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Faced with an underwater mortgage: the moral choice to pay
CSMonitor ^ | 3/2/2010 | Monitor's Editorial Board

Posted on 03/03/2010 5:39:05 AM PST by EBH

To walk, or not to walk?

That is the question for nearly a quarter of US homeowners who can still make their mortgage payments but are “underwater,” or living in a house worth less than the amount they owe on the mortgage.

Should such homeowners with “negative equity” simply pack up and leave, mailing the house keys to their lender in a desperate act known as “jingle mail”?

Or should they honor the “promise to pay” in their loan contract and keep up with monthly payments, hoping for steady growth in home prices?

...But by and large, many “underwater” Americans need help to think through the difficult moral reasoning of whether to default – and to understand that society can only thrive on the integrity of each individual honoring a debt obligation.

(Excerpt) Read more at csmonitor.com ...


TOPICS: Business/Economy; Miscellaneous; Religion
KEYWORDS: moral; underwater
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In these extra-ordinary financial times, what is the moral obligation if any?

Are these homes simply a business deal gone bad or is there more to it? I contend there is more to it.

From greedy consumers who bought more house than they could afford, to greedy consumers who once they bought the house had to keep up "appearances," to in some very real cases fraud committed on an unwitting consumer by the bank, broker, or appraisers.

There is only one time I might agree to walk away, but there would be legal consequences for those who committed fraud.

And that raises another question. If you can afford to pay on your upside down mortgage, is it not fraud to jingle mail out of it?

1 posted on 03/03/2010 5:39:06 AM PST by EBH
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To: EBH

People still make their car payments even though virtually every car on the road is “underwater”.


2 posted on 03/03/2010 5:42:37 AM PST by ecomcon
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To: ecomcon

Wonder if Kennedy’s car was paid off.


3 posted on 03/03/2010 5:44:57 AM PST by libh8er
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To: EBH

Tell your kids: A home is a bad “investment.” Many of these people thought that buying a home that was “worth more” would simply continue to rise in value at double digit rates. Your home is your home. As you pay it down, you build equity and eventually you can walk away with a lump of money. But, the rate of return is never that great over 30 years. Buy stocks or gold for a return. Not your home.


4 posted on 03/03/2010 5:47:49 AM PST by Vermont Lt (I do not live in Vermont. I did for four years and that was plenty.)
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To: EBH
If you can afford to pay on your upside down mortgage, is it not fraud to jingle mail out of it?

The deal has two parts, if you don't pay the lender takes it. The lender took a risk also. Both the lender and the borrower were screwed by the government that played games with the rules that eventually led to the implosion. Of course, Barney Frank will never admit that. Then, of course, the major lenders get bailed out by the Government taking out additional loans, which we will all owe on, even if you walk away from your home. The Keynesian cycle never ends pretty.

5 posted on 03/03/2010 5:48:53 AM PST by D Rider
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To: EBH

Sending back the keys does not release you from the debt.

If that house is resold you still owe the difference between what it sells for and what you agreed to pay.


6 posted on 03/03/2010 5:49:05 AM PST by Venturer
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To: EBH

I agree but I also think the banks have a moral responsibility (and it makes good business sense) to renegotiate the loan contracts in these cases.


7 posted on 03/03/2010 5:49:29 AM PST by DManA
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To: EBH
Or should they honor the “promise to pay”

Whether or not the bank gets the property, collateral, or whatever you want to call it, the intent for the contract is for the lendee to make a good faith effort to honor the "promise to pay".

Objectively speaking, the lendee is morally obligated to pay and the lender is morally obligated to abide by the contract.

8 posted on 03/03/2010 5:51:51 AM PST by frogjerk
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To: Venturer

This is biting a co-worker in the ass. He was all pissed that he was underwater, so he walked away and moved the fam to an apartment. I told him not to that no matter who told him otherwise morally you owe that money.

I haven’t talked to him outside of our professional relationship since. He’s been going to a lawyer lately, something I recommended he do prior to even considering such a thing.

