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I lose sleep over people suggesting it is unethical. That is buying in hook, line, and sinker to the propaganda these companies would like you to believe. Dec

I lose sleep over people suggesting it is unethical. That is buying in hook, line, and sinker to the propaganda these companies would like you to believe. Deciding not to service debt is a tactical business decision made every single day. The same companies suggesting it is immoral in order to increase their own profits at the expense of struggling homeowners have all done the same exact thing without anyone ever suggesting it is immoral. You are choosing to exercise a clause of your contract and have every right to do so. Also, declaring foreclosure is doing a great public service. It helps still inflated housing prices reach affordability. Californians spend more on housing than residents from any other state. If we were able to spend less money on housing it would have a positive impact on quality of living here. TL;DR: I would trade my credit score for $250k in a heartbeat.

patio11 16y ago
There is a clause in all of my software licenses that offers a refund, no questions asked. I am able to offer that clause in the faith that people will use it responsibly. If folks exercised it routinely on the theory "Hey, he lets me do it and that puts $30 in my pocket", I'd have to snip it or go out of business. The extraordinarily lenient treatment of foreclosures, particularly in California, is also premised on them being rare events caused by black swans like personal financial catastrophe. If folks use them merely when they're net beneficial, the generous leniency afforded folks in personal catastrophe will not be extended next time. Banks understand this. This is why, when they write contracts between each other, defaults do not result in "Oh, sure, keep the property for another twelve months and then mail the keys in and we're even stevens."
- robrenaud 16y ago
  At first, I thought your argument was really compelling. But I think your analogy fails. You are implicitly equating taking a mortgage, not repaying it and continually living your home with buying your program, getting the refund, and continually using the program. If you could remove the users ability to use the software when you refunded them $30, like the mortgage lender can when the homeowner stops living in it, you'd probably still be in business even with your clause. On the other hand, if all of your users bought your software, thought it sucked and never used it again, and then got their refund, well, you should probably be out of business. The OP's situation is not analogous. He is not free riding. Edit: On the other hand, the year's worth of free rent before being evicted is to me a bit morally shady.
  - patio11 16y ago
    But he does get to stay in the house (for a year), because of the implicit assumption that knocking him out on his hindquarters when he stops paying would be discompassionate in the face of the catastrophe which caused his default. As an aside: I do a functional-limited trial rather than a time-limited trial precisely because 100% of the use of the software for 48 hours satisfies the need for 95% of my customers. "First year free" would wreck my business pretty comprehensively if folks took advantage of it.
    - istari 16y ago
      Him getting to stay in the house for a year is due to the lengthy foreclosure process, a legal artifact, not due to any compassion on the bank's part. I'm confused why you're using the word "compassion" at all, and coaching your argument in terms of how "compassionate" banks will be in their terms next time around. Banks exist to make money, the terms they offer are a balance of how much risk they are willing to take, how much return they can earn, government regulation, and competition. The OP does not owe the banks anything other than the terms of his contract, and the terms say that if he doesn't pay his mortgage he'll lose his house.
- roc 16y ago
  Apples and Oranges. A foreclosed house still has value and can be resold. The bank also retains all the mortgage payments made prior to foreclosure. They can only lose their hat on a foreclosure if the home was overvalued. It's their responsibility to assess the property. I don't see why they get let off the social hook for playing fast and loose, yet we're expected to hold the lendee's feet to the fire for doing the same. > "the generous leniency afforded folks in personal catastrophe will not be extended next time." What generous leniency from the other party? What leniency exists are legal/regulatory terms known to the bank before they signed the contract. If those terms increased their risk, it would be naive to assume they didn't increase their rates to cover the difference. Further, don't misunderstand the huge glut of shadow inventory for compassion. The banks are simply dragging their feet to avoid admitting their losses.
- earl 16y ago
