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Say I owe $375,000 on my mortgage and my house has a market value today of $350,000. I find a bank-owned home (by the same bank as my home) in foreclosure that the bank has priced to sell, and are willing to accept $300,000. I would "offer" through the trade-up $375,000 for their house, and they would get my house valued at $350,000. They would get from me an additional $75,000 above what they were willing to accept, and they would take my house valued at $350,000. Since my house was not a foreclosure issue, it could be sold at market value or also offered for trade-up. This would net the bank $50,000 plus any fees and points they want to incur upon me. Additionally, they would be able to keep an A+ borrower.
Granted, originally I was pondering how we could get out of this situation, but the more I thought about it, the more I realized that many upside-down home owners are stable borrowers. As they say, necessity is the mother of invention.
How do the banks lose if 1.) they can maintain A+ borrowers rather than allowing them to default, 2.) they can get current market value for their foreclosures rather than the substantially discounted foreclosure prices, 3.) they will end up holding a house that has a market value less than their original, thus lowering property taxes and insurance costs for them, as well as most likely these houses will have been well maintained, 4.) they could probably charge fees and points for borrowers to participate, 5.) they could get foreclosures off their books rather quickly. Need I go on? On a C-Span program where the Federal Reserve was discussing the housing crisis, they were predicting that the next round of foreclosures were going to be from people who are upside-down, but not necessarily financially distressed. Why wouldn't it be in the best interest of all to head off this situation before it happens? What is wrong with a win-win situation? I am as much a victim of the antics of the lending institution as those who have defaulted on their loans, and I have been making my house payments as I have promised. We relied on these lenders to be experts and not do business in the underhanded way that brought about this crisis. We relied on them to lend on valid housing prices as verified by their appraisers. We are not at fault here, but we are still having to pay the price for their corruption, just as much as those who have defaulted. By the way, either way, we will not default on our house loan, we can afford it, but many other people cannot justify making payments on basically a portion of their house value that is simply "air", and I don't hold that against them. Sure this plan would benefit me, but it would also benefit banks and help resolve the housing crisis, which is the bigger issue.
I understand that the government is trying to keep the bond markets alive and banks from collapsing, the problem is, there has been no accountability as to how this bailout money is being used. My proposal is one way that banks can be subsidized for implementing this plan that would not only stabilize market values, but it would ultimately reduce costs to the banks and stem the next round of foreclosures. It is an economic fact that falling market values cause more foreclosures, and more foreclosures cause falling prices. The goal here is to mitigate falling prices, foreclosures, and allow banks to conduct business in a more profitable way than they are now.
I don't believe that upside-down home owners are the "original" issue, but they certainly can be part of the solution. Most of the Bank/Gov't programs right now for borrowers are geared to people who have defaulted on their loans. These people, unfortunately, are no longer creditworthy and represent huge risks as borrowers now. People who are financially solvent and are able to make payments obviously are borrowers the lenders would like to keep. Defaulted borrowers cannot resolve the housing crisis, but they cost lenders and the government money through programs designed to help them. I'm not saying they shouldn't be helped, I am just saying that they have nothing to offer toward resolving the larger issue.
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."
The point is that since this is routinely done by corporations and businesses and rarely is it seen as being "unethical" rather than a simple business decision, that this approach applies equally to individuals as well. You happen to believe that is unethical to withdraw from contractual obligations even if you subject yourselves to all the penalties that result from doing so. But I do not necessarily believe that this is always true although it may sometimes be true.
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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.
Whether an action is ethical or moral is entirely subjective. There's really no way to debate this because it really comes down to opinion not facts. But as far as facts goes regardless of whether it is ethical to walk away from homes or not people are doing it because it makes financial sense to do so just like when businesses and corporations do so. And for many of these people they do not feel it is unethical despite what you think.
First, try not to get frustrated. When you find a buyer and you see that they do not qualify for a bank loan because of the economy problems we have, then try to do temporary seller financing. After which I will purchase your mortgage note and give you a lump some of cash to get it off your hands.
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."
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.
Willy you are going to give the sophists a bad name.
Any time you drives similes between murder and walking away from a mortgage you are engaged in sophistry.
And a lawyer should be ashamed of playing such games.
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.
Without taking a stand on the issue--this is funny. I break out laughing when I read it.
Willy you are going to give the sophists a bad name.
Any time you drives similes between murder and walking away from a mortgage you are engaged in sophistry.
And a lawyer should be ashamed of playing such games.
Using extreme examples is very often the most obvious way to show someone that their logic does not make sense. If you have trouble understanding that even very different things can have common denominators, I don't think splainin it to you is a good use of time. But if I'm looking for advice on rhetorical persuasion, I'm sure an engineer will not be my first call.
You happen to believe that is unethical to withdraw from contractual obligations even if you subject yourselves to all the penalties that result from doing so. But I do not necessarily believe that this is always true although it may sometimes be true.
