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Being upside down is not a new phenomina, especially in coastal areas.
Markets took about a full decade to recover from the last local busts in California and the NYC tristate area. For the most part, the majority of homeowners, in this situation, sucked it up and stayed put, depite being unable to refinance because their homes would no longer appraise.
And no doubt about it, staying put, was not convenient for a lot of people but they did so because it was the right thing to do and they valued their credit.
This go around is different and some of those who find themselves in an upside-down situation persist in the belief that someone else should pay for their misfortune.
Sticking it to the bank is sticking it to the people.
Increasing proerty values and trading up is not a constitutional right.
Being upside down is not a new phenomina, especially in coastal areas.
Markets took about a full decade to recover from the last local busts in California and the NYC tristate area. For the most part, the majority of homeowners, in this situation, sucked it up and stayed put, depite being unable to refinance because their homes would no longer appraise.
And no doubt about it, staying put, was not convenient for a lot of people but they did so because it was the right thing to do and they valued their credit.
This go around is different and some of those who find themselves in an upside-down situation persist in the belief that someone else should pay for their misfortune.
Sticking it to the bank is sticking it to the people.
Increasing proerty values and trading up is not a constitutional right.
The loan contract states that you either keep up your payments or you will be foreclosed on. In most cases, the loan is secured only by the value of the home as most state laws are non-recourse so that is also part of the contract. Buyers are exercising the foreclosure option per the terms of the contract. There is nothing illegal, immoral, or unethical about it whatsoever. Business do it all the time and so should buyers when it makes financial sense to do so as long as the party fulfills all terms of the contract.
This go around is different and some of those who find themselves in an upside-down situation persist in the belief that someone else should pay for their misfortune.
Part of this is the magnitude of the downturn, both in percentages and real dollars. People who put very little down are now upside down hundreds of thousands of dollars in the worst cases. Walking away makes rational sense in that case - you sell your credit score to get rid of 3-5 years or more of your salary in debt.
I think another big difference this time is that lending wasn't quite so crazy in previous downturns. In the past, if a borrower put 20% down and ended up under water, they at least had the illusion that they were walking away from something they had sunk real money into. With the 0-3% down loans common during the current run-up, that illusion is gone and it's basically like breaking a lease - maybe lose the security deposit, but move on and be done with it instead of continuing to lose money.
And I say illusion because it's similar to the problem of sunk costs. Both people are equally under water. But having put in a significant sum at the start makes people feel like they have more to lose even if the math works out the same in the end, because it was "their" money that made up the loss instead of the lender's.
The loan contract states that you either keep up your payments or you will be foreclosed on. In most cases, the loan is secured only by the value of the home as most state laws are non-recourse so that is also part of the contract. Buyers are exercising the foreclosure option per the terms of the contract. There is nothing illegal, immoral, or unethical about it whatsoever. Business do it all the time and so should buyers when it makes financial sense to do so as long as the party fulfills all terms of the contract.
The promissory note says "I will pay you X dollars." Period. The fact that the lender has limited remedies in the event of a default does not mean that failing to pay is not defaulting on your obligation. And taking advantage of someone just because it is not against the law is exactly where ethics come in.
Using your logic, murdering someone isn't unethical. See, it says right there in the penal code that you can either refrain from murdering someone, or you will go to jail. Murderers are simply exercising the jail option per the penal code. Jeez.
Markets took about a full decade to recover from the last local busts in California and the NYC tristate area. For the most part, the majority of homeowners, in this situation, sucked it up and stayed put, depite being unable to refinance because their homes would no longer appraise.
What does this mean? It always appraises for SOMETHING .....
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This go around is different and some of those who find themselves in an upside-down situation persist in the belief that someone else should pay for their misfortune.
Sticking it to the bank is sticking it to the people.
While I mostly agree with this statement, it should also be mentioned that there are many, many lenders, LOs, appraisers and real estate agents/brokers who played hard and fast with values, in other words, inflated values. And the lenders knew it, and considered any subsequent foreclosures cost of doing business.
This has happened more than people think. If you think this has happened to you have your loan package, including the appraisal, audited by an attorney.
The promissory note says "I will pay you X dollars." Period. The fact that the lender has limited remedies in the event of a default does not mean that failing to pay is not defaulting on your obligation. And taking advantage of someone just because it is not against the law is exactly where ethics come in.
I certainly agree that it is defaulting on your obligations. I do not think it is unethical or taking advantage of someone because the remedies were known well in advance by the lenders. They agreed to those terms. Banks lent knowing full well that some people can't pay it back. That's the cost of business. In fact many banks lent knowing most people couldn't pay but did so because they thought they could forever pass off the toxic loans to others. So I'm not that sympathetic to them.
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Using your logic, murdering someone isn't unethical. See, it says right there in the penal code that you can either refrain from murdering someone, or you will go to jail. Murderers are simply exercising the jail option per the penal code. Jeez.
I hardly think you can equate murder with walking away from financial obligations and enduring the resulting penalty which is done all the time by businesses. If businesses and corporations do it all the time, I see it as only fair that individuals be able to do the same.
Last edited by sonoranrat; 01-13-2009 at 01:24 PM..