  You clearly have no idea what you're talking about. First of all, the "extraordinarily lenient" treatment is nothing like lenient if you happen to have a second mortgage, which was pretty common during the crisis. Second, banks can and do write contracts like that and have defaulted on them by returning the collateral and forfeiting their investment. There are tons of examples of banks doing just this that two seconds with google would have found for you. Third, this punishment of banks by foreclosure is exactly the point. Socially, we do not want banks making loans that will not most likely be repaid; that's what leads to financial crises as we are currently experiencing with negative knockon effects expected to (optimistically) hinder the economy for 10 years. Fourth, the banks were asked by the government, and by good conscience, to make a fair deal with homeowners. The government is subsidizing taking the loss on the mortgage and reducing the principle to something reflecting reality. For various reasons, banks are choosing not do to this. Foreclosure is the proper response.
yummyfajitas 16y ago
"I lose sleep over people suggesting it is unethical not to tip your waiter. That is buying in hook, line, and sinker to the propaganda these labor providers would like you to believe. Deciding not to tip your waiter is a tactical business decision... TL;DR: I would trade the ability to return to this restaurant and get good service for $8 in a heartbeat." See the flaw in this argument? There are established standards of behavior in our society; tipping your waiter, paying off your mortgage if you are able to, etc. Sometimes circumstances give you the ability to flout these standards without contractual consequence, but that doesn't make it ethical to do so.
- enjo 16y ago
  I disagree... after all, these same banks (and there are only a handful at the end of the day) precipitated the crisis that led to these homes being so far underwater in the first place. Why is only one side ethically bound to play 'fair'? After all, these same companies you are 'obligated' to pay chose to engage in business practices that greatly contributed to the huge run-up in housing costs while at the same time leading to this huge crash (while shorting against it the whole time in some cases). So if one side gets to operate as a business with no ethical standards, why should I as a homeowner be held to a different standard? At the end of the day I'm responsible to my shareholders (myself and my family), and I have to make the decisions that put me in the best financial situation I possibly can. Note: I currently own a home in Plano, TX that is around $30k under water. It's currently a money-losing rental, but if that rental income where to stop... so would my mortgage payments. I'm more than prepared to walk away from that catastrophe.
  - yummyfajitas 16y ago
    1) Anyone who bought a house is just as guilty of precipitating the crisis as the banks. Both home-borrowers and banks took a long position on housing on the theory that it would go up. The only people not guilty of precipitating the crisis are the people who shorted housing or remained neutral. 2) The societal norms in b2b deals are different than in home mortgages. No one expects you to exercise an out of the money call option, but you are expected to exercise an out of the money mortgage. Similarly, the societal norms when hiring a web designer are different from the norms when dealing with a waiter. You tip your waiter, you don't tip your web designer. This does not make it ethical for you not to tip your waiter, even if you say "but I'm doing it for the benefit of my family". Similarly, the fact that different norms of behavior apply to corporate debt than to mortgage debt does not make it ethical to ignore societal norms. [edit: to clarify, I do mean that it's unethical not to tip your waiter in the event of good service, as tim points out below.]
sigzero 16y ago
If you could pay and just didn't...I would call that unethical. That doesn't mean it doesn't make good business sense.
timwiseman 16y ago
You make some interesting points, but I must respectfully disagree. A loan to an individual is an agreement to repay that according to terms. I believe that there is indeed a moral obligation to attempt to fulfill that contract. The foreclosure clauses are meant to handle the cases where the borrower tries and fails to live up those obligations, not the case where the borrower chooses to ignore the obligations they agreed to.
- orangecat 16y ago
  A loan to an individual is an agreement to repay that according to terms. Or to not repay and accept the specified consequences. I believe that there is indeed a moral obligation to attempt to fulfill that contract. Giving up the house does fulfill the contract. The only debatable point that I see is whether it's ok to live in the house without making any payments while the foreclosure process moves forward, or whether you should hand the keys to the bank right away.
Nelson69 16y ago
A service? So it's good for your neighbors that you're helping drive the values of their properties down? That's good for them? Talk about rationalizations...

