If the contract specifically states the terms of foreclosure, how is that “illicit”? It isn’t even breaking the contract. Foreclosure is not a penalty for bad behavior, it is a process for transferring property back to the lender. I grant you, foreclosure in not the route the lender prefers (nor the borrower in most cases), but both parties agreed it is one of the ways the contract can be concluded.
Walking away from a loan does not, in most states, end the contractual obligations, and even those tend to be focused on home and not other loans. My point, however, is that the loan is for money, not the home. It simply specifies a certain penalty ahead of time. If you did not do so, it would still happen, just through a more complex legal proceeding.
The banks are perfectly capable of writing a contract that says “money or… money.” If they write a contract that says “money or home,” why is it immoral to take them up on the offer?
Because they have little-to-no expectation of getting the money if you default. Look, it’s simple: do you really think they give you a loan so that you can buy a house they don’t want?
But foreclosure does.
It is for both, and the reason mortgages are tens of pages long it to determine in infinite detail how each is conveyed betweeen the borrower and the lender.
No it doesn’t. Foreclosure is not a penalty.
Which not a penalty either.
If they don’t want to give that kind of loan, maybe they shouldn’t be in the mortgage business.
No - which is why they charge a higher rate than they would do for a fully secured loan. It’s the market. You pay an interest rate based on the circumstances, which includes the possibility of default. In that case, they have priced in the possibility they won’t get the full amount of the loan back. If, for example, you were able to pledge security higher than the value of the house, you would receive a lower interest rate - maybe by having a co-signer for example.
I’m glad you did. You’ve proven conclusively that you have no idea what you are talking about.
[QUOTE=smiling bandit]
The market value of a loan is chiefly built on two things: the principal/interest (i.e., the Net present Value) and rate of risk. The collateral is a tertiary consideration at best, and is often not considered at all. This is quite often because actually recovering the collateral is a long, uncertain process with limited financial utility.
Having good collateral is a concern to the primary lender, who often won’t make a large loan to someone who hasn’t had one before without it. Which is why, of course, it’s so important in housing loans because generally the new homeowners don’t have a history of taking and paying 300K loans. But it doesn’t much change the market value of the loan later on, precisely because it doesn’t change the default risk. The house isn’t very useful once you really face down the long and difficult prospect of dealing with consumer bankruptcy, eviction, paying for any repairs or cleaning, and resale. It is a small, practical hedge against risk and does not greatly affect the value of the loan.
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The value of the property is used to compute the Loan-To-Value ratio, which is most certainly a factor in determining the market value of the loan. Did you get this nonsense from the Hollywood Upstairs School of Economics?
Let’s go see what some actual experts say. Here’s a (pdf) article from the St. Louis Fed Review discussing the secondary market for mortgages:
[QUOTE=Fed Review Paper]
Factors that play an important role in assessing the risk of a particular loan are as follows: the payment-to-income ratio, the debt-to-income ratio, the loan-to-value ratio, and the size of the loan (underlining added).
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And once the LTV ratio goes higher than 80%, this makes the loan non-conforming.
[QUOTE=Fed Review Paper]
A loan is considered “conventional” or “conforming” if the LTV ratio is 80 percent or smaller.
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According to your (nonsensical) analysis, purchasers in the market would treat a non-conforming loan the same way they treat a conforming loan. That’s absurd. As the paper points out, the only time you don’t see a significant change in the risk of the loan (and hence it’s value) is once you get an LTV below 80%. At that point, most purchasers will start treating the LTV values as not being a factor.
[QUOTE=smiling bandit]
It’s also clear that you don’t understand that between population mobility and depreciation, it’s quite irrelevant. It doesn’t matter what happens in a hot economy - you could invest in boats in a sufficiently hot economy and get money out of it. Are you honestly trying to claim that a depreciating consumer product dependant on blind chance of population flow is a good investment?