Poor guy never used to work overtime, now he’s signing up for anything he can. Shame


9 posted on 03/03/2010 5:53:28 AM PST by downwdims (It does not take a majority to prevail... but rather an irate, tireless minority)
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To: EBH

Sooner or later you have to wise up and realize if others aren’t playing by the rules (indeed, if the rules have been done away with altogether), then you’d be a fool to stick with a loser. If I were in that situation, I’d do what the Big Boys did: Look out for me and mine. Period.


10 posted on 03/03/2010 5:53:42 AM PST by Wolfie
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To: DManA
I agree but I also think the banks have a moral responsibility (and it makes good business sense) to renegotiate the loan contracts in these cases.

And credit card companies also have a moral obligation to renegotiate if the dinner you bought six months ago on the card is no longer worth $75...

11 posted on 03/03/2010 5:54:00 AM PST by Onelifetogive (Flame away...)
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To: EBH

There is no moral obligation. In fact, the lawas are in place as is a system to walk away strictly to prevent this type of unregulated behavior of lenders. The lendee is a risk b/c they can walk and default without too many reprecussion other than bad credit. In fact, in California 580B was put in place to prevent deficiency judgements on lendees who home face forclosure to prevent extended abuses from lenders.

As a lendee, in this economy, you are a second or third party negotiator to the loan. If the bank does not want to negotiate, let them have their parcel of land they appraised at twice the amount. Walk away and start again.

That is an option.


12 posted on 03/03/2010 5:56:05 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: Vermont Lt
Your home is your home.

Absolutely.

13 posted on 03/03/2010 5:56:06 AM PST by frogjerk
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To: Onelifetogive

Not the least bit analogous.


14 posted on 03/03/2010 5:56:16 AM PST by DManA
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To: Venturer

“Sending back the keys does not release you from the debt.

If that house is resold you still owe the difference between what it sells for and what you agreed to pay.”

Only in a few states and only on second mortgages and only if they are recourse loans.


15 posted on 03/03/2010 5:57:22 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: Vermont Lt
Tell your kids: A home is a bad “investment.” Many of these people thought that buying a home that was “worth more” would simply continue to rise in value at double digit rates. Your home is your home. As you pay it down, you build equity and eventually you can walk away with a lump of money. But, the rate of return is never that great over 30 years. Buy stocks or gold for a return. Not your home.

any home you mortgage is guarunteed to have a negative return. a house you borrow $100,000 to purchase, over 30 years you'll end up paying around $200,000 for.
the only long term advantage to having a home is that lump sum you get when you eventually sell it.
16 posted on 03/03/2010 5:57:42 AM PST by absolootezer0 (2x divorced, tattooed, pierced, harley hatin, meghan mccain luvin', smoker and pit bull owner..what?)
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To: absolootezer0

If it is a second and rent covers mortgage it is a fine investment.


17 posted on 03/03/2010 6:01:40 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: Porterville; EBH
There is no moral obligation. In fact, the lawas are in place as is a system to walk away strictly to prevent this type of unregulated behavior of lenders. The lendee is a risk b/c they can walk and default without too many reprecussion other than bad credit. In fact, in California 580B was put in place to prevent deficiency judgements on lendees who home face forclosure to prevent extended abuses from lenders.

You are confusing state law with morals. They many times not the same thing.

18 posted on 03/03/2010 6:02:27 AM PST by frogjerk
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To: frogjerk

No, no I’m not confusing state laws with morals. Your confusing being a mark or a patsy with business decisions.

It is nothing personal, it is just business.


19 posted on 03/03/2010 6:03:57 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: libh8er

Now that was funny!!!!


20 posted on 03/03/2010 6:06:14 AM PST by outpostinmass2
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To: EBH

I have read articles that say the reason more banks aren’t taking the smart business step and renegotiating is that they are overwhelmed by all the defaults. They were blind sided by this and don’t have the staffs or expertise to deal with it. There are specialty firms popping up just to take this burden off their hands. That is an encouraging sign that under the dead weight of government there is still a dynamic enterprising core waiting to blossom.