I certainly agree that it is defaulting on your obligations. I do not think it is unethical or taking advantage of someone because the remedies were known well in advance by the lenders. They agreed to those terms. Banks lend knowing full well that some people can't pay it back. In fact many banks knew this but lent anyway because they thought they could forever pass off the toxic loans to others. So I'm not that sympathetic to them.
I hardly think you can equate murder with walking away from financial obligations and enduring the resulting penalty which is done all the time by businesses. If businesses and corporations do it all the time, I see it as only fair that individuals be able to do the same.
Oh, the ole two wrongs make a right argument. I gotcha.
But you didn't give a reason why you think that murder is unethical but defaulting on a loan isn't. I'm curious what your reasoning is. All you said was that the borrowers and lenders know beforehand what the remedies are, and therefore it is ethical to take the bank's money, promise to pay it back, but then refuse to live up to your obligation.
We all know what the penalties for murder are too, so you still haven't made a distinction between the two that leads to one being ethical and one being unethical.
Oh, the ole two wrongs make a right argument. I gotcha.
It's has nothing to do with two wrongs making a right. It has to do with whether defaulting on obligations and and taking on the penalties is wrong at all. The fact that it is done all the time by businesses and corporations (including many of these banks themselves) tells me either that it is not or that if it is that is so routinely done that it no longer should be considered as unethical.
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But you didn't give a reason why you think that murder is unethical but defaulting on a loan isn't. I'm curious what your reasoning is. All you said was that the borrowers and lenders know beforehand what the remedies are, and therefore it is ethical to take the bank's money, promise to pay it back, but then refuse to live up to your obligation.
We all know what the penalties for murder are too, so you still haven't made a distinction between the two that leads to one being ethical and one being unethical.
The difference is that murder and the penalty are not bilateral contracts entered into between the murdering party and the deceased party and mutually agreed upon by those two parties. If I am a victim of murder I never entered into a contract with the murderer where I agree to be murdered as long as they go to prison or are executed. Instead it is a matter of criminal enforcement and a crime against the state and is prosecuted as such. The sentencing of a criminal is NOT A REMEDY for the victim but a consequence of you committing a crime against the state.
It's has nothing to do with two wrongs making a right. It has to do with whether defaulting on obligations and and taking on the penalties is wrong at all. The fact that it is done all the time by businesses and corporations (including many of these banks themselves) tells me either that it is not or that even if it is, individuals should not adhere to said "ethics" when others routinely do not.
That is exactly what "two wrongs makes a right" means. "Even if it is unethical, it's ok for individuals to do it since businesses do it."
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Originally Posted by sonoranrat
The difference is that murder and the penalty are not bilateral contracts entered into between the murdering party and the deceased party and mutually agreed upon by those two parties. If I am a victim of murder I never entered into a contract with the murderer where I agree to be murdered as long as they go to prison or are executed. Instead it is a matter of criminal enforcement and a crime against the state and is prosecuted as such. The sentencing of a criminal is NOT A REMEDY for the victim but a consequence of you committing a crime against the state.
Just because you point out a difference between the two doesn't mean that it justifies one being considered ethical and one being considered unethical. The difference you point out has to have some effect on the question of ethics.
By living in this country, you agree to abide by the laws. You also agree that the penalties for breaking the law are only those penalties provided for by the law. So you have agreed to accept both the laws and the penalties, whether or not you signed a contract.
Your rationalization would lead to the conclusion that there are no ethical considerations in a contractual relationship. And it's fine if you believe that. But I don't. Just because you have the right to do something doesn't mean that it's ethical to exercise that right.
I believe I have a solution to attaining housing equalibrium. My husband and I are upside down on our house, however, we are creditworthy and are able to make payments. Our dilema is, is it wise to continue to make payments on a house that will probably never recover the value we are paying for? This is the question that many upside-down homeowners are asking and it is predicted that these people will be the next wave of foreclosures, but herein lies the answer.
If we were allowed to "trade-up" to a bank owned home with a current market value equal to our existing mortgage, we would once again have equitable value. If this was available to all upside-down home owners, most foreclosures would be eliminated in short order. The bank would own my existing home instead of the more expensive home, which would then be available for someone else to "trade-up" their mortgage. Banks would also get current market value vs foreclosure prices, thus establishing and stabilizing actual market values rather than guessing values at a time of the pricing free-fall that we are currently experiencing, the result being ultimately improving liquidity.
I have sent a detailed proposal to many people in the housing industry (HUD, Federal Reserve, etc) and have gotten very positive response. I have been told that this will be presented by HUD along with all the other ideas for solving the housing industry crisis to Washington.
I am a semi-retired real estate broker and I have the detailed proposal on a page in my website if you are interested in getting a better idea of how it would work: Resolving the Housing Crisis: A Proposal. I am trying to get as many people as possible to send along this proposal to the appropriate agencies/people in order for them to pay attention to it. It would also be good to help with an emailing campaign to spread the word. I really think this could work.
I encourage you to go to this webpage and read it over. It is my business website, however, this particular page is not a solicitation for business, it was just easier for me to put it here rather than creating a whole new webpage.
At least, let me know what you think through this forum.
To be short...you don't like the value that your house has lost and you want to let go of your house and buy a cheaper home!
What if we all would start to do that?
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