patio11 16y ago

There is a clause in all of my software licenses that offers a refund, no questions asked. I am able to offer that clause in the faith that people will use it responsibly. If folks exercised it routinely on the theory "Hey, he lets me do it and that puts $30 in my pocket", I'd have to snip it or go out of business. The extraordinarily lenient treatment of foreclosures, particularly in California, is also premised on them being rare events caused by black swans like personal financial catastrophe. If folks use them merely when they're net beneficial, the generous leniency afforded folks in personal catastrophe will not be extended next time. Banks understand this. This is why, when they write contracts between each other, defaults do not result in "Oh, sure, keep the property for another twelve months and then mail the keys in and we're even stevens."

robrenaud 16y ago
At first, I thought your argument was really compelling. But I think your analogy fails. You are implicitly equating taking a mortgage, not repaying it and continually living your home with buying your program, getting the refund, and continually using the program. If you could remove the users ability to use the software when you refunded them $30, like the mortgage lender can when the homeowner stops living in it, you'd probably still be in business even with your clause. On the other hand, if all of your users bought your software, thought it sucked and never used it again, and then got their refund, well, you should probably be out of business. The OP's situation is not analogous. He is not free riding. Edit: On the other hand, the year's worth of free rent before being evicted is to me a bit morally shady.
- patio11 16y ago
  But he does get to stay in the house (for a year), because of the implicit assumption that knocking him out on his hindquarters when he stops paying would be discompassionate in the face of the catastrophe which caused his default. As an aside: I do a functional-limited trial rather than a time-limited trial precisely because 100% of the use of the software for 48 hours satisfies the need for 95% of my customers. "First year free" would wreck my business pretty comprehensively if folks took advantage of it.
  - istari 16y ago
    Him getting to stay in the house for a year is due to the lengthy foreclosure process, a legal artifact, not due to any compassion on the bank's part. I'm confused why you're using the word "compassion" at all, and coaching your argument in terms of how "compassionate" banks will be in their terms next time around. Banks exist to make money, the terms they offer are a balance of how much risk they are willing to take, how much return they can earn, government regulation, and competition. The OP does not owe the banks anything other than the terms of his contract, and the terms say that if he doesn't pay his mortgage he'll lose his house.
roc 16y ago
Apples and Oranges. A foreclosed house still has value and can be resold. The bank also retains all the mortgage payments made prior to foreclosure. They can only lose their hat on a foreclosure if the home was overvalued. It's their responsibility to assess the property. I don't see why they get let off the social hook for playing fast and loose, yet we're expected to hold the lendee's feet to the fire for doing the same. > "the generous leniency afforded folks in personal catastrophe will not be extended next time." What generous leniency from the other party? What leniency exists are legal/regulatory terms known to the bank before they signed the contract. If those terms increased their risk, it would be naive to assume they didn't increase their rates to cover the difference. Further, don't misunderstand the huge glut of shadow inventory for compassion. The banks are simply dragging their feet to avoid admitting their losses.
earl 16y ago
You clearly have no idea what you're talking about. First of all, the "extraordinarily lenient" treatment is nothing like lenient if you happen to have a second mortgage, which was pretty common during the crisis. Second, banks can and do write contracts like that and have defaulted on them by returning the collateral and forfeiting their investment. There are tons of examples of banks doing just this that two seconds with google would have found for you. Third, this punishment of banks by foreclosure is exactly the point. Socially, we do not want banks making loans that will not most likely be repaid; that's what leads to financial crises as we are currently experiencing with negative knockon effects expected to (optimistically) hinder the economy for 10 years. Fourth, the banks were asked by the government, and by good conscience, to make a fair deal with homeowners. The government is subsidizing taking the loss on the mortgage and reducing the principle to something reflecting reality. For various reasons, banks are choosing not do to this. Foreclosure is the proper response.

yummyfajitas 16y ago

"I lose sleep over people suggesting it is unethical not to tip your waiter. That is buying in hook, line, and sinker to the propaganda these labor providers would like you to believe. Deciding not to tip your waiter is a tactical business decision... TL;DR: I would trade the ability to return to this restaurant and get good service for $8 in a heartbeat." See the flaw in this argument? There are established standards of behavior in our society; tipping your waiter, paying off your mortgage if you are able to, etc. Sometimes circumstances give you the ability to flout these standards without contractual consequence, but that doesn't make it ethical to do so.

enjo 16y ago
I disagree... after all, these same banks (and there are only a handful at the end of the day) precipitated the crisis that led to these homes being so far underwater in the first place. Why is only one side ethically bound to play 'fair'? After all, these same companies you are 'obligated' to pay chose to engage in business practices that greatly contributed to the huge run-up in housing costs while at the same time leading to this huge crash (while shorting against it the whole time in some cases). So if one side gets to operate as a business with no ethical standards, why should I as a homeowner be held to a different standard? At the end of the day I'm responsible to my shareholders (myself and my family), and I have to make the decisions that put me in the best financial situation I possibly can. Note: I currently own a home in Plano, TX that is around $30k under water. It's currently a money-losing rental, but if that rental income where to stop... so would my mortgage payments. I'm more than prepared to walk away from that catastrophe.
- yummyfajitas 16y ago
  1) Anyone who bought a house is just as guilty of precipitating the crisis as the banks. Both home-borrowers and banks took a long position on housing on the theory that it would go up. The only people not guilty of precipitating the crisis are the people who shorted housing or remained neutral. 2) The societal norms in b2b deals are different than in home mortgages. No one expects you to exercise an out of the money call option, but you are expected to exercise an out of the money mortgage. Similarly, the societal norms when hiring a web designer are different from the norms when dealing with a waiter. You tip your waiter, you don't tip your web designer. This does not make it ethical for you not to tip your waiter, even if you say "but I'm doing it for the benefit of my family". Similarly, the fact that different norms of behavior apply to corporate debt than to mortgage debt does not make it ethical to ignore societal norms. [edit: to clarify, I do mean that it's unethical not to tip your waiter in the event of good service, as tim points out below.]

sigzero 16y ago

If you could pay and just didn't...I would call that unethical. That doesn't mean it doesn't make good business sense.

timwiseman 16y ago

You make some interesting points, but I must respectfully disagree. A loan to an individual is an agreement to repay that according to terms. I believe that there is indeed a moral obligation to attempt to fulfill that contract. The foreclosure clauses are meant to handle the cases where the borrower tries and fails to live up those obligations, not the case where the borrower chooses to ignore the obligations they agreed to.

orangecat 16y ago
A loan to an individual is an agreement to repay that according to terms. Or to not repay and accept the specified consequences. I believe that there is indeed a moral obligation to attempt to fulfill that contract. Giving up the house does fulfill the contract. The only debatable point that I see is whether it's ok to live in the house without making any payments while the foreclosure process moves forward, or whether you should hand the keys to the bank right away.

Nelson69 16y ago

A service? So it's good for your neighbors that you're helping drive the values of their properties down? That's good for them? Talk about rationalizations...