You can have him, Rumples.
------------ I said that they were not seen as being trustworthy, and If you’re deceptive, you’re not trustworthy, right?
Democrats reform the financial system not to punish the wicked but to fix our broken business practices and procedures.
----------- I haven’t heard about these opportunistic corporate bankruptcy’s, and a lot of other people probably haven’t either, so it’s not surprising that there isn’t, well, any opinion on the matter from most people, since they don’t know about it.
Well, it’s in the business press. Should individuals be held to higher social mores than their corporate counterparties?
Let’s set aside the abstractions and focus on what is actually happening, if only for a moment. A lot of mortgage holders continue to make payments, even when their mortgage exceeds the value of their house. Should banks also be held to extra-legal standards of decency? One practice that existed for a long time is that banks would have procedures to modify the loan if the borrower got in trouble. They did this because it made good business sense: foreclosure tended to be expensive.
So are banks morally obliged to conduct such workouts if they save money for the lenders? The current practice now is to take advantage of borrowers in trouble. Servicers can make more money by foreclosing on houses: the losses are absorbed by bondholders, borrowers and the neighbors of newly abandoned property. Cite. There’s also an incentive to keep foreclosed homes off the market, so that they can remain at inflated values on the bank’s asset sheet. Japan’s companies played this game during their lost decade as well.
Jingle mail receives lots of ink, but is a minuscule aspect of current business practices.
I never said anything about punishing the wicked.
No, of course not. I’m a huge fan of consistency, and if one person is allowed to do something, or one business is, then in general I have no problem with allowing others to do it. But where I draw the line is if what one individual or company is doing is illegal, immoral, or unethical.
The fact that servicers can make more money by foreclosure needs to be changed, in my opinion.
Huh?
So is strategic default illegal, immoral, or unethical?
In this case, the cause of the situation which leads to people walking away is exactly that the banking industry acted like scum. These prices didn’t escalate by themselves, it was a combination of low interest rates and credit extended to those who didn’t really qualify for it. So, do you think that the responsibility of the banks has any impact on what you consider ethical? Remember, many of the people in question did not lie about their credit worthiness in getting their mortgage.
BTW, what do you propose doing to these people? Having a crowd of bankers yell tsk tsk when the moving van drives up? Put them in debtor’s prison?
Not illegal, but I don’t think it’s right.
It sounds like you’re talking about those who got in over their heads. Again, I’m not talking about those people.
I think walking away when you can afford the payments should be made harder to do. And this includes making it harder for the hypocritical banks too.
No, but it would be illegal. 
Equity has long recognized the principle of “relief from forfeiture” - namely, that if a party to a contract breaches it in a technical way, and the other side tries to jump on that breach, the courts won’t allow it. In your hypothetical, yes, jsgoddess was a day late in the payments. That doesn’t allow you to treat the contract as being at an end, unless there is a specific clause in the contract that says “time is of the essence” or words to that effect. And even then, if jsgoddess tenders the late payment to you, with any interest, and you can’t show how it’s hurt you, the courts will likely relieve her of the forfieture and declare that you can’t re-take the car.
And, if it’s one of those rare cases where you are able to show some sort of prejudice because the payment was a day late, sufficient to allow you to treat the contract at an end, the courts would also likely use equitable principles, such as the ban on unjust enrichment, to rule that you can’t keep both the car and all the money that jsgoddess has paid you. The courts in the common law system frown on that sort of sharp practice and treat it as a penalty, which as others have stated, are not part of the system of contract law.
As always, not intended as legal advice, but simply to add to the discussion of a matter of public interest.
Oh yes indeed.
MfM: Jingle mail receives lots of ink, but is a minuscule aspect of current business practices.
Nobody: Huh?
MfM: Jingle mail is the jokey term for “Ruthless default” or what you call “Strategic default”. The joke is that the haplass banker expects the monthly mortgage check in the mail, but instead receives a set of keys. It doesn’t happen literally. And cases of true “Strategic default” by homeowners are surprisingly hard to uncover. So I was just saying that the problem in the OP is dwarfed by abusive practices in the mortgage industry. Not that there’s anything wrong with discussing hypotheticals.
Nobody: I’m a huge fan of consistency, and if one person is allowed to do something, or one business is, then in general I have no problem with allowing others to do it.
