowed $150K to buy an apartment in NYC in 1988 (when things were crappy there). I decide that I don't want to keep paying on it - I have better things to do with $700/month. The bank gets the apartment. It is now worth $675K. Plus, they got 20 years of my payments!!!

That's CRAP! But - its fair, because that's what the deal says. I stop paying, you get the property. The flipside to that is, if I want to keep the property I have to keep paying. If I NO LONGER WANT to keep the property - why pay?

I wish people would have thought longer about the ARMS, and would have prepared themselves better for home ownership. But, they didn't - and there's nothing wrong with them handing it back to the bank. You may not want to lend them any money in the future, you may not even want to be friends with them. But what they're doing is perfectly OKAY, even if you don't like it from a moral standpoint.

In the end, its just business. Nothing personal. That ultimately is what free market capitalism is about. I'm sorry if my decision effects your family (lower property values, higher interest rates) but I have to look out for MY family, because no one else is going to. So if you get caught in the process.. too bad.

That said. I was raised to honor my obligations, and I have and will continue to do so - but I don't think blaming or getting angry at the people who don't will do anyone any good. Its just a different choice.
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Old 06-13-2008, 01:02 PM
 
Location: DFW
40,922 posts, read 48,877,037 times
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Quote:
The contract on owning a home is similar to a call option, with your credit score being the only premium placed on the contract.
That's why lenders should have prudent lending practices that actually require a down payment on a home to get a loan.
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Old 06-13-2008, 01:05 PM
 
Location: Halfway between Number 4 Privet Drive and Forks, WA
1,516 posts, read 4,581,202 times
Reputation: 677
Quote:
Originally Posted by Briolat21 View Post
The whole point of collateralized loans is that the loan is backed by the value of the home. If you can no longer afford it (lost a job, health emergency) and you had to walk away from it - the bank was protected because it had the House. And, of course, you were responsible for taxes on any amount that was "forgiven".

If its okay for people to walk away in emergencies, its okay for them to walk away in non-emergencies. Are judgemental tendencies may say "but that was a commitment" - but honestly, no, it wasn't - it was an agreement backed by a real asset. And part of that agreement was that if you did not make your payments, the bank would get the property back.

It doesn't say in your mortgage contract "YOU MUST LIVE HERE AND MAKE PAYMENTS NO MATTER WHAT. THERE IS NO OUT. YOU WILL DIE HERE IF YOU CANNOT SELLL IT. MWAHAHAHAHAHHA"

They'd never be able to enforce that. So every loan is in affect a bargain - the bank is supposed to be charging you the correct amount of interest to make profit and cover the loss if you walked away. However now, the numbers are all out of whack. That does not in fact mean that the deal is wrong - it just means temporarily it may be better for the buyers to walk away than it is for the bank.

Lets say I borrowed $150K to buy an apartment in NYC in 1988 (when things were crappy there). I decide that I don't want to keep paying on it - I have better things to do with $700/month. The bank gets the apartment. It is now worth $675K. Plus, they got 20 years of my payments!!!

That's CRAP! But - its fair, because that's what the deal says. I stop paying, you get the property. The flipside to that is, if I want to keep the property I have to keep paying. If I NO LONGER WANT to keep the property - why pay?

I wish people would have thought longer about the ARMS, and would have prepared themselves better for home ownership. But, they didn't - and there's nothing wrong with them handing it back to the bank. You may not want to lend them any money in the future, you may not even want to be friends with them. But what they're doing is perfectly OKAY, even if you don't like it from a moral standpoint.

In the end, its just business. Nothing personal. That ultimately is what free market capitalism is about. I'm sorry if my decision effects your family (lower property values, higher interest rates) but I have to look out for MY family, because no one else is going to. So if you get caught in the process.. too bad.

That said. I was raised to honor my obligations, and I have and will continue to do so - but I don't think blaming or getting angry at the people who don't will do anyone any good. Its just a different choice.
I think we all understand this. We all understand how mortgages and the foreclosure process works, BUT...
what upsets me, is that those people in the article, were BUYING new homes (yes, getting NEW mortgages) and walking away from their old home. And the bank(s) KNEW it.
Is that RIGHT to you?
Hell, no it isn't right.

BTW, the banks don't care if they go into foreclosure. Some of their losses will be reimbursed when they file the PMI claim, I'm sure. However, when Bank B knowingly gives someone a loan for another home when they know that person is about to default on their old loan, that is Bank B trying to take from Bank A, which is wrong also.

It's like a game of who-can-screw-who the fastest. And the slack homeowner that probably had no business buying the first house is getting a new home (at a reduced price) they shouldn't even be qualified for.
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Old 06-13-2008, 01:57 PM
 
151 posts, read 525,632 times
Reputation: 51
In the end, its just business. Nothing personal. That ultimately is what free market capitalism is about. I'm sorry if my decision effects your family (lower property values, higher interest rates) but I have to look out for MY family, because no one else is going to. So if you get caught in the process.. too bad. /Quote/

Briolat is correct. Free market capitalism, pure or as it is really is in the US, makes no distinction between right and wrong. Why is that so hard for people to understand?
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Old 06-13-2008, 02:26 PM
 
2,197 posts, read 7,371,721 times
Reputation: 1702
So does this "It's just business, nothing personal" cop-out work on car loans, credit card debt, appliance and electronic purchases and bad investments? Is every signed contract on an elective payment schedule that we're free to ignore at our discretion? Because, wow, this is like a return to childhood, where there were no responsibilities and somebody else paid for everything! I can certainly see the appeal; I just don't see how it's gonna work in the real world that those of us without pharmaceuticals have to live in.

I'm not debating ethics or morals; I'm talking bottom line functionality. I'm sure those of you who are heartily endorsing this mass exodus have thought it through and I would like to understand how you think the endgame is going to be favorable. If we all walk away from everything we no longer want to deal with, who's going to cover our obligations? Who's going to account for the megatrillions of debt we're all washing our hands of? The banks? What happens when they go under? The taxpayers? They're already hurting and in position to bear the burden. Domestic investors? Foreign investors? Not likely. Everybody's wise to that clever bundling trick now. So how is our globally intertwined financial system going to soldier on when everybody pulls out the underpinnings? That might be just business, but it will definitely be personal.
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