Would You Default on Your Mortgage?

Off Topic Politics & World Issues
1

“There is a growing sense of anger, a growing recognition that there is a double standard if it’s OK for financial institutions to look after themselves but not OK for homeowners,” said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.

Just how many are walking away isn’t clear. But some researchers are convinced that the numbers are growing. So-called strategic defaults accounted for about 35% of defaults by U.S. homeowners in December 2009, up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago’s Booth School of Business.

He and colleagues at Northwestern University’s Kellogg School of Management reached that conclusion by surveying homeowners about their attitudes and experiences with loan defaults.

They found that borrowers were more willing to walk away if someone they knew had done it, and that the greater a homeowner’s negative equity the more likely he or she was to default, even if the monthly payment was affordable."

http://www.lewrockwell.com/spl2/homeowners-strategic-defaults.html

2

Under the current system why would one not default?

Big Brother is here for ya, man.

3

^^^ this. People have no idea how many of these people, who got in over their heads, cashed out the equity in their home, and bought all sorts of goodies, only to knowingly default and not care.

4

The laws are built into the interest rates.

If my mortgage was upside down, hell yeah , I would walk.

I can garantuee you that the banks do not give a shit about you.

5

[quote]orion wrote:
I can garantuee you that the banks do not give a shit about you.[/quote]

Oh, they do but only insofar as every one of our pennies can be loaned back to us 10 times.

How could a system like this ever fail?

6

It seems that staying with your mortgage is setting yourself up as a patsy, to me.

7

Rewards for being a loser! It’s the latest trend.

8

[quote]Rockscar wrote:
Rewards for being a loser! It’s the latest trend.[/quote]

I do not see it that way.

You had a contract with the bank, and even by walking away you are facing exactly the penalty you both knew beforehand that you would.

You did NOT promise to pay it back, you promised to pay it back or give the house back.

So, let them have the house.

In the end, they are in the risk assessment business, not you, so let them bear the consequences when they get it wrong.

They sure as hell had no problems reaping the rewards when they got it right.

You could even go there and say:

Look, we both know that I could walk away. Reduce my debt or I will.

I dont know about the US, but in Austria banks even chain ballpoint pens to the desks and that is all you need to know about banks.

9

[quote]orion wrote:

[quote]Rockscar wrote:
Rewards for being a loser! It’s the latest trend.[/quote]

I do not see it that way.

You had a contract with the bank, and even by walking away you are facing exactly the penalty you both knew beforehand that you would.

You did NOT promise to pay it back, you promised to pay it back or give the house back.

So, let them have the house.

In the end, they are in the risk assessment business, not you, so let them bear the consequences when they get it wrong.

They sure as hell had no problems reaping the rewards when they got it right.

You could even go there and say:

Look, we both know that I could walk away. Reduce my debt or I will.

I dont know about the US, but in Austria banks even chain ballpoint pens to the desks and that is all you need to know about banks.

[/quote]

The deal goes both ways. I don’t think anyone signs a mortgage where they swear to pay back the loan, “scouts honor.”

10

Why is it that no recourse loans are so common in the US?

Are there laws that effectively force the banks to make their loans on these terms, or are the banks over there just collectively retarded in the way they write their loan contracts?

I would definitely hand the keys back to the bank if I had a no recourse loan with a balance 130% of the asset value. I don’t see anything remotely immoral about that.

11

Fuck both of those groups. They were riding high for a while when money was easily loaned and easily borrowed. Then the reality of careless financial planning hit and hit hard.

I have been looking for a house since this crash began. What I have found has been stunning. There are places that are only worth $80-$120K (for this region) with $200-300K worth of debt attached to them. What is stunning to me is the level of delusion that must have been engaged in for Anybody (lender or borrower) to believe that what they were trying to accomplish would actually work.

Who in their right mind would lend twice to three times the value of their collateral?

Just as importantly, who would be foolish enough to believe that a property that was overpriced when they bought it (and plenty of people knew this) would continue to be overpriced, and continue to rise in cost(not value) at an exponential rate for an indefinite period of time?

These assholes complaining about losing their “nest egg”, and being straddled with negative capital that has been forced upon them by some terrible and greedy lending institution were the same ones shining with hubris as they “pulled the trigger” on a property that wasn’t worth a shit when they bought it, and isn’t going to be when they lose it or commit to a “strategic default”. They are also the same assholes that were driving an Escalade to the grocery store, a Yukon to pick up the kids, and a Range Rover on the weekends, all of which were purchased with a home equity line of credit based on the Mcmansion that they “bought” under the pretense of an investment property. Not surprisingly, the idiots that did this (and there are a lot of them) must have lost track of the fact that they have indebted themselves enough for 3 lifetimes to a place that was supposed to be worth twice what they paid for it when they sell it in five years.

Well that five years has arrived, and the product of their their arrogance, stupidity, lack of foresight, and numerical illiteracy has come to fruition.

Strategic Default should be defined as- “Got my ass handed to me by my own arrogance and stupidity, and now I need another catch phrase to rationalize being an asshole in a different way.”.

12

You guys are way to emotional when it comes to risks and rewards.

There was a deal and both sides knew what they were going into.

I would have no problems whatsoever letting the bank take the fall, because that was the deal and the bank knew beforehand and risked it anyway.

Why should a small mortgage owner bail out the bank when it comes to his mortgage?

Even a mortgage owner who walks away ultimately keeps his contract and that is all what counts in the end.

13

[quote]orion wrote:
You guys are way to emotional when it comes to risks and rewards.

There was a deal and both sides knew what they were going into.

I would have no problems whatsoever letting the bank take the fall, because that was the deal and the bank knew beforehand and risked it anyway.

Why should a small mortgage owner bail out the bank when it comes to his mortgage?

