You have no ethical responsibility toward big business. They’d fuck you over in an instant if they thought they could make a profit from you. Playing fair is a mug’s game.
But as has been said, the borrower is living up to the agreement. One of the options in the agreement is to quit paying and surrender the property.
Yes, but others have noted that the “walk away” or “stop paying” option is written into the agreement. Your credit will take a hit, but for some people it’s worth it in their particular circumstances.
What if I lose my job, and get another one, much higher pay, etc., but it’s 2000 miles away. I could sell my house, but it appraises now for $45,000 less than what I still owe on it. Is there some recourse of which I am unaware other than selling the house for whatever it fetches these days and paying 45-50k out of my pocket, just to leave? Or I could walk away, rent a cheaper apartment, and take the hit for seven years or so to my presently really great credit rating, squirreling the extra money into other investments/savings that benefit me more? Additionally, if it means I can have extra cash on hand, the impact of the credit rating hit would be less since theoretically I shouldn’t need as much credit anyway.
All of what I said was hypothetical, so if something is horribly wrong please correct me, as I’m just a normal guy trying to get by and not a financial wizard investor type. But if it came down to it, I would certainly weigh the option of walking from my mortgage, after consulting with knowledgeable people, etc. as a business/financial decision, rather than some imaginary code of honor that will only do me harm.
In many cases, if not most, the people who own your loan are not the people you made a deal with. If my loan was done with Bank A, it soon gets sold to Bank B without my consent. It probably also got sliced up into tiny chunks and sprinkled all over the market also.
Clearly the legal terms go with the loan, but I don’t see how the ethical terms do.
Plus, considering that banks make their money on legally but unethically screwing their customers (default overdraft charges, interest rate increases, etc.) I don’t think we’re dealing with an entity with much call to criticize our legal decisions on moral grounds.
Now, the credit rating discussion is just about the calculus of the benefits to the consumer of walking away, and has nothing to do with ethics.
I’m not really advocating doing anything, however I am delving into the “ethical” debate and the reasons for it. Everyone stating the banks are purely unethical are right in that they are going to make decisions on the bottom line.
If the house was really worth $750k and they wanted to walk away from it, they’d just sell the house (in a perfect world), pay the debt and walk away with the $250k in their pocket.
However the fluctuations in the value of property may be such that, what was once worth $750 is now worth a measly $250k. In this scenario (if it was a bank), they’d walk on the note.
My question is if it was strictly a value v value scenario why do banks need to tie “credit rating” to their loan at all. Either the loan is a good investment on it’s own or it isn’t.
Credit ratings are one of the tools used by banks to keep people under control, and to punish people for doing things that the bank doesn’t want them to do.
On the other hand, perhaps corporations should be held to the higher standards of individuals…
That is my point exactly, why?
The banks are punitively PUNISHING YOU for taking the exact same measures they themselves would take in a business setting.
They are assessing risk based upon personal responsibility instead of whether or not the house or whatever is a good investment.
That is where ethics comes into play.
Heh, corporations (and indeed countries) are rated for credit risk too.
Evaluating whether or not you’ll be paid back before you loan someone cash is simply basic. It’s not “punishment”.
They are punishing you (generic you of course) because they don’t want to be stuck with real estate, and are hoping that the threat of that punishment is sufficient to keep you in your place paying your bills, regardless of whether it makes sense for you to do so.
Just because they are trying to hold us captive to the idea of “ethics” does not mean that you cannot act in accordance with the contract.
In my case, they certainly did. When my father died, I was the only heir that stepped forward. Sure enough, one of his creditors called me up a few days later, explained that my father had owed them a few thousand dollars, and asked me how I’d like to pay it off.
I told 'em, “Dude, you probably dealt more with my father than I ever did. I’m certainly not going to pay his debts- good luck finding someone who will. Don’t contact me again.”
Sure, and what did Billy Bob Thornton say in Bad Santa? “Wish in one hand and sh!t in the other and see which fills up faster.”
