The Housing Bailout(s): The reason to pay their mortgages is ...?

[Throatwarbler_Mangrove]

Roddy, a mortgage holder not a banker

The way the banks have been run in the last couple of years, you may as well be. What’s the worst you could have done, run them all into the ground?

[Cheesesteak]

@Roderick_Femm

the buyer is the one who benefits if and when the value goes up. The bank does not expect to share in that benefit, why should it expect to share (or take all of) the loss?

It’s my belief that the banks began to give more and more ludicrous loans based on the expectation that housing values would continue to rise. Rather than securing the loan by vetting the borrower, and making sure they were financially responsible, they secured the loan with the assumption that they could get their money back in foreclosure once the borrower defaulted.

People got loans they couldn’t afford. Even though we’d like to blame them for taking on unaffordable debt, I am also placing blame on the supposed loan professionals who wrote giant checks to people who couldn’t afford to pay it back. The banks lost the right to complain about this sort of behavior once they stopped acting like bankers, and started giving money away like it was going out of style.

[Throatwarbler_Mangrove]

Hopefully this mortgage idiocy will result in lenders realizing that it’s not a great idea to lend hundreds of thousands of dollars to someone who only has a personal stake in any potential gains, and can walk away from any losses. They’ll start requiring substantial down payments again.

What would be the incentive, when so many residential mortgages are guaranteed by the federal government through Fannie Mae and Freddie Mac? Do you think then bankers were giving away their own money?

I suppose Longhorndave could tell us about how the covenants of a commercial mortgage are usually a little more…cautious?

[Roderick_Femm]

@Cheesesteak

It’s my belief that the banks began to give more and more ludicrous loans based on the expectation that housing values would continue to rise. Rather than securing the loan by vetting the borrower, and making sure they were financially responsible, they secured the loan with the assumption that they could get their money back in foreclosure once the borrower defaulted.

People got loans they couldn’t afford. Even though we’d like to blame them for taking on unaffordable debt, I am also placing blame on the supposed loan professionals who wrote giant checks to people who couldn’t afford to pay it back. The banks lost the right to complain about this sort of behavior once they stopped acting like bankers, and started giving money away like it was going out of style.

You’re absolutely right about the slimy lenders, but this thread did not seem to be about sub-prime mortgages, but about people who could still pay for their mortgages (even when the value of their house has fallen) but who may be trying to pressure their bank to give them some kind of break.

@Throatwarbler Mangrove

The way the banks have been run in the last couple of years, you may as well be. What’s the worst you could have done, run them all into the ground?

I’m sorry, I don’t know what you mean. I just meant that I am paying a mortgage myself, and that I am not in any way affiliated with the banking industry.
Roddy

[LonghornDave]

@Throatwarbler_Mangrove

I suppose Longhorndave could tell us about how the covenants of a commercial mortgage are usually a little more…cautious?

You could say that. Further, I would say that cash flow is king. The collateral value (from a liquidation perspective) is a distant second for most loans.

[Voyager]

@Giles

If the house-owner has negative equity in the house, then both sides took a risk and potentially will lose money. Why should it just be the house-owner? Especially since the house-owner is likely to have far less information about some relevant facts, such as the risk that the price of housing will go down.

Given how the financial industry has been trashed by this, it is not apparent that they had any more access to the future.

From my understanding, a common term of a renegotiation is that the bank gets a piece of equity growth in the future. If so, then I don’t have much of a problem with the OPs case, since they owners are gambling that the house is not going to increase in value during their stay, or increase less than the current loss. They are also taking a gamble that the bank won’t kick them out to set an example. They are in no way coercing the bank to give them a better deal, so I don’t think it is an issue of morality.

BTW, moving is expensive, and if they can buy another house (they may well be locked out of a mortgage thanks to this little trick) they will probably be paying subprime rates. There is a big downside.