Skip to comments.On the ethics of mortgage loan default
Posted on 06/04/2011 3:20:27 PM PDT by Chunga85
Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed?
First, consider it is unlikely that marketable, fee simple, insurable title can be obtained as a result of fulfilling the obligations of the related promissory note. On the contrary the titles to some 60 million homes in America are badly clouded. Secondly, encouraging investment in an asset class that has been artificially inflated, then deliberately destroying the price of the asset, as part of a separate profit making scheme is unethical, and any agreement based on this type of fraud is grounds to consider the original debt instrument used in the agreement null and void. Fortunately these grounds are unnecessary, as increasingly US courts are ruling that these mortgages are already invalid for numerous other reasons.
On November 12th, 2010 we published our article Tattoos, Pyramid Schemes and Social Justice in which we advocated that homeowners consider suspending their mortgage payments. In the article we enumerated reasons why we felt this action is both ethical and prudent. On January 11th, 2011 we published our articles Ibanez Denying the Antecedent, Suppressing the Evidence and one big fat Red Herring which outlined the legal realities of securitized mortgages, and the impact of the landmark Ibanez decision on homeowners, particularly in Massachusetts. We affirmed our conviction that Massachusetts homeowners with securitized mortgages might want to consider suspending their mortgage payment, and place instead their funds into an escrow account.
(Excerpt) Read more at amvona.com ...
I think not.
Post it here.
These people are proposing an and to orderly society and economic ruin.
Pay your bills. That’s how it works. Don’t pay, pay the price and they do not forgive.
Sounds like a faulty premise. The homeowner should be able to secure quiet title by going to court.
I have come to believe differently.
Let me do this in formal terms:
I have had (recently) trouble paying off credit card debt.
I have an MBA and experience with accounting (I’m not a complete idiot when it comes to analyzing the risk associated with extending credit to a given individual “A” nor am I in the habit of simply blowing off debt.).
Bank (call it “Bank of A” or “A of Bank”) extends to me a line of credit (call it $xxxk). They do so ON NO SOUND BASIS WHATSOEVER. In fact they INUNDATE me with literature telling me that I’ve been “pre-qualified”. They do not ask me for my any documents. They do not analyze whether or not my condition and history suggest that I will or will not be able to make the payments over time. They simply say: “here’s the money”.
I believe (given my MBA education) that they are UNDERVALUING THE RISK of lending to me (for many reasons).
But the fact that their underwriting department UNDERVALUES THE RISK (from MY perspective) does not mean that I should believe that they (WITH THEIR MUCH GREATER EXPERTISE AND ACCESS TO DATA)have ALSO undervalued THEIR risk.
Look: if someone says to you “here’s $10 no questions asked all you have to do is pay me $11 a year from now” is it YOUR job to do the risk analysis to determine whether or not (given that X% of people will ALWAYS default) the person lending you the money makes money over that period? Or is that THEIR job?
org, you my friend are ignorant on this issue. No one should get a free home but the citizen should be protected from fraud. In fact we have laws on the books that the banks are breaking daily but the courts are ignoring them because the judges salaries are partially being paid by the very banks breaking the laws.
There is so much fraud in the banking\mortgage industry it will make your head spin. We all have been affected negatively by this in more ways than one. Take some time and learn about what is really going on. Look at the big picture.
Yes, no one should get a free home including the banks. Most foreign investors were made whole by TARP funds. The banks sold the mortgages for a profit but continued to service them. The domestic investors were made whole through AIG, Freddie and Fanny but guess what the servicers are able to foreclose on the property, in other words steal the home then re-sell it at a loss(lowering their profits and tax obligations) all with a clouded title. Who is insuring these clouded title? The new title insurance being funded by the very banks who received bailouts.
Most of these sub-prime mortgages had PMI insurance on the as well. Who received the PMI payout?
Yes no one should get a free house but banks shouldn’t be able to either. The banks should not be above the law but they are.
I believe the plunder has destroyed this great nation. Unfortunately, I doubt we will rise out of this in our lifetime.
What would you say if a home owner had the money to sue without ever being late with a payment, own said lawsuit, and was dismissed of the mortgage responsibilities.
Would you feel this homeowner did not deserve the free home he just was awarded?
Why not just post it? Blogs usually have a bunch of flash and malware.
LOL, just keep, telling yourself that silly crap, BS degree class of 75; majors, accounting, real estate, minor industrial engineering. And like the fellow I was talking/ posting to, I think the x has my funny looking robe, but I think she went up a notch and did the doctoral thing, like my nephew.
