More "Good Faith"

"Strategic foreclosure" is an interesting concept: deciding to stop paying your mortgage or mortgages because the value you see in your home, in dollars and whatever else, plus the hit to your credit (and perhaps your reputation, as discussed in this article), are not enough to keep you paying even though you still have the ability. The fact that you have the option is what makes it strategic.

When I try to judge this situation, I have a very hard time giving a certain weight to the moral component of paying this particular debt, a mortgage. So much deception was involved in bringing about a real estate bubble; so much incompetence, or at least reckless haste, was involved in keeping the financial system from collapsing, that I wind up with this set of questions:

1) How much of the value of your home was ever real?

2) What did you do with the money, if you extracted equity from your home by refinancing?

3) How much consideration should we give to the honesty (well, I'm really bringing up the dishonesty) of each of the parties involved: the lender, the borrower, loan officers, appraisers, Realtors...

4) Are corporations bound by the same rules of honesty and decency, of right and wrong and reputation, as individuals, or do they actually have a better (or at least more flexible) bundle of rights than human beings?

5) In light of questions #3 and #4, how much weight should we give "let the buyer beware"?

6) If I felt I were ripped off by my government leaders, the professionals who assisted and advised me in the purchase of a home, and I had not yet paid in full, what would I do?

In that same article there is a fantastic quote from Brent T White at the bottom of the page: “A lot of the moral condemnation is driven by people’s own self-interest.” Read Brent's paper, if you have some extra time. Certainly lenders and collection agency exploit our culture as a part of their normal course of business, though strategic defaulters do as well: if there weren't so much Indignation at The Big Guys - Populism is almost as big a part of American culture as Bad Debt/Broken Promise Guilt - this wouldn't even be a story angle for the press. I have to say, our moral condemnation of lenders is driven by exactly the same self-interest.

By the way, lenders theoretically have the option to forgive mortgage debt, or some portion of it. Call it "strategic debt forgiveness." I'm still waiting to see those articles and papers start appearing. There is simply no upside for lenders in doing it, and nothing but benefit from dragging their feet and being as uncooperative as they are allowed to be.

Perhaps individuals should do exactly as corporations, banks in this case, are doing: make your decisions based strictly on the numbers, and use every bit of law, morality, and the press to protect your own interests. We can examine this a little more very soon.

Good Faith?

I have been considered a bitter little man for stating out loud that lenders were absolutely not working in good faith with their borrowers. This was probably made worse by their sense that they would be helped if things got too severe. This article is some evidence, though we have to be careful about making anecdotes too strong. But the things this family says are just too much like what I have heard so many times from struggling borrowers to be garbage.

As of this writing 24% of mortgages in the US are larger than their collateral. I would like to see this broken down between owner-occupied and non-owner-occupied homes.

"Good faith" and "reasonable" are two of my favorite legal terms. They're real money makers.

Starting

There is so much going on and so much to think about, it doesn't make sense to me to completely bind myself to a single topic. It also doesn't make sense to have a handful of different blogs to update; better to have one place to collect thoughts for the people I know, and to provide great resources on all kinds of things - that interest me - for those who visit. Maybe in the future, if certain themes emerge that are compelling enough, like offspring sent out to thrive or perish, I will separate things more clearly.