Don't you mean to lie and break your promise. I love how you try to sugar coat it by calling it "withdrawing from contractual obligations." It almost sounds like it was bargained for by the lender when, in fact, it is a limitation imposed by law in most cases and only agreed to by lenders because they have no choice if they want to makes loans in that state. Which completely undercuts your distinction between violating criminal laws and breaking contractual obligations. But the bigger problem with your reasoning is that you are confusing the payment obligation and the remedy. The remedy has no impact on whether the action is ethical.
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Originally Posted by sonoranrat
Whether an action is ethical or moral is entirely subjective. There's really no way to debate this because it really comes down to opinion not facts. But as far as facts goes regardless of whether it is ethical to walk away from homes or not people are doing it because it makes financial sense to do so just like when businesses and corporations do so. And for many of these people they do not feel it is unethical despite what you think.
There certainly is a way to debate it, which is to discuss how someone formed their opinion. And when it is revealed that the opinion is based on faulty reasoning, and the opinion holder sticks to the opinion nonetheless, it shows that the person is rationalizing instead of reasoning.
Say I owe $375,000 on my mortgage and my house has a market value today of $350,000. I find a bank-owned home (by the same bank as my home) in foreclosure that the bank has priced to sell, and are willing to accept $300,000. I would "offer" through the trade-up $375,000 for their house, and they would get my house valued at $350,000. They would get from me an additional $75,000 above what they were willing to accept, and they would take my house valued at $350,000. Since my house was not a foreclosure issue, it could be sold at market value or also offered for trade-up.
This presumes that there is a magical increase in home value simply by converting a foreclosure home into a non-foreclosure home, otherwise you would never trade a $300,000 (presumably depressed value) home for a $350,000 home. What makes you think that the value would increase as soon as the home is deeded to you? And even assuming that it does work that way, as soon as you transfer your home to the bank, the same magic would reduce its value to well below the $350,000 claimed value.
You also say that you "offer" the bank $375,000. Um, where is that money coming from? You are already $375,000 in the hole, so you don't have anything to offer the bank.
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Originally Posted by ccmusica
This would net the bank $50,000 plus any fees and points they want to incur upon me. Additionally, they would be able to keep an A+ borrower.
How can a borrower who is blackmailing the bank into trading homes with him be considered an A+ borrower? That is the last borrower that the bank wants to keep.
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Originally Posted by ccmusica
How do the banks lose if 1.) they can maintain A+ borrowers rather than allowing them to default, 2.) they can get current market value for their foreclosures rather than the substantially discounted foreclosure prices, 3.) they will end up holding a house that has a market value less than their original, thus lowering property taxes and insurance costs for them, as well as most likely these houses will have been well maintained, 4.) they could probably charge fees and points for borrowers to participate, 5.) they could get foreclosures off their books rather quickly. Need I go on?
1) those are not A+ borrowers. 2) there is no magic that makes one bank-owned property worth less than another bank-owned property just because the former was acquired through foreclosure and the latter acquired through a swap. 3) interesting argument and, while true, completely overlooks that the market value is what determines how much they will realize in a sale... lower market value = larger loss for the bank. 4) Not enough fees to make up for the loss they just incurred by "trading down" in assets. 5) Only to be replaced by another property of lower value. You see, it is not a problem to have the foreclosed home on their books (other than taxes and insurance, which is a legitimate point).
The real problem is having the outstanding debt - and this does nothing to address that. By your logic, the bank should just give away the foreclosed homes to "get them off their books.".
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Originally Posted by ccmusica
On a C-Span program where the Federal Reserve was discussing the housing crisis, they were predicting that the next round of foreclosures were going to be from people who are upside-down, but not necessarily financially distressed. Why wouldn't it be in the best interest of all to head off this situation before it happens? What is wrong with a win-win situation? I am as much a victim of the antics of the lending institution as those who have defaulted on their loans, and I have been making my house payments as I have promised. We relied on these lenders to be experts and not do business in the underhanded way that brought about this crisis. We relied on them to lend on valid housing prices as verified by their appraisers. We are not at fault here, but we are still having to pay the price for their corruption, just as much as those who have defaulted. By the way, either way, we will not default on our house loan, we can afford it, but many other people cannot justify making payments on basically a portion of their house value that is simply "air", and I don't hold that against them. Sure this plan would benefit me, but it would also benefit banks and help resolve the housing crisis, which is the bigger issue.
BS. You misjudged the value of your home as much as the bank did. You are not in trouble because of mortgage payments that are spiraling out of control due to some "underhanded" action of the bank. You just made a bad call on your purchase and you're looking for a rescue. And you want to blame the banks. It's not a win-win situation, and it'll never happen.
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Originally Posted by ccmusica
I don't believe that upside-down home owners are the "original" issue, but they certainly can be part of the solution. Most of the Bank/Gov't programs right now for borrowers are geared to people who have defaulted on their loans. These people, unfortunately, are no longer creditworthy and represent huge risks as borrowers now. People who are financially solvent and are able to make payments obviously are borrowers the lenders would like to keep. Defaulted borrowers cannot resolve the housing crisis, but they cost lenders and the government money through programs designed to help them. I'm not saying they shouldn't be helped, I am just saying that they have nothing to offer toward resolving the larger issue.
