No.
from whence do you get this belief?
That is not how bankruptcy works in the United States. Donald Trump has gone bankrupt several times. I know of real estate developers who consider bankruptcy par for the course. Done right, it encourages risk taking which encourages innovation.
Yes, riskier investments pay higher interest rates. Nothing wrong with that if it is honest and all parties realize what is going on. The problem here was that the banks took high risk, high interest rate mortgages and packaged them in a way to make them seem like low risk high interest rate investments - which obviously everyone wanted. Which gave them an incentive for producing more of these loans by fair means or foul.
That is why the banks are at least partially culpable. They may not have driven up prices directly, but they put more unqualified people into the market which did drive up prices. When the unqualified people got pushed out of the market, prices fell. Worse, and this is directly relevant to the OP, qualified people who lost their jobs due to the effects of the collapse now contribute to it, which is making things worse.
If the banks had kept to sound lending principles, they would have made less money, housing prices wouldn’t have soared, and we wouldn’t be in this mess today.
Now, if the bank agreed to cut the loan amount of the people in the OP to $800K, they wouldn’t lose as much money, the prices of their other properties would firm up because of fewer properties on the market, and they cut legitimately request a chunk of any upside gain in the price. Yet banks refuse to do this. I don’t know if it is loss aversion at work, or if they don’t really know who owns the loans, or if it is just stupidity.
no. if it’s in their best interests to do something, they should do it. that’s the way the free market works.
(i do have problems with their political whining in an attempt to ex post change the rules that they agreed to, however)
Maybe when, in discussing the issue of who was a bastard first, you say that the creditors simply want “the deal that you willfully agreed to.”
Well, as has been pointed out multiple times, part of this deal includes handing the bank the house if you fail to make your payments. The bank, in this case, is getting precisely the deal that it agreed to, and implying otherwise seems to me to be suggesting that the borrower is not keeping to the deal.
I agree with the first part here, but am somewhat flummoxed by the second part. I also agree about the whining part, but what rules are they trying to change? The rules say that if you don’t pay your mortgage, the bank gets to take your house. And the people in the OP, and other people who undertake strategic defaults, are well aware that this is what will happen. I’m afraid i just don’t see what rules are subject to change here.
Nobody cornered the market on housing options.
No. If a bank makes a load to a risky borrower because it has loosened its lending terms, then it is making a fiscal decision based on risk and future expectations. Banks make these kind of decisions all the time. Did they screw up in their assessment, it would appear so, but thenagina that is one of the things interest is for, compensation for risk. The person getting the loan has several options, including not buying a house, at the expected price and terms.
I tried to make it obvious that when i said “political” whining I meant all of these deadbeats running to washington to get foreclosure moratoria or forced re-negotiations of their mortgage debts or otherwise using the political system to transform a deal that went bad against them into a good deal.
i crucify companies for whining to their legislator… err, lobbyists for this, as well.
(again, i’m not suggesting that they’re amoral or wrong for trying or anything - it just bugs me is all)
I think there is some confusion as to why, exactly i was responding to that comment. Baboonanza was responding to a “moral” post by giving a “moral” response (and I didn’t know the upthread genesis, which is what i commented on in my first words) - namely that it is just to do something when “the other guy would do it” because you can be a preemptive bastard and look out for #1. I was just trying to figure out, in the context of his post (i.e. not intending to take a moral position on mortgage default) where he saw the preemptive actions by the lender that would justify his preemptive bastardy.
if that makes sense?
edit (sorry, i’m being really slow in editing today): perhaps i can further elaborate. Mortgage lenders cannot “fuck” you during the deal - the terms of the deal are memorialized and static. Mortgages aren’t like credit cards with an ongoing, revolving credit amount and dynamic and evolving credit agreement, where the lender is taking an unfettered right to raise interest rates to some unknown percentage based on their caprice. Mortgages (even the variable-rate ones) spell out exactly what they charge and when. So I’m just trying to figure out, in the context of “fucking them before they fuck you” justification (given the discussion where the homeowner is acting morally), how Baboonanza believes the mortgage lender can fuck the borrower after the deal has been agreed to.