21 posted on 03/03/2010 6:07:26 AM PST by DManA
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To: Vermont Lt

I have been telling people that for 30 years. A house is a lifestyle choice. I only bought my first house when I had my first kid. I looked at it as the cost of being a good parent.


22 posted on 03/03/2010 6:09:11 AM PST by DManA
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To: Porterville; EBH
No, no I’m not confusing state laws with morals. Your confusing being a mark or a patsy with business decisions. It is nothing personal, it is just business.

Yes, you absolutely are. The question was whether someone was morally obligated, not a straight up business decision question. It is not the same thing in this case.

What is the "right" thing to do? Do you stand by your signature and oath or do you walk away and be "free" from your obligations?

23 posted on 03/03/2010 6:10:01 AM PST by frogjerk
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To: Porterville

Even if you are playing Monopoly you have a moral obligation to follow the (arbitrary) rules.


24 posted on 03/03/2010 6:10:51 AM PST by DManA
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To: frogjerk

Who would you admire more? Abe Lincoln who walked 10 miles to return the money to a customer he accidentally short changed or someone who shrugged his solders and pocked the money? BTW that was a shrewd business move by Abe too. Bet that guy became a loyal customer and spread the news that Abe could be trusted.


25 posted on 03/03/2010 6:14:16 AM PST by DManA
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To: Porterville

Impossible to make that blanket statement. If the house is in a declining neighborhood it could be an economic time bomb for you.


26 posted on 03/03/2010 6:15:53 AM PST by DManA
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To: DManA
Obligations to banks lost all moral authority when they shrugged off any risk in lending by accepting tax payer monies.

Game on baby.... give me a million bucks to stay afloat and I may continue to play the boardgame. Otherwise I will stick with the law to screw over the lender if necessary.

What, is everyone on this board deluded that the banks are somehow virtuous? Please. Only reason I didn't become a banker is because I'd have to move to the big city to make the real cash. They are a nasty bunch.

27 posted on 03/03/2010 6:16:31 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: frogjerk
No you are not obligated to pay the dealer in a game of pick the shell.

And when the dealer loses the taxpayer covers his end... but the player has to still pay the loses.

nonsense.

You have a moral obligation to protect your family from financial hooligans. Follow the law.

28 posted on 03/03/2010 6:18:31 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: Porterville
No you are not obligated to pay the dealer in a game of pick the shell.

What in the hell are you talking about? All mortgages are scams? You are nutz!

29 posted on 03/03/2010 6:24:55 AM PST by frogjerk
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To: Porterville

Read my posts. I said banks have the moral obligation to renegotiate. If they don’t that means they are acting immorally.


30 posted on 03/03/2010 6:24:59 AM PST by DManA
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To: Porterville
What, is everyone on this board deluded that the banks are somehow virtuous?

Are you so deluded that all bank/bankers are somehow evil, Mr Marx?

31 posted on 03/03/2010 6:26:23 AM PST by frogjerk
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To: Porterville

I paid 228k for a condo in northern VA in the fall of 05. Now, the property tax assessment for 2010 says it’s only worth 79k. To rent it out would only cover half the mortgage and condo fees. I’m miserably stuck.


32 posted on 03/03/2010 6:26:41 AM PST by RDTF
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To: frogjerk

I have a bridge to sell you in Mahattan ... should I call you Patsy or Mark?

At any rate I will gladly take your money if you want to waste it.... I’m a pure capitalist.


33 posted on 03/03/2010 6:28:18 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: DManA

I totally agree; they have a moral obligation to negotiate.


34 posted on 03/03/2010 6:28:55 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: frogjerk; Porterville
...do you walk away and be "free" from your obligations?

And that is where it hurts society and business. If people decide their obligations hold no moral responsiblity to uphold, then the business system collapses. The laws in many cases are there to insure the integrity of the system.

35 posted on 03/03/2010 6:29:06 AM PST by EBH (The warning bell of Freedom is ringing, can you not hear it?)
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To: RDTF

A lot of people are stuck with few options and no lenders wanting to speak about re negotiating.