People who want to blackmail lenders by threatening to stop paying unless they get something for free are not borrowers that any lender would want to keep. If I asked you for a loan and told you that in a few years I would threaten to stop paying you unless you agreed to give me your house, would you give me a loan? Is that the kind of borrower you would want?
I hear so much about the mortgage crisis, foreclosures and potential bailouts. But, I'm wondering are there any other homeowners out there who are bailing themselves out?
We bought our first home 2 1/2 years ago in a nice (yes, really) Cleveland suburb, at the top of the market as it turns out. Prices here didn't seem too inflated, and we wanted to be in a home before our first child was born. Yes, I was nesting! We bought well within our price range, probably half what we could have qualified for. Now, needing to be closer to my dad as he gets older, we've decided to move. We put $25,000 into a finished basement and are now listed $10,000 below what we paid. We've done everything possible for our home to show like a model home, but have had no offers. It looks like we'll have to bring at least $20,000 to close, if we ever even get an offer. We will have to empty out all our savings, or maybe take out a loan to pay off our mortgage. And we can thank greedy/irresponsible lenders and buyers for this decline in home values. The responsible people are, yet again, stuck paying for the mistakes of others. When are we going to reward responsibility instead of penalizing it? Rant, rant, ,rant...
what do you think should be done about it?
the problem lies with this illusion of safety that the govt provides. the reality is that there isn't a safe place to put your savings. not in 401k's, not in mutual funds, real estate, banks, your mattress, gold, the market, treasuries etc. none of it is 100% safe and all of it is essentially speculative. the government is trying to address certain aspects which will have adverse effects later on.
i am sorry that you believe that you are in your situation as a direct result of mortgage lenders, banks, realtors or anyone else. this however couldn't be further from the truth. govt interference in the market is 100% to blame.
Don't you mean to lie and break your promise. I love how you try to sugar coat it by calling it "withdrawing from contractual obligations." It almost sounds like it was bargained for by the lender when, in fact, it is a limitation imposed by law in most cases and only agreed to by lenders because they have no choice if they want to makes loans in that state. Which completely undercuts your distinction between violating criminal laws and breaking contractual obligations. But the bigger problem with your reasoning is that you are confusing the payment obligation and the remedy. The remedy has no impact on whether the action is ethical.
It most certainly was bargained by the lender because lenders know that many people do not repay loans, usually because they are unable to although there are also some people no longer unwilling to. That is the whole reason for having mortgages secured by collateral and a partial down payment. That lenders this time around chose not to due their due diligence this time around is partly their fault.
Equating withdrawing from mortgages to murder is simply sophistry to make the two the same. It is completely ludicrous. But keep saying it is equivalent all you want.
If you stop paying your mortgage and suffer foreclosure, you are not walking away from your contract. In fact, you are honoring your contract by complying precisely with the terms spelled out in advance. You and the bank AGREED IN ADVANCE that if you did not make your payments, the bank could take your collateral, and that was the extent of the recovery the bank could receive. The bank even charged you extra money to cover the possibility that you might do this–you’ve ALREADY PAID FOR THIS POSSIBILITY. Is there someone out there who actually thinks the bank didn’t understand the terms of the mortgage, or that the bank was in some way coerced (even informally) to sign the mortgage?
I should also point out that the vast majority of people breaking their mortgage obligations are people that actually can't keep up with payments or are only barely able to. There aren't many people who can easily make payments and like where they are that are simply deciding to mail in the keys just because they are upside down.
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There certainly is a way to debate it, which is to discuss how someone formed their opinion. And when it is revealed that the opinion is based on faulty reasoning, and the opinion holder sticks to the opinion nonetheless, it shows that the person is rationalizing instead of reasoning.
Whether or not breaking contractual obligations is "ethical" is purely subjective pure and simple. You think it is, I do not. To me, it is purely a business matter.
It is also silly to expect individuals to adhere to your standard of so-called "ethics" when it’s quite certain that the lending institutions (businesses) never had ethics in mind when they made the decision to stop verifying incomes, pressure appraisers to hit the numbers, allow 0% down payments, implied that borrowers could easily refinance their toxic loans, made all matter of junk and fraudaulent loans, etc.
Banks did what they felt was the right thing to do economically for them at the time (because they thought they could keep passing off the risk via securitization forever). Now individuals are doing the same thing (walking away from mortgages and taking the credit hit) because they feel it is the right thing to do financially. If banks don't like it they can charge higher interest rates to cover the risk or ask for higher down payments or do a better job of appraising collateral.
Welcome to the new ethics (which is actually the old ethics that has been operating for quite some time) where both businesses and corporations and individuals do what is in their best interests as long as they accept full penalties and don't break the law.
Last edited by sonoranrat; 01-14-2009 at 12:32 PM..
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