ER and The Joys Of Being Wrong

[Which Roger]

One thing I've grown to appreciate more than ever is that very few issues are black and white. The vast majority are very nuanced with significant gray areas, and therefore one's viewpoint on any of these cannot be absolutely "right" or "wrong". But unfortunately, it's much easier to dumb these things down and paint them as black and white for consumption by the masses.

 

[latexman]

One of my favorite benefits of being retired is being able to deep-dive into topics that I thought I had a firm understanding and opinion on. More often than not, once I do more research and more contemplation about it, I find out I was at least partially wrong.

So, you have more time to be open-minded on topics, or to practice "mindfulness", which is a very useful and therapeutic technique. Which do you think you are doing?

 

[arcyallen]

So, you have more time to be open-minded on topics, or to practice "mindfulness", which is a very useful and therapeutic technique. Which do you think you are doing?

I'm not sure of your question. I often challenge my assumptions on most topics. And more often than not within a month or two of some "hot topic" coming to a head I've researched more about that other side and realized I'm not as against it as I thought I was. Does that answer the question?

 

[Bamaman]

Oh... Lord, it's hard to be humble
When you're perfect in every way
I can't wait to look in the mirror
'Cause I get better lookin' each day
To know me is to love me
I must be a hell of a man
Oh Lord, it's hard to be humble
But I'm doin' the best that I can.

Mac Davis

 

[Turbo29]

Well for some reason you wish to make this case. We bailed out a lot of financial institutions post the financial crisis. I guess expected defaults were not sufficiently "baked in".

All these caveats about when people would walk away weaken your original point, which was that it is not wrong to do so because the mortgage, by providing a lender's remedies for default, is somehow legitimizing that tactic.

That's just not the case.

And it is not the only remedy. Suits for deficiency are not unheard of.

There have been studies showing that mortgage rates in non-recourse states are slightly higher than those in recourse states.

I know several people (no, not me, I stayed in my house) who walked away. I see nothing wrong with that as the contract specifically allows for that. It's not a moral issue, it is a business decision.

Edit to add that for most of them it ended up being a bad business decision given the hits to their credit and the fact that many missed out when the market rebounded and are still renting at the current crazy prices.

 

[38Chevy454]

Continuing the thread diversion, remember the term jingle mail that was common after the 2008/2009 housing collapse?

 

[arcyallen]

The conversation around "Is it moral to walk away from an underwater mortgage" is fascinating. I 100% would have said it was immoral, no question. But the conversation has led me to start contemplating "business" and "morality" as different and not intertwined. The "problem" for me is, to me morals never leave the picture, so it's hard for me to accept "Well, it's business, so morals don't count here."

Often when I'm confronted with that new paradigm I ask myself a challenge question. The challenge question for this? "If a business opportunistically takes (similarly) severe advantage of customers knowing it will hurt them, is that moral?" And I think my answer is no. Which makes my answer to "Is it ok for customers to do it to them?" the same - no. Being legal ("The contract states..." and being moral "I declared my sincere intent and will try wholeheartedly to follow through on it..." are two different things. I think we should be abiding by both, even if not legally bound.

I'll keep pondering the idea. But being ok with voluntarily walking away from a firm commitment is a tough sell for me.

 

[ERD50]

The conversation around "Is it moral to walk away from an underwater mortgage" is fascinating. I 100% would have said it was immoral, no question. But the conversation has led me to start contemplating "business" and "morality" as different and not intertwined. The "problem" for me is, to me morals never leave the picture, so it's hard for me to accept "Well, it's business, so morals don't count here."

Often when I'm confronted with that new paradigm I ask myself a challenge question. The challenge question for this? "If a business opportunistically takes (similarly) severe advantage of customers knowing it will hurt them, is that moral?" And I think my answer is no. Which makes my answer to "Is it ok for customers to do it to them?" the same - no. Being legal ("The contract states..." and being moral "I declared my sincere intent and will try wholeheartedly to follow through on it..." are two different things. I think we should be abiding by both, even if not legally bound.

I'll keep pondering the idea. But being ok with voluntarily walking away from a firm commitment is a tough sell for me.

I agree with you that someone can take an action that is legal, but still be viewed by many/most as "immoral".

I just think that doesn't apply to the case of walking away from a mortgage. Why? Because it's spelled out in the contract, and I think openly understood by all parties. I think most people realize, "Hey, if I don't pay my mortgage, the bank can take my house from me".