36 posted on 03/03/2010 6:30:21 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: DManA
Not the least bit analogous.

So which of the two is not borrowing money from someone to buy something and them being expected to repay that money?

37 posted on 03/03/2010 6:30:48 AM PST by Onelifetogive (Flame away...)
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To: EBH

Exactly. And the lender takes the intial risk... but by accepting tax payer monies for “to big to fail” the game ends. There is no longer any obligation morally.


38 posted on 03/03/2010 6:31:38 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: frogjerk

“What is the “right” thing to do? Do you stand by your signature and oath or do you walk away and be “free” from your obligations?”

You took no oath when you signed the load documents, this is a business transaction not some goofy oath! The terms are quite simple, the bank leads you the money and uses the house as collateral so that if you quit paying they can recover their money by foreclosing on the house and reselling it. The bank used to require that you put 20% down AND did an assessment of the value of the house BEFORE they risked their money so that they were assured of getting their capital back.

Somewhere along the way the banks lost their collective minds (mostly because they were reselling the loans to Wall Street so felt they did not have to follow good banking requirements) and started lending without any sort of thought to the market or the economy going down. Now we all are paying for it. So no this has nothing to do with morals, if you are upside down on a house and thinking about this talk to a lawyer because in some states they will come after you for any money owed that could not be recovered by the sale of the house.


39 posted on 03/03/2010 6:32:45 AM PST by trapped_in_LA
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To: Porterville

Good thing to look at when you are shopping for a mortgage - is this company have a history of being totally inflexible in the face of titanic economic shifts? Then maybe 1/8 of a point lower interest isn’t a good deal.


40 posted on 03/03/2010 6:33:12 AM PST by DManA
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To: Porterville

So are you coming to that conclusion because the TARP money was supposed to cover the losses and the banks got padded?

If so, then they should renegotiate ALL the underwater mortgages for the new appraisal values. No?


41 posted on 03/03/2010 6:34:10 AM PST by EBH (The warning bell of Freedom is ringing, can you not hear it?)
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To: Onelifetogive
and them being expected to repay that money

then...not them!

42 posted on 03/03/2010 6:34:24 AM PST by Onelifetogive (Flame away...)
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To: DManA

How can you renegotiate terms on a contract? They Loaned you a value at an interest rate and you agreed to it.

You don’t renegotiate a car loan once you drive it off the lot


43 posted on 03/03/2010 6:34:28 AM PST by downwdims (It does not take a majority to prevail... but rather an irate, tireless minority)
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To: downwdims

It is a damned shame. No doubt of that. They have Barney Frank to thank for it, and guess what. Old Barney is still the HMFIC .


44 posted on 03/03/2010 6:34:58 AM PST by Venturer
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To: trapped_in_LA

I completely understand your point of view. But if it becomes standard it does not bode well for the future of this country.


45 posted on 03/03/2010 6:35:39 AM PST by DManA
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To: downwdims

Anything can be negotiate but both sides have to agree.


46 posted on 03/03/2010 6:36:30 AM PST by DManA
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To: EBH

No, I’m saying that any moral obligation, if one ever existed, ended at the time they accepted TARP


47 posted on 03/03/2010 6:36:51 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: Porterville

Why?


48 posted on 03/03/2010 6:37:14 AM PST by EBH (The warning bell of Freedom is ringing, can you not hear it?)
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To: downwdims

The banks took a risk at an appraised value. The house is their if they want it.


49 posted on 03/03/2010 6:38:01 AM PST by Porterville ( I have come here to chew bubble gum and kick ass, and I'm all out of bubble gum)
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To: DManA

And you can’t fault the Bank if they don’t want to!

This stuff drives me insane. You buy a car for 30k on the lot and then want to give up the keys because it’s suddenly worth 20k after a week.

How is this any different than a house?


50 posted on 03/03/2010 6:38:27 AM PST by downwdims (It does not take a majority to prevail... but rather an irate, tireless minority)
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