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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.
I have to spread it around before I can rep you, again.
Austin-Willy, somehow you are missing the point. My intentions with this are not entirely selfish. This is a good plan that helps banks get foreclosures off their books without creating more, while mitigating losses.
You appear to be terribly angry at homeowners. I do agree that there have been some buyers that knew full well what kinds of loans they were getting and were hedging their bets, and those are now losing their homes, but most buyers, being unsophistocated, were told that they qualified for this or that loan product. Should they not have trusted their banker to do right by them? Afterall, who are the professionals here? We rely on professionals because we don't know how to do it ourselves. Homebuyers did not do anything illegal.
This housing crisis is not the result of the normal wax and wane of market based industries, it was entirely created and facilitated by lending institutions and their practices intended for maximing profits at any cost. They need to take responsibility for selling outrageously risky loan products which subsequently drove housing prices up, and now has all come crumbling down, and everyone is hurt by it. If it weren't for all the consumers who potentially could be hurt worse than they already have been, I would say let the banks go under. My tax dollars now are going to bail out their unscrupulous behavior.
98% of all the loans issued were legal banking products that the banks promoted heavily (fixed-adjustables, negative-amortization, low-credit scores), even though they would be terribly risky. Banks then bundled these loan products and quickly sold them with empty guarantees to other banking institutions (they didn't call it insurance because the insurance industry requires enough money to back up insurance policies, so they came up with another name, "swap" which had guarantees on paper but nothing to back it up). When homeowners started defaulting on their loans because the adjustables started to go up, everyone was hung out to dry (sorry for the little history lesson here). This practice was one of the factors that led to the depression and was outlawed shortly thereafter. Somewhere along the line here in the last decade of corporate greed it was reinstated under a different name and here we are again, scrambling to correct the worst economic crisis since the depression before it entirely implodes.
-First of all, I am not blackmailing the bank. I will be making my house payments as promised either way. This is just another way of looking at coming up with solutions. My husband and I do not need to move, we love our house, and we have plenty of income to support it, but I, like many others would not pass up this opportunity if the banking industry adopted it, thus quickly getting foreclosures off the books so that the housing market could become normal once again as well as providing me equitable value for my loan once again.
-Secondly, the banks are fire-saling REOs and forcing market values down. This has been catastrophic for homeowners and has done nothing but continue to create more foreclosures, but they don't know what else to do.
-Thirdly, when we took out our loan for this house, it was appraised at purchase price, which was below market value at that time. At that time it was a good buy. You have to realize that at the peak of the market, sellers were not going to grossly discount their prices in anticipation of this housing crisis. We made a good deal with motivated sellers and our loan was/is at a fixed rate for 30 years at the prevailing rate at that time. We ARE A+ borrowers.
What you don't realize is that the banks ARE just giving "away the foreclosed homes to 'get them off their books.'" With my plan, the they would get more for the REO than they would get through a foreclosure sale, which would offset the lower value of the "buyer's" house. They would have a loan of $375,000 (remember, banks make money on loans) on a REO house they would have only gotten $300,000 (or less) through a foreclosure sale. Net gain to the bank, $75,000 and one foreclosure off the books (by the way, most banks are requiring that buyers for their REOs qualify with them, and many of these banks are carrying the new loan from a foreclosure sale-remember, banks make their money from loans). So now they inherit a house worth $350,000 in today's market that is in good shape. Even if they sold it for $300,000, they still have a net gain of $25,000. Even if they sold it for $275,000, they still break even and have one less foreclosure on the books. If they allowed another "trade-up" into that house, they would again be ahead. They will NOT have lost money, and in most circumstances will have made more than if they sold the REO through a foreclosure sale.
I think that the most logical way of thinking about this would be to remove the layers of emotions and judgements and think about it objectively. Regardless of whether it would benefit me and others, would it be good for the lending industry and help to resolve the housing crisis? Unless you really are misreading the plan, I don't see how you can come to any other conclusion. I challenge you to try it.
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.
Apparently you are forgetting your earlier argument. You said that lenders agreed to let the borrowers out of their loans because there is a limited remedy for the breach. Then you said that even though there is also a limited remedy in the law for commiting a crime, that no one actually agrees to it, apparently because they don't sign anything. Then when I reminded you that the limited remedy for defaulting on the loan is actually created by law, not by contract, you come back with it doesn't matter because the lender knew that people would be defaulting and made the loan anyway (which, apparently, in your mind means they consented to the default).
Your logic is all over the map. A little consistency might make your arguments more persuasive. Try to let it sink in that the remedy doesn't define the breach. The remedy simply tells you what are the repurcussions for the breach.
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Originally Posted by sonoranrat
Equating withdrawing from mortgages to murder is simply sophistry to make the two the same. It is completely ludicrous.
No one ever equated the two. Let's explore the difference between pointing out similarities and equating. You see, I can say that you and I both have brown hair, but that doesn't mean I am saying that you and I are the exact same person. Ok, lesson over.
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Originally Posted by sonoranrat
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.
But those aren't the people who were targeted by ccmusica's proposal, now are they?
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Originally Posted by sonoranrat
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.