So there it is. Now, you might say that being able to pay, and deciding not to, is "immoral". But I don't see that distinction. If the bank intended that, they'd have the contractual power to seize your bank accounts to 'force' a payment, although they may be able to garnish wages.

And we also realize that the bank charges a higher interest rate with a lower down payment. This, I'm sure is at least partially (mostly?) due to there being less leeway for the bank to break even if they do need to foreclose. (edit/add: Is it "immoral" for the bank to charge everyone a higher interest rate, even though very, very few of them will foreclose? Well, it's a contract and I agreed to it, so no, I don't think so.) Some of that may be the idea that a lower down payment means a higher credit risk, but in my case, I took out a mortgage with enough funds to pay it several times over, but I still did 20% down for the lower rate and to avoid PMI.

edit/add - I just realized a very good parallel is a "callable bond". You have an agreement that the bond will pay X% interest for life. But if it is callable, and the situation makes it advantageous for them to call the bond, they will. And you are out of luck, you can't replace that bond at that rate with the same risk. But it is what you signed up for. It's a business decision, not a moral one.

-ERD50

 

[latexman]

I just think that doesn't apply to the case of walking away from a mortgage. Why? Because it's spelled out in the contract, and I think openly understood by all parties. I think most people realize, "Hey, if I don't pay my mortgage, the bank can take my house from me".

-ERD50

The property (not "home"; that's an emotional description) is the bank's collateral until paid off, so if default is needed or desired, they'll take possession, just as it says in the mortgage documents. Nothing personal; just business.

 

[novaman]

I too find that I’ve definitely changed my view points/took a more nuanced view of things I was once so sure about. I think life is our greatest lesson. I am less judgmental and much more open to ideas as I’ve aged. I’ve also had new experiences that humbled me and made
me more empathetic and less judgmental about what I perceived to be the short comings of others (we all have a story). I also recognized that luck more than merit or hard work played a much greater role in my life (the color of my skin, family background, etc) so I have more empathy for those who still struggle. My biggest ah ha moment is when I saw quite clearly that there is no failed life. People live the life they know how to and the path they took when they came to a fork in the road. It’s is what it is. I also realized that there shouldn’t be any regrets. It’s all part of the journey you had.

Great post! Much of this resonates with me as well….

But I have also discovered that in some things, I have been right all along.

Over the past 10 years, I have had the opportunity to mentor a few younger guys who, seeing how successful I was in my career, sought me out for advice in how to build a successful practice (I am a dentist).

One of the interesting things is that several of these guys ended up being fairly dismissive of what I said, saying that I practiced in another era, and that times had changed so the things that worked for me wouldn’t work anymore- in other words, I had become out of touch with the realities of today’s world. All I could do was shrug my shoulders and say “maybe, maybe not.”

Two years ago one of these guys actually contacted me in dire straits. One of his practices was floundering and he was wondering if I would be willing to come out of retirement to help stabilize his practice. He had never been able to build this practice up and had never come within more than 15% of reaching his goals.

I told him that I would be willing to give him only a day and a half and wouldn’t be willing to work hard, but I would be there to help stabilize the practice and try to turn things around.

My goal was to help him reach his goal. I went in there and immediately set out to change the culture of the practice and do things my “old fashioned” way.

Well, the turn around was fast. Within 18 months I helped build the practice up to where it exceed his goals by 20%, and was 35% higher than the best year he ever had prior to that.

Surprisingly, he still doesn’t think the success was necessarily because of the way I believe in doing things, and continues to be fairly dismissive.

I have decided to move on from helping him and devote my energies to helping another colleague who has reached out to me for assistance.

But I come away from this experience knowing that my approach still works and the profession has not passed me by.

 

[Turbo29]

The conversation around "Is it moral to walk away from an underwater mortgage" is fascinating. I 100% would have said it was immoral, no question. But the conversation has led me to start contemplating "business" and "morality" as different and not intertwined. The "problem" for me is, to me morals never leave the picture, so it's hard for me to accept "Well, it's business, so morals don't count here."

Often when I'm confronted with that new paradigm I ask myself a challenge question. The challenge question for this? "If a business opportunistically takes (similarly) severe advantage of customers knowing it will hurt them, is that moral?" And I think my answer is no. Which makes my answer to "Is it ok for customers to do it to them?" the same - no. Being legal ("The contract states..." and being moral "I declared my sincere intent and will try wholeheartedly to follow through on it..." are two different things. I think we should be abiding by both, even if not legally bound.

I'll keep pondering the idea. But being ok with voluntarily walking away from a firm commitment is a tough sell for me.

