With a quarter of American mortgages "underwater", many people are considering walking away from their mortgage. Are there any "moral" consequences? by Gene DeNardo
(libertarian)
Wednesday, June 29, 2011
About twenty five percent of all home mortgages in Americaare presently underwater. The term underwater refers to the condition in which a homeowner {probably the wrong word to use here} owes more money to the bank than the house is worth. Until the mortgage is paid down to the point at which the mortgage debt equals the market value, the homeowner is guaranteed that every mortgage dollar is a dollar he will never see again, unless another round of housing value inflation begins.
With the outlook of housing inflation commencing being pushed further out into the future, many underwater mortgage holders wonder if they shouldnt just walk away from their mortgage contract before it takes them from their house to the poor house. Yet, many feel morally obliged to continue paying their hard earned money to the banks, regardless of the unwillingness of most all banks to adjust their mortgage value to real world values.
To explore whether there is truly any moral obligation, we must first understand the fundamentals of the home mortgage.
The most important consideration is the type of debt. The home mortgage is secured debt. The house itself is concrete security for the loan. In fact, the mortgage contract in essence states that the homebuyer will fulfill an extended period of payments, at the end of which he will then own the house.
For all practical purposes, other than any cost such as property taxes or maintenance, it is the bank that owns the house. This is reinforced by the ridiculous legalities that guarantee banks the right to automatically confiscate any equity that the homebuyer might have at the time of foreclosure.
The mortgage agreement is nothing but a sale agreement for a good {the house} that allows the purchaser use of the good during the payment period. If the payments stop for any reason, the bank keeps the proceeds of all payments and fees and gets the good back. The bank can then initiate a new agreement with another customer.
The down payment insures that the bank will never take a loss, even if the payments stop immediately. The bank can ask any ratio of down payment it wishes, deciding whether increased security is a priority or less security and more new customers is a better goal. No matter, the homebuyer has no say in the size of the down payment, they must be able to meet the requirements of the banks or go elsewhere.
Perhaps, the only necessary deciding factor in the moral question is the fundamental mechanics of the mortgage funding system itself. Although the bank collects interest that can double or triple the original cost of the house, the bank itself does little or nothing to produce the value in the first place.
Mortgages are funded in two ways: either by bank depositors, who are mortgage holders or renters themselves or by the legal fiction that allows banks to use a fraction of the depositor's money to create new money. This is based on the legalized deception that allows banks to promise that the depositor's money is in the bank while 90 percent of it is out making the banks interest, often funding a home mortgage.
Morality is a system of conduct or behavior based on the notion of good and bad or right and wrong. Contracts are based on a promise to perform some action in the future.
Even without basing our decision on the fraudulent and deceptive nature of the financial system, which certainly would be a valid basis for a decision, a contract that provides ample remedy for any breach of that same contract {down payment, confiscation of equity, guaranteed interest, return of security} cannot also enforce moral commitment.
The mortgage contract is a business transaction based on the purchase and use of a good through the future {which none of us can foresee}. There are no inherent moral obligations other than the actions and remedies outlined in the same contract. It is solely a business transaction.
As in any business agreement, all parties should act in their own interest. Banks, with the help of the government, certainly do so. There is no reason the mortgage holder shouldnt do likewise.
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Posted By: Bill Gee
Date: June 29, 2011 12:36:50 PM
Given my own experience (http://www.nolanchart.com/article8683_The_Soul_I_Left_Behind.html), I have to say that when I was forced to give my house back to the bank, morality on my part was the least of my concerns. Given that the primary reason the house was underwater in the first place was due to a predatory lender who claimed that the house was worth far more than it actually was even in the so-called "boom years", I felt as though the mortgage contract I was paying for was negotiated in bad faith on the part of the lender. Therefore, the "morality" of keeping up payments even when I had the means to do so did not make sense. Why reward a a big bank with money that you will never see again just because you were fooled into signing a piece of paper that you had no business signing in the first place?
Posted By: adaptune
Date: July 1, 2011 04:50:34 PM
What unadulterated nonsense! The author would have home-buyers rationalize the same bankrupt behavior that we all fault banks for practicing: roll the dice and purchase a home. If the home goes up in value, sell it and pocket the difference as profit. If the home goes down in price, walk away and make someone else eat the loss.
Thanks SO much, Mr. DeNardo, for helping to equate libertarianism with a complete lack of morals. That's REALLY going to help society advance.
Theft is the "illegal taking of another's property without their consent".
Keeping the definition in mind, your comment is "unadulterated nonsense".
Banks "consent" to loaning money and through foreclosure receive both the "property" {the house} and any past payments and fees back. Theft is not even in the picture.
If you were knowledgable of the mortgage industry, you would also know that banks did not "roll the dice and purchase a home". They were paid "commissions" by other actors in the mortgage industry to supply loans for the "creative" securties that the industry was passing around at great profits.
Knowledge preceeds morals.
the homebuyer has no say in the size of the down payment, they must be able to meet the requirements of the banks or go elsewhere.
...so the homebuyer has a say, you're saying.
"Not a good deal for me, so I'm gone."
NOBODY will give him the deal he wants? He's now free to buy land, apply for a building permit, hire whichever contractors suit his fancy and his budget, acquire the inspections as they're needed and make the whole thing a cash-as-available deal. He is not required to borrow money. It may take four years, but it's not prohibitted.
As for your "morality" proposition: for "morality" to make any kind of practical sense whatsoever, it is the enactment, enforcement and acceptance of the rules and laws a society gives itself for the "proper" conduct of its citizens and institutions. Following the contracts you voluntarily enter is "moral" in a practical sense.
If you have any other sense of the term, it is not practical, and you may as well be discussing the subject with the ten-thousand angels dancing on the head of St Ambrose's pin while digging for lint in your navel.
"As for your "morality" proposition: for "morality" to make any kind of practical sense whatsoever, it is the enactment, enforcement and acceptance of the rules and laws a society gives itself for the "proper" conduct of its citizens and institutions."
What a load of ____! If "society" is giving itself these rules, what is the point of individual morality?
You make a fine case for the all powerful state.
Possible choices that would allow you to be correct:
Sense
Rational thought
Insight
Take your pick. Any would work.
what is the point of individual morality?
I give up? what? Do you have a use for it?
If you do, then use it. Make up your own version of individual morality and have a field day with it. I don't know that anyone - least of all me - has said you couldn't. I certainly didn't say anything that would invalidate the proposition.
You make a fine case for the all powerful state.
And here you are advertising yourself to have the imagination of a slug.
Despite the fact that "the state" has a natural tendency towards the collection and synthesis of power in the first place, there is no one thing I said that would "make a case" for the "enactment, enforcement and acceptance of the rules and laws a society gives itself for the "proper" conduct of its citizens and institutions" being indifferentiable from an "all-powerful state".
What rules and laws did we give ourselves back in the day? Shouldn't be too hard for you to find, bud. Google is your friend.
Does the Constitution define an "all-powerful state"? Hmm?
US morality then, in a practical sense, is leaving people the *** alone to associate, speak, write, and religionate how they choose. Does that sound officious, totalitarian, statist, or otherwise "all-powerful" to you?
I know the answer to that and so, I think, do you.
A society can make whatever rules it wants to based on what it believes to be right/wrong, and good/bad. Those rules can foster an all-powerful state, or not ... again, depending on what it believes to be right/wrong and good/bad.
You are the one who can only see "all-powerful" coming out if it. Not me. Don't saddle me with your issues. I've got enough of my own.