Your are combining a plethora of issues. Underwriting, secured v. unsecured, etc. The article to me is about moral hazard rather than substandard underwriting.
I believe it customary in real estate to find a purchase you wish to make then ask a lender to finance it for you. Presumably your personal risk analysis was completed prior to the loan request. They underwrite you and make an offer, knowing that in secured lending the risk of total loss is usually non-existent. Now you have an asset on your balance sheet with offsetting debt and they have an asset and a security interest.
It’s lame to say the behavior your lender engages in by dispositioning his assets later on has any impact on your original agreement to pay. This article isn’t talking about weak underwriting, it’s talking about a clear title issue that isn’t part of what you even bargained for. If title was clear in the first place and you pay, it will be clear again.
Comparing that to walk aways on risk priced unsecured lending doesn’t work for me. Lenders know the risk and price accordingly. Also people walk away and file bankruptcy all the time. Both behaviors are expected and thats why GE lends to persons at 30% APR.
It never ceases to amaze me what the sinners will use to justify their sins. "It's okay if I default because the banks are greedy." Whatever helps you sleep at night, sinner.
I am with you on people trying to justify their actions by pointing at someone else. If they don’t pay the mortgage they should drop of the keys and leave. Nothing short of sickening and disgusting.
Just curious....my mortgage was originally with Countrywide. How would I find out if the title is ‘clouded’?...I’m not looking to stop my payments or anything like that...just don’t want to get ripped off in the end.
No one should get a free home but the citizen should be protected from fraud.
Agreed. Did the bank commit fraud when they send out an appraiser that they know will give an overly optimistic appraisal?
And I think you’re making a false distinction between “secured” and “unsecured”.
Yes, there is a question of moral hazard, but at some point you actually have to “do the math”. And it’s not up to the consumer (in a capitalist economy) to “do the math”.
If a lender decides to lend me $5 because I’m pretty or because I give him title to my 1985 Lexus as collarteral is irrelevant. It’s the lender who has to do that math to decide whether or not an ‘85 Lexus will give him back his principle and interest if I can’t pay.
IT’S NOT MY JOB, any more than it’s my job to determine what price Burger King should charge for a Whopper. If BK charges too much, I don’t order a Whopper. If they say “Here’s your Whopper, pay $10 years from now”, it’s not up to me to decide if that “price” will make them money or not.
When I make a legal commitment, I have a moral obligation to follow through. Bankruptcy clears the legal commitment, but the court lacks the moral authority to clear a moral obligation. I don’t see how it could be moral to default by choice, nor do I see any room for discussion on that issue. It is certainly legal and moral to default when you are incapable of satisfying your legal commitment (how could it be immoral to fail in an impossible task?), but to do this as a choice to maximize profit strikes me as the act of a social parasite, not of a decent person. Obtaining clear title is an entirely different question, but it should be settled separately from the question of repaying a valid debt.
Maybe it’s just me, but couldn’t the author have made his point using about 25% of the words he used? And made his sentence structure a little easier to digest?
I shouldn’t have had to work so hard to wade through this seemingly never ending molasses posing as erudition.
So, to winnow all this BS down to basics, are you suggesting it is OK to be a thief if you’re an educated one, eh?
“It never ceases to amaze me what the sinners will use to justify their sins. “It’s okay if I default because the banks are greedy.” Whatever helps you sleep at night, sinner.”
Right, bring sin into this, when the banksters could not be in clearer violation of Biblical precept. Check out Deuteronomy 23:19-20. And when’s that year of Jubilee coming? Just so us sinners know, k?
Now this turns into religon. You do not know me. Only one shall judge and that is not you. We are all sinners, no? You’re part of the problem.
By the way, I have two mortgages and deliquent on neither. I pay my bills.
LOL. Harvard PHD economics 94. Does that make you feel any better?
The underwriters knew what the mortgage broker and appraiser were doing. Didn’t matter, quota’s and bonuses took priority.
You tell me...
No one should get a free home. No one.
No, philosopherdeadbeat - if YOU accept the conditions and use the product it's YOUR job to pay.
You're evidently a prime example why these days MBA generally stands for nothing other than More Bullshyte Ahead, deadbeat.
Uhuh. And FDIC also picks up the tab on the loss for certain institutions.
"But who lost? That would be the taxpayers who lost. The taxpayers lost the discounted value of the loan in sale to One West Bank. That was about $169,500 less than the loan value. And, the FDIC also covered 95% of the lost from the original value of the note. The loss was $131,000 plus foreclosure costs for a total loss of about $141,000. That makes the total loss to the taxpayers was about $300,000."