This just shows how biased, selfish and irresponsible this viewpoint is. Aww, it's not easy to do what you promised? Then ok, by all means just break your promise. Other people do it too? Ok, then, we should all just run around and steal from each other. Someone doesn't "like where they are now?" Heck, just forget about the responsibilities you agreed to and go find someone else to steal from.
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Originally Posted by sonoranrat
Whether or not breaking contractual obligations is "ethical" is purely subjective pure and simple. You think it is, I do not. This is no way to debate it because it is purely an opinion. You can keep saying it is the same as murder all you want but it just makes you sound ridiculous in the eyes of most people.
That's the most ridiculous thing that has been written in this thread. Opinions are exactly the thing that should be debated. Do you think the presidential debates are there for the candidates to argue over facts? Ha! I would love to see one of the candidates say, "well since that's subjective, there just isn't any way to debate it. It's just my opinion, and the reasons backing it up are not important."
I guess you are right, and Plato was wrong when he philosophized that there are moral principles that can be known by reason. If only you had been around to show Plato the errors of his philosophy. You're right. Nothing is unethical unless... what, YOU think it is unethical? Try the whole reasoning thing. You might like it.
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Originally Posted by sonoranrat
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.
Again, the two wrongs make a right argument. Played. Out.
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Originally Posted by sonoranrat
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.
Oh, thanks very much. So since it has become less "easy" for some of these people to pay their mortgage, or they "don't like where they are" anymore, or they have realized that they made a terrible purchase, all the rest of us should suck it up and pay higher interest rates to make up for it. You were right when you used the word ridiculous. You just aimed it at the wrong thing.
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Originally Posted by sonoranrat
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.
There you go again, confusing legality with ethics. It is clear what is unethical in your opinion - only breaking the law. We should just delete the word "ethical" from the dictionary, then, since we already have the word "legal."
If you really want to move, then you might want to consider turning your house into a rental. I've no idea what the rental market is like in your area, but it's a way to avoid selling for less and coming in with additional monies. If you can afford to do that, then you may be able to swing renting your house out for less than your mortgage. Ideally, you want any income property to pay the mortgage and more, but it doesn't always work out that way. If nothing else, the loss is a tax write-off. Anyway, rent it out while the market does its thing. You may be able to come out ahead that way.
I already did. But I'll try to simplify it for you one more time. Under your proposal, the amount of money borrowed from the bank does not change. But the value of the assets owned by the bank is reduced. It is a very simple calculation to determine that doesn't make sense from the lender's viewpoint.
All of the machinations with the value of REO homes vs foreclosure homes vs owner-occupied homes are just smoke and mirrors.
There you go again, confusing legality with ethics. It is clear what is unethical in your opinion - only breaking the law. We should just delete the word "ethical" from the dictionary, then, since we already have the word "legal."
I do not subscribe to the philosophy and theory that ethics can be arrived at by reason in the sense that reason can dictate what is ethical and unethical in a way that everyone can agree upon. Ayn Rand and Aristotle both claim to base their "ethics" on "reasoning "but their views are almost completely incompatible.
My view is that "ethics" is simply based on opinion and consensus. I don't believe in some overarching framework and philosophy of ethics.
As far as mortgages go, I feel that it walking away from a mortgage is fulfilling the terms of the contract. You are of the view that it is not. I completely understand your POV but just don't agree with it.
Anyway, I've started a poll and discussion specifically on the topic of the ethics of walking away from your mortgage. Let's continue the the debate there.
I already did. But I'll try to simplify it for you one more time. Under your proposal, the amount of money borrowed from the bank does not change. But the value of the assets owned by the bank is reduced. It is a very simple calculation to determine that doesn't make sense from the lender's viewpoint.
All of the machinations with the value of REO homes vs foreclosure homes vs owner-occupied homes are just smoke and mirrors.
Agreed Austin-Willy. You can dress it up any way you want but a loss is a loss.
And, although I'm stating the obvious here, I'm sure the banks have already considered every possible way of dragging themselves out of this whole rotten mess. If what ccmusica is suggesting is viable then why aren't they doing that already?
A.) Let's say I'm not doing a "trade-up" but I am just a consumer. I want to buy an REO. I want to offer $375,000 and I want that particular bank to carry the loan. Another buyer comes along and offers the asking price of $300,000 and wants that same bank to carry the loan. All other things being equal, who do you think the bank would choose?
Now let's change this a bit. Try to keep your emotions out of this because this is only for the sake of example and its not something I would do.
B.) Say I was a homeowner with a $375,000 loan on my house with a market value of $350,000. I decide that I don't want to continue making the payments and I default. The bank gets back my collateral (a house now worth $350,000).
Now say that I have a sugar daddy who will buy the REO in example A for me and makes the bank 2 offers, one for $300,000 and one for $375,000. Everything else being equal, which one do you think the bank will take?
Say these two houses were the only properties this particular lender was dealing with, how do you think they would consider their bottom line and make an objective decision as to what would be the better for them? Would they take the $300,000 offer, carry the loan, and own a house worth $350,000 or would they take the $375,000 offer, carry the loan, and own a house worth $350,000?
I know you are going to bring up various scenarios and circumstances that COULD affect the outcome, but I am just saying that in this simple scenario, the result is obvious, regardless. Simple math.
By the way, I appreciate this dialog, it is helping me to hone my arguements against obections. :-)
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