Even a mortgage owner who walks away ultimately keeps his contract and that is all what counts in the end.

[/quote]

Maybe some are emotional about risk/reward, I am not though. If anything, I’m about as cold and calculated as a person could be.

What pisses me off is to see people whining about it and shirking responsibility. They weren’t complaining when they were living in houses that they couldn’t afford, driving vehicles that they shouldn’t have had, and for all intents and purposes- stealing a lifestyle that they weren’t able to earn.

A friend of mine is a bank manager. Three years ago he was offering me a ARM loan. As we discussed this casually (out of office, no paperwork) I told him straight forward- That won’t work. I don’t have or need an advanced math or business degree to know that the numbers we were discussing wouldn’t add up, or that the costs of housing simply could not continue to rise as they had. Nor would the interest rate that was being offered, which when combined with the deferred interest on top of the original payment plus interest accrued for the time period of the deferral, AND the increase in interest on the principal(cause adjustable rates do adjust) all I would be doing was paying him to take my house 3 years from now. I called it as I saw it- spun sugar. Sweet fluff that I was not going to buy.

The counter he presented was this- Refinance! When the deferral period comes up, we’ll refinance at a lower rate and different terms!

Mine was- “Who in their right mind is going to refinance me when my debt to income ratio is going to be so far out of whack that I will be on the verge of default? Whats more is that the value of the property cannot hold. There is going to be a crash, and when it happens, the people who are buying now are going to have property that cost a hell of a lot more than it is worth.”

Then came the silence. His best response was “Come on into my office. I’ll put it all down on paper and we’ll work it out.”.

I never set the appointment. There is no sense in working something out on paper that doesn’t make any sense in the first place.

His whole presentation during this conversation we had was what I refer to as the basic money pitch. The problem we have currently is that Millions of people bought it. They didn’t exercise their own diligence in checking to see how the numbers work out in the long run. They wanted stuff, and they wanted it “Now”.

I see the responsibility as 50/50. Banks do what banks do. It’s no surprise to me that it is historically known as one of the most dubious professions.

That doesn’t mean that the people who bought the bullshit, hook, line and sinker bear no responsibility.

14

[quote]SkyzykS wrote:

[quote]orion wrote:
You guys are way to emotional when it comes to risks and rewards.

There was a deal and both sides knew what they were going into.

I would have no problems whatsoever letting the bank take the fall, because that was the deal and the bank knew beforehand and risked it anyway.

Why should a small mortgage owner bail out the bank when it comes to his mortgage?

Even a mortgage owner who walks away ultimately keeps his contract and that is all what counts in the end.

[/quote]

Maybe some are emotional about risk/reward, I am not though. If anything, I’m about as cold and calculated as a person could be.

What pisses me off is to see people whining about it and shirking responsibility. They weren’t complaining when they were living in houses that they couldn’t afford, driving vehicles that they shouldn’t have had, and for all intents and purposes- stealing a lifestyle that they weren’t able to earn.

A friend of mine is a bank manager. Three years ago he was offering me a ARM loan. As we discussed this casually (out of office, no paperwork) I told him straight forward- That won’t work. I don’t have or need an advanced math or business degree to know that the numbers we were discussing wouldn’t add up, or that the costs of housing simply could not continue to rise as they had. Nor would the interest rate that was being offered, which when combined with the deferred interest on top of the original payment plus interest accrued for the time period of the deferral, AND the increase in interest on the principal(cause adjustable rates do adjust) all I would be doing was paying him to take my house 3 years from now. I called it as I saw it- spun sugar. Sweet fluff that I was not going to buy.

The counter he presented was this- Refinance! When the deferral period comes up, we’ll refinance at a lower rate and different terms!

Mine was- “Who in their right mind is going to refinance me when my debt to income ratio is going to be so far out of whack that I will be on the verge of default? Whats more is that the value of the property cannot hold. There is going to be a crash, and when it happens, the people who are buying now are going to have property that cost a hell of a lot more than it is worth.”

Then came the silence. His best response was “Come on into my office. I’ll put it all down on paper and we’ll work it out.”.

I never set the appointment. There is no sense in working something out on paper that doesn’t make any sense in the first place.

His whole presentation during this conversation we had was what I refer to as the basic money pitch. The problem we have currently is that Millions of people bought it. They didn’t exercise their own diligence in checking to see how the numbers work out in the long run. They wanted stuff, and they wanted it “Now”.

I see the responsibility as 50/50. Banks do what banks do. It’s no surprise to me that it is historically known as one of the most dubious professions.

That doesn’t mean that the people who bought the bullshit, hook, line and sinker bear no responsibility.

[/quote]

I understand your feelings and I see those people the same way you do.

However, they live in a society that coddles them from cradle to grave. Not the really poor in America but those who own most of these houses, the middle class. Those coddled people make coddled decisions.

I think some people think I am not serious when I claim that the free market creates social capital, a form of disciplin and mores that goes far beyond the effects of what religion religion and family can do, because it hurts like hell when you lose your life savings.

So ideally this crisis will teach some Americans something about life and how to deal with money that their grandchildren will still profit from.

Or they will get bailed out too and they will remain sheeple until the whole house comes down.

15

these people will also have slim to no chance of ever getting a loan for anything else in their lives

new edition says: New Edition - Cool It Now (Official Music Video) - YouTube

16

^not really true though I appreciate that glimpse of culture from my youth.

Credit comes and goes as economic conditions allow as long as the market is allowed to work. Hopefully they may be better prepared to handle the responsibility when they are deemed “credit worthy” again.

Banks, however, will not change their behavior as long as they know they have the full financial support of a central banking system.

17

And speaking of credit…hahahahahha…Bobby Brown!