Ain't that cute?
It isn't about party affiliation or political persuasions nor is about one's perception as to their level of education.
It is about the law. More accurately, it's about the fact that we seem to have two sets of laws...one for government and "Too Big To Fail" financial institutions and another for everyone else.
To wit: AZ Rep. Seel [R] receives a rather gratuitous fifty-one percent principal reduction two days before the scheduled vote on Senate Bill 1259
I'm not going to post the entire bill but below is a summary.
"Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership."
After receiving his highly unusual principal reduction the good Senator failed to appear for the vote.
It's about the law.
Many of the same arguments laid out in the comments in this thread are brought up by counsel for MERS, Domestic Savings Bank, Credit Northeast, Countrywide Home Loan Servicing, Bank of America, N.A., and the Federal National Mortgage Association in the case below. The court was not pursuaded.
The brief provides an abundant amount of case law for those interested.
Back to the issue of two sets of laws and why we have them...this four minute video sums it up quite nicely.
"It is no measure of mental health to be well adjusted to a profoundly sick society"
We allow it to happen.
...all these are the beginning of sorrows. matthew 24: 8
I hope all of you folks have a nice day.
If something is wrong, it’s wrong. If you are able to keep paying your mortgage but refuse to because you are ‘underwater’, that is wrong. Nothing the banks did makes it okay. You signed the note, you agreed to the terms, you keep your word. Oh, and BTW, you are not just hurting the banks with your actions, you and others like you are really deeply hurting other totally innocent neighbors and homeowners by pulling all prices down and leaving vacant houses.
Buy a house you like at a price and mortgage you can afford. If it is worth less for a time, so what. I have cars and stocks that are worth less than I paid.
Banks have insurance to protect them from what you do, so it is only the homeowning neighbors that you will be stabbing in the back. And, it is the selfish people like you across the country that is making the housing market and the economy fail nationwide. So, you are helping to kick America while She is down.
Owning RE involves simple contract law. Both sides have to honor a signed contract. If the contract is not followed then it can become a court matter. Let the Courts figure it out as it makes no sense to make payments towards a fictitious lien.
I think strategic default is wrong, period. I wouldn’t do it under any circumstances and consider it little different from theft.
However, there are circumstances where people lose a job, get sick, etc. and can’t pay back a loan. In those circumstances, I don’t have a problem with the person defaulting. And I also don’t have a problem with them doing so in such a way that preserves as much of their assets as possible.
Said another way, I don’t believe that individuals should be held to a different legal standard in default than a corporation would be held to in a bankruptcy.
What it really boils down to is this simple question: “Should the banks have to obey the same laws that the rest of us do?”
Given your screen name, I can tell that you tear up over some stupid guy who commits suicide because he can’t sell enough shoes.
If you think that all business people (which you obviously don’t given your last post)are morally and ethically honest then yes, all debts should be repaid. If, on the other hand, you believe that businesses which are run by (how did you put it? oh yeah...) More Bullshyte Ahead deadbeats then no.
Check the thread (do a search on FR I don’t have time for it) on the “foreclosure of Bank of America” which wrongly foreclosed on a Florida couple’s home and refused to pay the court ordered costs. Count the positive vs negative comments.
If you believe that we should blindly do whatever banks tells us to then you are either a bill collector or a moron.
Yeah or when the super wealthy fat corps and or Wall Street needs to be bailed out, that's all A-OKAY. Pay up.
There's no question in my mind that a person has a moral obligation to pay off a just debt if he/she is capable of doing so, regardless of what the law says. But this whole system of paying a mortgage starts to get very blurry when the mrotgage instrument is transferred from the original lender to secondary investors . . . and there are serious questions about just who holds the title to the property. This is the underlying legal issue that is faced by many courts involved in foreclosure proceedings, and in some states there are far too many cases where the party foreclosing on a home isn't the party that actually holds the title to the property. For some reason Florida is rife with this kind of nonsense, which makes me wonder what's going on down there and what unique legal issues are involved.
Is it ethical for the American homeowner whose mortgage has been securitized to default, even If they are not financially distressed?
They should continue to pay while pursuing a Quiet Title action , if they win the QT they should then sue for the return of all monies paid in.
“If something is wrong, its wrong. If you are able to keep paying your mortgage but refuse to because you are underwater, that is wrong. Nothing the banks did makes it okay. You signed the note, you agreed to the terms, you keep your word. Oh, and BTW, you are not just hurting the banks with your actions, you and others like you are really deeply hurting other totally innocent neighbors and homeowners by pulling all prices down and leaving vacant houses.”