It is not that everybody ws over charged for housing, per se … the banks were urging people to get more expensive properties than they could realistically afford. When we went house hunting in 1990 after change of duty station, we knew that we could manage $100 000 max on mrAru’s navy income. We found a property that cost us $91 000. The realtors were pushing us to get up to $200 000 properties. Other than it would have been nice to have had the second bathroom, and a third bedroom [which we managed by putting a studio apartment in the non-agricultural barn] we ended up with a property we could afford the payments upon, and live in comfortably [though the kitchen was and is purgatorial, we changed that with a trip to IKEA and crowbar.]
I am however still pissed off at all the people who did opt for the loans that they could not reasonably afford, and banks for essentially artificially bumping up the property values. Those assholes get the bailouts, and relief, and renegotiations - and we who have been faithfully making our payments monthly get the big fuck you. I would love to renegotiate our loan, or get some money knocked off of it. Our property has risen and dropped in value as well but we don’t seem to get anything for living within our means…
you do realize that in the space of your own post, you went from “banks are urging you to get more expensive properties” to “agents are pushing us to buy more expensive properties”
neither of which has anything to do with [not] being overcharged for real estate that you willingly buy from neither of these parties.
Can you cite that it has happened in California? That was the state in question.
Just trying to understand your definition of overcharging, which seems to not include anytime the charge is clearly marked. For the most part, anyone wishing to buy property did not have the option of not paying an inflated price, but that is not what I am getting at.
I specifically said the bank steering the lender to a loan with a higher interest rate than one he was qualified for. I trust I won’t have to give cites about this practice being fairly common. So, try again and answer the question this time.
Really? Do you consider this an acceptable practice, then? Does this fall into the “never give a sucker an even break” principle? What if the customer asks if it is the best the bank can do, and the bank lies?
Would you still feel it immoral for a borrower to walk away from a loan made under these circumstances, given the same relative fall in house values in the case in the OP?
Where is the borrower’s responsibility to do his own due diligence in all of this?
(I’m not commenting on the morality of anything here, fwiw.)
Current calls for a moratorium on foreclosures stem not from the whining of homeowners but from the banks totally screwing up the process. I don’t think it is a good idea, but let’s be clear where it comes from.
IIRC, the call for a forced re-negotiation was allowing bankruptcy judges to do it. I’m not aware of strong support for it outside that context. Anyone calling for this, though, might do so because the banks have seemed to more or less stonewall voluntary renegotiations even though it is beneficial for the borrower, for the community, and even for the bank.
I do hope you are not going to go all “that Latino janitor with minimal English and math forced the bank to give him a loan” on me.
In New York there is data that people from minority communities had a much higher number of subprime mortgages than people from white communities with equal income levels and property values. In California there were many cases of Spanish speaking borrowers not being given Spanish language paperwork (which is against state law.) And many people foolishly considered banks to be trustworthy. In an ideal world we’d all have gotten As in math and Finance, and be able to read and understand the paperwork. But this is not that world.
BTW, several Dopers back during the crisis reported that their lender suddenly wanted to change the terms on them at the last minute, when they were under pressure to sign in order to close.
It would not be easy to say “I’m walking” under those conditions.
In most cases the relationship between bank and lender is asymmetrical. You or I could easily do due diligence, but it is as unrealistic to expect of everyone as it would be to expect buyers of drugs to check up on their efficacy in JAMA.
nope. no one forced anyone to do anything is my point.
you can cry asymetry and pressure and minority suckering all you want, but at the end of the day they **had **to have their house, didn’t they.
if they can’t understand the basics of what’s going on with the documents they sign, they can a) hire an attorney who would gladly take their best interests into heart or b) rent
Never been to a mortgage loan closing, have you?
Sure, it’s POSSILBE to walk away from a loan closing, but typical practice indicates that people have all sorts of other expenses tied up in closing on the house, and the pressure to just sign the documents (especially since you sign so many of them that seem to suggest you COULD be fucked with a rusty ramrod, if certain parts of your contract were invoked, or certain conditions occur) is immense. Often times the amount of money you need for closing is inexplicably not known until a couple days before, and the numbers change radically. When I closed on my first house, the TILA document I got early inthe process had a very diferent interest rate than the one I had to sign the day of the closing.
There’s a certain amont of deception that’s tolerated simply because the expenses and time commitment to say “fuck this” is too much, and there’s no guarantee it’s not going to happen again.
i meant during the executory period of an enforceable contract. i suspect you knew this (edit: especially since i said “after the deal has been agreed to”)