This morning there was an interview on NPR’s Morning Edition (Story Here) with a woman in California. Sadly this whole mortgage/loan crisis has hit her quite hard, and she is “upside-down” on a home loan three years after she took it. How sad, how unfortunate! She’s in such a spot that she’s considering walking away from it.
Oh, did I forget to mention that both she and her husband both have the jobs they had when they took the loan? Or that they have no problems making their payments? It just seems “unfair” that they should be paying a loan on a property that is now only worth $800,000 when it cost them $1,000,000 when they bought it three years ago.
I’m amazed that this woman had the gall to get on the radio and say what she said. She bought a property that depreciated in value 20% over three years and so somehow feels like that gives her some kind of permission to walk away from her loan because it ‘doesn’t feel fair’?
I guess I can see what she means. I’ve never owned property, but I own a car. And, frankly, I think my car has lost more value than I had expected it to. I don’t think it’s fair that I’m still paying a loan on the value of my car when I bought it, when its current value is much lower. I’ll just stop paying.
Or some other things, like the keyboard and music equipment I use for work. They’re all worth significantly less used than they were when I bought them. I guess I should have payed with credit so that I could just stop paying my credit card bills because I’ve already lost $1,000s on the initial value of those loans.
I understand that people ‘expected’ their homes to increase in value and thus to be ‘safe’ investments, but sometimes you get the short end of the stick. For a person who is perfectly able to deal appropriately and responsibly with a setback like that to suggest that they shouldn’t have to pay is wrong-headed and childish. She is an embarrassment to herself.
Haven’t we done this thread 4 or 5 times already? There are basically two sides: the OP’s side believes that people have a “moral/ethical obligation” to repay a mortgage. The other side recognizes that each party’s obligations are spelled out in the loan agreement and that the OP’s ideas of what a person should do doesn’t impose an actual obligation on anyone else, so if this family wants to stop paying and get foreclosed on, then fine and whatever.
Sure, it’s ‘fine and whatever’, but the fact of the matter is that despite the fact that consequences of not paying one’s mortgage are spelled out and clear ahead of time and it is a legitimate choice to make, it makes it harder and more expensive for others to get loans. If everyone just stopped paying their loans because it made ‘financial sense,’ then no bank would loan to anyone.
Even with an expected percentage of defaults, loans are made in good faith, and breaking that faith flippantly is not something to be lauded. So, this woman can do what she wants, but if she’s going to whine and/or justify it on national news, and is not in a position of want or need, well, I’m going to call her out on it. She says:
“It’s just frustrating, because I’m just trying to do the right thing,”
and . . .
“Sometimes, if it falls on a weekend, I won’t make that payment until the following Monday. I mean, that’s how it’s gotten to me. It’s like I don’t want to give them the money until the last possible minute. Maybe it’s going to be one day I’m not gonna make that click. And it’ll be like, 'Oh well, we just missed that payment.”
How hard is it to just “do the right thing”? She’s totally able and capable. She is just resisting the temptation caused by the ‘unfairness’ that the value of her home on paper is now less than she believes it should be.
She’s the one who brought moral obligation (“doing what’s right”) into her argument, not me.
I’ve never quite gotten this mentality. I can sort of see doing something like this if you had to relocate for a job and couldn’t sell the house for what you still owe on it (effectively leaving you with a second mortgage to pay).
But if you have a job and are otherwise financially secure and have no real reason to move elsewhere, then this seems pretty silly. Yeah, it’s not fair that you’re upside with your home value. But who’s to say that if you stick with it, the value won’t go back up in, say, five years. I don’t know, I guess I just grew up in an era and place where people viewed homes as homes first and investments second.
That, and moving is a huge pain in the ass.
While I wouldn’t laud the behavior, I wouldn’t be all that disapproving either. Morality really doesn’t come into play here. The bank and the borrowers entered into a contract which was drafted by the bank. The obligations are spelled out in the contract in excruciating detail. If she finds that it is to her advantage to walk away from the contract then it is no different than any other business decision. The banks had no difficulty turning around and selling these mortgages to to other parties.
She is not obliged to do anything that isn’t spelled out in the contract, and required by the laws of her state. The bank knows the ins and outs of loan law to a level unapproachable by the average borrower, and wrote the terms of the contract. If, by following those terms both in letter and intent, the bank gets boned, that’s just the price of doing business poorly.
She has a responsibility to do what’s right for her family, if that means walking away from bad business relationship, then walk away. The entire concept of a capitalistic economy is that actors do what is best for themselves, while following the law and abiding by the terms of contracts.
Once again those crafty home buyers have taken advantage of the generosity and innocence the mortgage lenders. It’s just sad. When are the banks going to wake up and get a lawyer to help them write their contracts?
I don’t know where you’re getting this, but on what basis will they sue? What is the record of courts ruling against the homeowners in such situations?
I understand all of the points about contractual obligations, and I agree.
It’s this part that bugged me:
She’s talking about ‘doing the right thing’. If she wants to bring right and wrong into it, that’s fine, but then clearly walking from her loan is the ‘wrong’ thing to do; she says so herself. She wants ‘help’.
If you’re going to treat this as just another financial choice, don’t get on the radio and talk about trying to do the right thing.
I don’t know that the banks wouldn’t “loan to anyone”, but there is certainly a good argument that banks were too lose with their loan requirements in the past. If more people walk away from their loans, that would lead to stricter loan requirements, and one could argue that it would be better for us to be out from under the cloud of another financial meltdown like we went thru in '08. Net-net it might just as well be better overall if the banks had the fear of this planted firmly in their collective psyches.
I understand all of the points about contractual obligations, and I agree.
It’s this part that bugged me:
She’s talking about ‘doing the right thing’. If she wants to bring right and wrong into it, that’s fine, but then clearly walking from her loan is the ‘wrong’ thing to do; she says so herself. She wants ‘help’.
If you’re going to treat this as just another financial choice, don’t get on the radio and talk about trying to do the right thing.
Remember in 2006 in New York City some group of Big-Time Investors rounded up over a billion bucks in loans to buy Stuyvesant Town—Peter Cooper Village in Manhattan? The bought it, found the price dropped below what they had paid for it so they walked away from the loan.