Is it okay for the banks to claim TARP funds even though that is redistributionism, because the banks have a duty to their stockholders to maximize earnings? If that is the case, banks are immoral. There should not then be imposed some ‘moral’ duty on homeowners, when the same rules don’t apply to the formerly community-oriented institutions granting them mortgages, which are slaughtering businesses and potential home sales countrywide by sitting on those TARP funds (which were, after all, intended to LOOSEN credit). If your intimation is that contracts with immoral actors do not justify one-sided retaliatory breach by a party simply because that party ‘got what it asked for,’ I reckon you should stake a law practice for pimps who want to shake down deadbeat johns via the court system and every bookie who needs to collect by sending the sheriff out to do their dirty work.
And I don’t see how how “hurting other homeowners” comes into the equation at all. If those other homeowners benefited from the rise in value that attended this housing boom, they should taste the drop, too. Many of those homeowners did not suffer the property valuation hike, sold or refinanced when the getting was good, and benefited from the bubble. It wasn’t immoral for them to do that based on an inflated, false value of housing when current homeowners can’t—it isn’t immoral for other homeowners to determine that their legal right to abandon a house and suffer the credit slap is somehow superior to their right to keep a mortgage debt in good standing. Essentially, you’re making the same argument, that previous immoral actions by other immoral actors don’t justify one’s subsequent immoral acts. But the situation isn’t always as clear cut as you would have it, as I’ve noted above.
Further, if you believe cutting and running on an underwater house is immoral because it will damage the neighborhood, then it’s similarly immoral not to paint your house or mow your lawn, and I’m pretty sure God doesn’t hold it against people if they fail to trim the weeds occasionally. My HOA might appropriately address a homeowner with terrible crabgrass, but it doesn’t somehow make that homeowner a sinner. Of course, I don’t attend your church, either.
Back when I was a kid, and even when I bought my first house in the '80s, making a mortgage was all about the borrower. Did the borrower have the income and sound financial history to make the loan a good investment for the bank?
Sometime about 10-12 years ago, the mortgage became less and less about the borrower and more about the house. The rise in the value of the collateral (after all, "Housing Always Goes Up") would ensure the viability of the loan regardless of borrower conduct. Hence the half-million dollar loans to strawberry pickers.
This went hand in hand with the change in the mortgage industry's business model. Where mortgage companies historically relied upon the income streams from held mortgages, by the early 2000's this had largely been replaced by one-time origination and processing fees, which were followed immediately by flogging the note off to some successor purchaser.
One did not have to be a financial genius to see this was the road to disaster. I sold my house in 2006 for $450,000, you could probably buy it for half that amount today. And believe me, I'm no genius. I'm just smart enough not to drink the asset bubble Kool-Aid.
So as far as I am concerned, the people who currently hold all these mortgage backed securities were dumber than me.
And if they can't prove they have clear title to the homes, then they should lose their ability to foreclose. Not because they are evil, but because they are incompetent.
Unbelievable isn’t it? One of my homes was motgaged with IndyMac Bank. Guess who took over my mortgage when the Government closed its doors? Yup, It was offered to OneWest Bank aka George Soros, in that sweet heart deal you talk about. This is why I will fight tooth and nail to never foreclose on this property because if I do, this loser makes out.
Our country is a mess. Damn Shame!
“It is about the law. More accurately, it’s about the fact that we seem to have two sets of laws...one for government and “Too Big To Fail” financial institutions and another for everyone else.”
Chunga, This statement sums it for me. I was raised to believe and taught in school that we are all EQUAL under the law. This what pisses me off more than anything. We are living in times of anarchy and the people who keep talking about deadbeats are too blind to see the REAL problem.
Our country is on life support. I do not know what it will be for my children. It makes me sick.
Miss, you need to stop acting like you are somehow morally superior than others. It is people like you who give us Christians a bad name. You open yourself up to be called a hypocrit.
Now, did you not read any of my posts? I am not in foreclosure and I pay my bills with out problem. You are too blind to see the bigger picture in all of this. I am not helping kick America when she is down. I amtrying to show people how far down America is.
Read Chunga’s post #28
Now Read my reply to him in #42
We are living in a time of Anarchy when no one really knows what the rules of the game are because there not Equally apllied to all of us. That my friedn is the real root of the problem. Not the so-called “deadbeats”.
Wake up, will you.
