Maybe a strategic default was not a great idea

[Totoro]

This is just silly. Nobody is keeping anyone in check. Its a free for all, every man for himself. There is no calvary coming to save the day. I belong in the realist group.

Fanny and Fred being bailed out? GM being saved? Aid during hurricane Katrina? Civil rights groups getting innocent people away from death row? Bill Gates giving away his money to get rid of polio and malaria?

Or more mundane: Millions of parents taking care of their children everyday? Volunteer groups picking up garbage in nature parks?

Totally random examples, but fact is in this real world, we all are interdependent. And "cavalries" do show up.

Intent is irrelevant.

Intent is hugely relevant. Contracts are void if one of the signers does not understand what he or she is agreeing to, but just signs anything to get rid of an aggressive seller. General terms & conditions on consumer products are another nice example.

In criminal law in extreme cases it can even be the difference between "oops" and the death penalty.

Intention (criminal law) - Wikipedia, the free encyclopedia

I get your world view. I disagree with it though since you operate on maximizing your own benefit, even if it's at a high cost for others. It is not geared at minimizing harm.

And since most others don't go as extreme as you do, you profit from it. Good for you.

 

[Texas Proud]

Perhaps I don't have the correct view of this....but isn't a mortgage simply a loan to an individual secured by the house? Just as with a company that issues senior secured debt, the debt issued by the company is secured with first lien rights on that particular asset(s) of the company?

With the company, if the company goes out of business and the assets identified as the collateral for the senior secured debt somehow don't end up repaying all of the senior secured debt, the remaining unpaid debt owed to the senior debt holders isn't magically cast aside - it's secured by the other assets of the company before the unsecured creditors are paid off.

So how is it any different from a mortgage loan, or a car loan, or any loan to a consumer which is primarily secured by a specific asset? If someone gets a title loan on their car, and then gets in a wreck without auto insurance and totals their car, does the title loan company simply get screwed? No, they have recourse to be paid off for the debt. In this unfortunate incident, the value of the collateral (the totaled car) has dropped below what the lender can recover from, but the consumer still owes the title company the value of the debt - so why isn't the consumer still liable for repaying the car title loan as much as they are obligated to repay a house title loan?

I agree with the post... just wanted to correct something... after the senior note takes the property any remaining balance owed is equal to the unsecured debt... not superior to it....

 

[meierlde]

Fanny and Fred being bailed out?.

It should be noted that by the way Fannie and Freddie when bailed out the Federal Government had made a profit off the deal (they are making money now and all the profits go to the federal government).

 

[Gumby]

I agree with the post... just wanted to correct something... after the senior note takes the property any remaining balance owed is equal to the unsecured debt... not superior to it....

Depends on the extent of their lien - was it limited to specific property or is it a blanket lien?

I am not understanding the vitriol. A contract is a contract--no less and no more. ....

Clear, concise and to the point. A great post.

 

[CRLLS]

WOW! So many concepts of how thing should be, what is ethical and what is lawful.

I think it is simple. Everything is simple if you break it down into small bits. I enter a contract to purchase a home. I say I will pay monthly payments of x dollars. That my "word" and as I was raised my word is my bond. If the house losses value and I am underwater, that is my problem, not the loan company. Just as if the home increases in value, that is my gain, not the loan company. If I can't pay, then the loan company has every right to reposes my house as "Partial" reimbursement. I am still obligated to pay the amount that is not recovered from the sale of that home.

Anyone who defaults on an obligation "strategically" (as opposed to really not being able to pay) is someone that I would never do business with. Unfortunately, I am forced to have financial relations due to that person in the form of higher interest rates, taxes and tighter loan requirements.

Personally, I was out of work during all of these home mortgage problems. I had no income and no unemployment benefits. But I could still payed the bills etc because I was "fiscally responsible". While everyone else was getting "forgiven" or their terms of their mortgage rewritten, I was not offered that, nor could I apply for any of it. I understand the problems some people get into, and have no problems when real life situations collapse. But personally, I find the "strategic" default somewhat disgusting.

 

[2soon2tell]

Some have stated that a strategic default is not morally wrong and that it is a tool used by business. In my mind a default becomes morally wrong for the individual borrower when they have the financial means to keep paying their loan but conveniently choose to walk away.

JMHO

 

[dallas27]

Since i keep seeing the word "moral", let me ask an extreme question that involves money, morals and greed the way defaults do.

Pretty much everyone here has enough money to literally save somebody's life on this planet. Really, we all have enough cash to save the life of dying child, save a sex slave, bring an orphan out of extreme impoverishment.

That we choose to keep any portion of our money for consumption beyond essentials, is this more or less moral or "good" than defaulting a loan purposefully.


Sent from my iPhone using Early Retirement Forum

 

[haha]

WOW! So many concepts of how thing should be, what is ethical and what is lawful.

I think it is simple. Everything is simple if you break it down into small bits. I enter a contract to purchase a home. I say I will pay monthly payments of x dollars. That my "word" and as I was raised my word is my bond. If the house losses value and I am underwater, that is my problem, not the loan company. Just as if the home increases in value, that is my gain, not the loan company. If I can't pay, then the loan company has every right to reposes my house as "Partial" reimbursement. I am still obligated to pay the amount that is not recovered from the sale of that home.

Anyone who defaults on an obligation "strategically" (as opposed to really not being able to pay) is someone that I would never do business with. Unfortunately, I am forced to have financial relations due to that person in the form of higher interest rates, taxes and tighter loan requirements.

Personally, I was out of work during all of these home mortgage problems. I had no income and no unemployment benefits. But I could still payed the bills etc because I was "fiscally responsible". While everyone else was getting "forgiven" or their terms of their mortgage rewritten, I was not offered that, nor could I apply for any of it. I understand the problems some people get into, and have no problems when real life situations collapse. But personally, I find the "strategic" default somewhat disgusting.

You must not understand the world we now live in. If you win, it was all fair and square. if you lose, call your congressperson, or attorney, or rabble rouser who might take an interest in your plight or group affiliation. Try to get on TV, whine incessantly and it helps to be look downtrodden .

Nothing is as it seems, remember even Bill Clinton counseled us to realize that is all depended on the meaning of is. Your act counts, but not nearly as much as how you may be able to be presented.

Ha

 

[haha]

Since i keep seeing the word "moral", let me ask an extreme question that involves money, my morals and greed the way defaults do.

Pretty much everyone here has enough money to literally save somebody's life on this planet. Really, we all gave enough cash to save the life of dying child, save a sex slave, bring an orphan out of extreme impoverishment.

That we choose to keep any portion of our money for consumption beyond essentials, is this more or less moral or "good" than defaulting a loan purposefully.


Sent from my iPhone using Early Retirement Forum

This is perhaps the best thing I have ever heard. I will immediately use it whenever I am tempted to feel guilty. Hey, you think I am using sharp practices? Silly person! I am just getting some money together to free sex slaves. You should be so morally superior!

Ha

 

[Chuckanut]

A neighbor of mine defaulted on her condo after taking out most of the appreciation a few years earlier. Besides sticking it to the bank, she stuck it to her neighbors by not paying $10,000 in home owner dues. Many of them could barely afford their own expenses much less having to pay hers. Such people deserve what they get.

 

[imoldernu]

If the US government or a pseudo-government agency is guaranteeing lot of crappy mortgages because they didn't enforce the loan standards (to include the creditworthiness of borrowers, etc), then maybe we should learn a lesson and get them out of this line of business. .

Hmmm... frankly, I'd rather that those who lost their houses would receive the monies that all of us will pay for the offloaded loans.
We can only guess at the safety of the assets at Fannie and Freddie.