MfM: Corporations don’t have a problem with strategic default, as long as it is businesses doing the defaulting and not individuals. One innovator in this regard was Johns Manville Corporation who used the bankruptcy courts to shield them from extremely burdensome asbestos litigation and damages. Hey that’s ok: it’s just business. Donald Trump took the Taj Mahal casino into bankruptcy during the 1990s, paid his creditors late and failed to pay a loan to Deutsche Bank in Dec 2008, claiming that the financial crisis was an Act of God. Trump Entertainment Resorts declared bankruptcy in the following year. The Donald’s net worth is 2 billion. None care about Trump’s use of strategic bankruptcy: it’s just business.
Nobody: I think walking away when you can afford the payments should be made harder to do.
MfM: How easy do you think it is? I understand that banks take this sort of thing pretty seriously. That’s ok with me: what’s not ok is that they appear to have decided to stop doing their freaking job, which is to keep the paperwork in order, protect the assets of their shareholders and claimants, and obey the law.
So, would that be immoral, or unethical?
Thank you. The bank and the home buyer made a business deal that is, hopefully, beneficial to both parties. They both signed a document that spells out what happens in various situations. Presumably a bank official got a chance to read the document before signing. One of those situations is if the buyer fails to make payments.
What does morality have to do with anything? Can people really believe that the home buyer is morally responsible for protecting himself AND the bank from poor choices and the bank is just an innocent victim?
But the banks lending to those people put more buyers in the market, which drove up prices until the people, who couldn’t afford them defaulted, which made the prices crash screwing those people unlucky enough to have bought at the top. Presumably the people whose house is now worth $800K wouldn’t be walking away if they bought at $800K, or if they bought at $1 M and the house was still worth that much. It seems that you don’t quite understand all the details of how this mess happened.
OK, first of all, I want to agree with everything that people are telling Nobody–a mortgage is a business relationship, not a moral one, and the bank will give you very little leeway not specified in the contract, and you owe them very little.
However, I will disagree a little with the tone of the comments. People seem to think this is some sort of natural law. This is very much a cultural construct. American (and other countries, of course) business culture is driven by contracts. If it is in the contract it is enforceable; if it isn’t, it ain’t.
Other cultures are not like this, and business is done based on personal, on-going relationships. In these cultures, a loan doesn’t need a contract, just a hand-shake, and parties are honor-bound to fulfill the *expectations *of the other parties. In these cultures, an agreement is more an ethical than a legal obligation. Obviously, this gets to be a big issue on inter-cultural deals.
Now, most of those cultures are less efficient that America’s contract-driven culture. It turns out that contracts seem to work better than relationships for business. But contracts are not the *only *way to do business.
They are when the bankers are all all out to squeeze every last drop of profit out of whatever product they happen to be hawking today.
Having created that environment with their business practices, it’s wrong of the bankers to whine about it when their customers behave as if that’s the kind of business environment they’re living in.
I’m sorry, but I’m starting to lose interest in this thread. This is one reason that it’s rare that I start GD threads. After a while, we all just start repeating ourselves over and over again. No-one changes anybody’s opinion and we all go in circles.
All I’ll say is, while emotionally I totally understand where you’re all coming from, “Big businesses operates this way, so should we.” I just don’t like sinking down to their level. And I think it’s sad that if something isn’t explicitly spelled out, then screw the implied intent. But everybody else doesn’t have a problem with that.
If they are going to act only in their self-interest, I would be a fool not to.
If billionaires don't feel guilty about walking away from their debts, should homeowners? Morgan/Stanley walked away from 5 office buildings declaring they paid top dollar in 2007 and they are not worth it now.
Calculated Risk: CRE: Office Building Owners Walk Away It is not rare for a corporation to walk away.
I think it’s sad that you are tossing out what is explicitly spelled out in favor of something you’re inventing. It’s not like contracts don’t deal with exactly this issue. They do. It is absolutely explicit in the contract precisely what each party’s obligations and responsibilities are. If this nebulous “intent” were to start superseding the very explicit terms of the contract, what the hell use is the contract?
If you want to hold yourself to that standard, you knock yourself out. Hey, the bank intended for you to pay my mortgage, too.
Well, to be fair, your OP was pretty silly. I don’t know what you mean when you ask if people should be walking away from mortgages if they can “afford” them, as if the decision to walk away is completely whimsical and capricious. If they can afford to stay (meaning they have enough income to make the payments, the payments don’t dominate their finances and force them to eliminate other reasonable spending, and they value living in the particular home they’re residing in), then they’ll stay. If they can’t, they may decide to default.
It’s like if I’m working a job and I’m being underpaid. That alone won’t make me quit.
The banks make money because of this asymmetrical morality. They are counting on the people who think it is more important to read their bible than it is to read their mortgage.