There is another option in this situation. It is called a short sale (meaning for less than the owed amount). It is a painful process because all parties who have liens on the property must agree to take a smaller amount, but it is quite common right now (to the point that banks need to hire more staff to handle them and it can take months to go through). Banks only forclose if they have no option. It is much better for both sides if they come to an agreement to sell the property for as much as possible without the expense of the foreclosure. You don’t take the credit hit, and they don’t have to do the foreclosure.
Banks, corporations, and governments all have credit ratings as well. Credit rating is just a way to track the likelihood of an entity to default on a debt. In almost every real life situation the default will bring in less profit than the successful closure, so credit ratings are how interest rates are determined. If you want to see how that works for corporations, look ate bond yields. A corporate AAA bond (roughly equivalent to a 700+ credit score) costs them roughly 5.41API, while an A bond (roughly 650 credit score) costs them 6.92API. The big difference between Morgan Stanly walking away from a few properties and an individual walking away from his/her house is that Morgans Stanly is not walking away from hundreds (more likely thousands) of other properties and obligations. A home mortgage is mostly likely the largest single debt that most individuals every have. MS is probably defaulting on less than 1% of their total debt in this deal. My mortgage is over 90% of my total debt. 1/100 is a much lower risk than 9/10.
ETA: Before you knock credit ratings too much, just think how things would work without them. Banks would have to set you interest rate at a level assuming you would have the average default rate. That would lower the interest rate for people with serial money issues and poor judgment and raise it for those of us who take care of financial duties.
Jonathan
Big Businesses are neither moral nor immoral. They are Amoral. They have no conception of morality, and it does not enter into their decisions. Note that individuals who work for large business are frequently moral people. The corporation (a legal person) however, is constructed (if you will), to be an amoral entity. Much like a sociopath, a corporation has absolutely no concept of morality.
Oh, don’t get me wrong – I fully realize that each and every one of us is more likely to get a pony than the phrase “corporate ethics” become anything more than an oxymoron.
It amuses me – in the sense of Elvis Costello’s “I used to be disgusted; And now I try to be amused” – when corporations cite ethics. They are not, and should not be, considered persons.
I’m not following. Are you saying this because an organization – whether it is a corporation, school, or sports team – simply does not have a conscience of its own, therefore can’t have ethics? Or are you saying that all corporations – from those that pollute and abuse their workers, to those the give lots to charities and treat their employees well – are actually no different?
I think Euphonious Polemic clearly meant the former. Individuals who are influential in determining corporate policy have varying standards of morality, but corporations themselves have no intrinsic moral capacity. They aren’t built for it.
But that doesn’t really make sense. The framework or structure of a corporation isn’t what makes decisions, it is the leadership of the corporation that decides the standards and business practices that the corporation undertakes. So corporations can be distinguished into more ethical or less ethical based on the business practices instituted by the leadership, so the intrinsic nature of a corporation (absent human decisions) really doesn’t illuminate anything. You know, guns don’t kill people, people kill people.
Walking away from a mortgage is not unethical; it’s just stupid. However, there are other options. The short sale was mentioned and it is a reasonable alternative due to depressed home values and income reduction or the requirement to move. If you simply walk away, the home will be foreclosed and sold to the highest bidder. Then it is GUARANTEED that you will be sued if the home brings less than the mortgage balance. Also, if the home brings more than the balance, the mortgage company will not send you a check for the excess proceeds. Yeah. It’s dumb.
[quote=“Ravenman, post:38, topic:524169”]
But that doesn’t really make sense. The framework or structure of a corporation isn’t what makes decisions, it is the leadership of the corporation that decides the standards and business practices that the corporation undertakes. So corporations can be distinguished into more ethical or less ethical based on the business practices instituted by the leadership, so the intrinsic nature of a corporation (absent human decisions) really doesn’t illuminate anything. You know, guns don’t kill people, people kill people.[/QUOTE
As someone extrapolated upthread somewhere, sometimes corporations must make a ‘bottom line’ decision, this does not equate to an ethical position. A corporation could start out at the epicenter of ethical goodness, only to change the position if it cannot hold it’s position in the marketplace.