Land may be a good investment. Housing stock is not. Houes are an illiquid,
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Are you serious here? This whole time we’ve been discussing the mortgage crisis. Most of the properties we are dealing with are housing stock with land attached (or air rights attached to land). Now, you want to try to separate out the land from the discussion? Nice try, but everyone in that thread knew we were using the term “housing” in terms of the mortgage crisis, we were talking about a parcel of property with a house on it. And from that respect, it most certainly is an investment. You must have realized that your position is nonsense, and so now you want to try and change the terms of the debate.
Secondly, what you seem to be unable to understand, is that you have to pay rent anyway, no matter where you live. So, the total amount of your monthly payment is not the total amount of your investment. Your investment is your monthly expenses minus your imputed rent. In essence, you are paying rent to yourself instead of to someone else, and from that perspective, it is an investment. Of course, I never claimed that it was a liquid investment, or that it was the right investment for all people. And I even acknowledged that you could analyze it as a consumer product if you wanted to. But your refusal to even understand why it’s an investment shows that you don’t really know what you are talking about. So you might want to stop lecturing people and learn something again.
[QUOTE=smiling bandit]
It’s bizarre to claim that once you say you’ll undertake an obligation, you will in fact fulfill it?
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If it’s not a legally valid obligation, then you didn’t undertake it. You cannot undertake invalid obligations. There is no obligation, because there was never an agreement in the first place.
[QUOTE=smiling bandit]
Remind not to rely on you for anything. Oh wait, since I recognize you have no legal requirement to do so, you feel no compunction about ignoring it.
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Yes, I don’t have any obligation to do things that were never agreed to.
[QUOTE=smiling bandit]
And yes, she is speculative; all possible observations here are neccesarily speculative because you will never have the “full story”. But it’s a powerful circumstantial evidence. The matter cannot be proven, but it’s hard to argue otherwise in any of her examples. However, I’d like to thank you for demonstrating repeatedly that insults and mockery and are no substitute for argument.
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Ha! You started with the insults, and you’ve been combative ever since we first started discussing economics. This is your MO. You waltz into threads, make a bunch of bizarre arguments, call people ignorant, and then call foul when people give it back to you.
But, as I’ve already explained, and which you’ve ignored (because you’re not actually doing economics), there are ways to determine if your model is correct or not. You’re not interested in those ways, because you are more interested in ideology than economics.
What’s funny about this discussion is that we’re apparently supposed to ignore the law when dealing with a legal contract.
The only debts I feel a moral duty to repay are those concluded with no more than a handshake and a smile. I would feel very ashamed if I stiffed someone I had given my word to.
But once the lawyers get involved with thousands of words designed to unbalance the relationship, all sense of honor is rendered moot. It is every man for himself, whatever you can get away with, in the court of law. I will do what is my self interest, and I expect no more from the lender. I have an adversarial relationship with the lender, by virtue of the contract they wrote. They have no intention of exceeding the terms of the contract; I would be a fool to do so out of some misplaced sense of honor.
Isn’t this you?:
What are you even getting at anyway? Is this supposed to be a rant against people who walk away from an underwater mortgage?
No, not specifically, though I would consider that a part of it.
Though I think we have too great a barrier between us to overcome. I don’t think the way some here do, I suppose.
I deny the OP’s major. Ownership, property, and debt, strictly defined, are not any real thing in natural law, but a function of human custom, to be abolished if humans so choose.
I have no natural-law obligation to repay anything freely given, ever. Any morality that would impose that obligation is a construction, and may be dismissed by popular consent.
Several animal species do seem to have a very primitive concept of property, so it is at least not merely a human concept. As to whether property rights are an aspect of natural law, I would note that most of the people who wrote about property rights disagreed with you.
Hence the phrase, “strictly defined.” Animals have territory and vital interests, which they hold so long as they actively defend them. It’s human civilization that added the idea of ownership being held in the absence of action. That idea, that property can be held without continual reassertion, isn’t natural at all.