Kart, in reply to your post #31. I agree with your sentiment. I am really starting to believe that people do not have the capacity to see the bigger picture. The problem is picking of winners and losers. The rules are not he same for everyone.
You know I once dated a woman from Ukraine. She grew up in the Soviet Union. She used to tell me all the time that it was chaos living under Communists rule because no one really knew what the rule were. They were different rules for everybody.
This si where we are headed if we don’t get this under control. But here have people like sportutegrl attempting to take the moral high ground while neglecting to see where the morality is broken.
I lived through the 1970's and 1980's where there were housing price crashes and I personally knew people with conventional 30 year loans that played by the rules and somehow were 'underwater'. No one even suggested for one microsecond that they would simply stop paying or turn their house over to the bank. It was simply unheard of. People had signed a contract and were going to live up to it. There was also a huge bank scandal that involved banks lending money on overvalued commercial properties and getting bailed out when the defaults came in. (See Keating 5 S&L crisis). Still no one walked away from their mortgage as long as they could still pay.
If someone is handing out taxpayer dollars to redheads, I would get in line if I was a redhead. I blame the guys handing out the dollars, the politicians in charge of spending our money wisely, the government. If the government is going to tax us and hand out free money to banks, I can't blame the banks for getting in line and holding out their hands.
Defaulting on a loan that you can pay will only make this problem worse. Plus, you are playing right into the anarchist C&P crash the system strategy. Hey, are you one of them?
LOL, No I am not “one of them”. Where did I make a call for everyone to stop making payments on their mortgages?
I too have lived through the 70’s and 80’s. I grew up in RI ground zero for the S&L crises. I personally know many people who lost there lives savings and their businesses from the S&L debacle. Funny that you bring that up. I also watched the S&L’s go out of business. I did not see the government call for them being TBTF. I also, remember court cases and the convictions.
Who has been convicted of wrong doing?
As for not blaming the banks for getting inline for taxpayer money as you wopuld od it as well. That is twisted thinking. Can’t beat them, join them mentality is the very mentality behind the crises we find ourselves in.
To give you the type of family I come from, my father was laid off his job back in Jan 2009, He collected 26weeks unemployment with one 13 week extension but could not find work. He saw that the government was being ridiculous with the unemployment extensions and decided for himself that he would not be a burden on his children and other taxpayers so he declined renew his unemployment insurance and decided to cut his loses and file an early retiement with Social Security, taking the penalty along with it.
He refused to get inline for more than what he saw was his fair share. He did not want keep his hand out for what he said is now a welfare program.
I would do the same. I would not take free money because I know there is no such thing. Especially from the government who must borrow to give it to me, then steal it from someone else to pay the loan.
I don't know if this is part of "crash the system" or not. but I do believe we need to have far more transparency in the investment banking industry.
Those investment banks which are publicly traded need to shine the light of day on their balance sheets. Show exactly how much reserve they have for uncollectible loans, and if they are underreserved, they need to take their writedowns like grownups.
Some of us have been calling for this since the rot first became apparent in 2007. Unfortunately, the "cover it with a band-aid" crowd is still in control, Democrats and Republicans both.
[If you think that all business people (which you obviously dont given your last post)are morally and ethically honest then yes, all debts should be repaid.]
All debts should be repaid only if all business people are moral and honest?
You don’t take responsibility for much, do you punk?
Who the hell do think is going to end up paying for your FRAUD, hmm? QE1 QE2 QE.. etc etc etc.
I don’t care if you’re a bidness man or a shoe shiner - if you take other people’s money whilst making promises that are fraudulent, then you belong in jail.
You and a whole bunch of other MBA NyLon suuuper genius thieves evidently oughta be hanging your More BULLSHYTE Ahead certifeecations on the walls of quadruple occupied 8x10 concrete cells.
You think you got problems now Junior - wait till the IRS gets around nailing your arse for the delinquent taxes on “income” that’s manifested by your unpaid “forgiven” debts.
Your problems are JUST beginning. You’re a financial zombie.
"...What it basically means is: to change the perception of reality of every American that despite of the abundance of information no one is able to come to sensible conclusions in the interest of defending themselves, their families, their community, and their country.It's a great brainwashing process which goes very slow and is divided into four basic stages.The first stage being "demoralization"..."KGB Defector Yuri Bezmenov, Interviewed in 1984
The systemic corruption we're experiencing is a direct consequence of the successful demoralization of this society.
“It is about the law.”
What was it about when a bunch of “fithcally conthervative” RINO interior decorators lied about their incomes and committed mortgage fraud?
Did MERS make them lie on their “LIAR Loans”?