I'll pose a question in response that hits close to what some on this board and the other well known board suggest all the time, the manipulation of income to qualify for ACA subsidies. Legal? Yes. Moral (as those subsidies were intended for less well of people)? I'll let you answer.

 

[razztazz]

I'll pose a question in response that hits close to what some on this board and the other well known board suggest all the time, the manipulation of income to qualify for ACA subsidies. Legal? Yes. Moral (as those subsidies were intended for less well of(f) people)? I'll let you answer.

Arcyallan Often when I'm confronted with that new paradigm I ask myself a challenge question. The challenge question for this? "If a business opportunistically takes (similarly) severe advantage of customers knowing it will hurt them, is that moral?" And I think my answer is no

But that is the very essence of how businesses actually work. Always and everywhere just to get the money is unending justified and rationalized as "just doing business." Or, "hey, I'm a businessman, I'm trying to make a living here." Adam Smith wrote about it in his book everybody likes to misquote and leave out all the parts they don't like.

To Business everything that's good for them is OK and that means it's moral. That's where "Let the Buyer Beware" came from. If I screw you, it's on you. I'm just doing business. Even The law itself deletes any requirement for morality if necessary because it's good for lawyers and their clients. They'll say "the law is all we have." Followed by the implied "So whaddaygonnado? Pass the salt.

I am with both of you (as I perceive your positions) regarding the application of moral behavior. That is why my membership an any groups over the years has been short lived and fewer friends & connections has always proven the way to sleep better.

 

[Car-Guy]

I'll pose a question in response that hits close to what some on this board and the other well known board suggest all the time, the manipulation of income to qualify for ACA subsidies. Legal? Yes. Moral (as those subsidies were intended for less well of people)? I'll let you answer.

Related hot button for me.... Most of us were "forced" to pay Medicare taxes all our working careers. But some of us paid a lot more in Medicare taxes than others. (no income limits) And when we retire, we all get the exact same "earned" benefit/coverage as everyone else. However, once again, some of us are forced to pay three or four times as much for our Part B Medicare coverage (IRMAA). Legal? Yes! Moral/fair/just?

 

[Out-to-Lunch]

Moral/fair/just?

Luke 12:48

 

[Pointby2]

“I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” - Charlie Munger

I just had to put my sibling family on "time out". Their politics are at one extreme, mine are what used to be the middle. Although I try to see both sides of most current political positions, they refuse to listen to any position outside of their echo chamber. It's maddening.

I don't care what your politics are, but at least if you understand both sides, discussion is possible. There's normally a reason that there are two sides.

 

[Carinya]

I’ve also had new experiences that humbled me and made
me more empathetic and less judgmental about what I perceived to be the short comings of others (we all have a story). I also recognized that luck more than merit or hard work played a much greater role in my life (the color of my skin, family background, etc) so I have more empathy for those who still struggle.

These two really resonate with me versus what my younger self would have thought.

 

[jimbee]

Related hot button for me.... Most of us were "forced" to pay Medicare taxes all our working careers. But some of us paid a lot more in Medicare taxes than others. (no income limits) And when we retire, we all get the exact same "earned" benefit/coverage as everyone else. However, once again, some of us are forced to pay three or four times as much for our Part B Medicare coverage (IRMAA). Legal? Yes! Moral/fair/just?

Fair isn't always equal.

 

[isisdave]

"Moral" and "fair" are subjective. A contract is not; it's objective.

"Just" might be somewhere in between, depending on whether you think it means in a legal or moral/religious sense.

A lot of questions have multiple "answers": Legal, religious, moral, ethical. I'm sure you can think of a big example of this going on right now.

And what's the difference between moral and ethical anyway? Seems like 'moral" can be individual and "ethical" is community, but then what community?

https://www.verywellmind.com/morality-vs-ethics-what-s-the-difference-5195271

 

[Montecfo]

Sorry, I'm just not following your counter-points.

"I guess expected defaults were not sufficiently "baked in"." Could be, but that's not contrary to anything I said. The lenders sign a contract that has the stipulations for foreclosure spelled out, I'm sure they try to account for that as a cost of doing business. Foreclosures do happen, it's part of the business. Just because the lenders may have underestimated the costs, doesn't mean they don't include their estimate in the interest rates they charge.

"All these caveats about when people would walk away weaken your original point," Again, sorry, just not following this. What I'm saying is there is no "right" or "wrong". It's spelled out in the contract, if the borrower defaults, the lender gets the house. That's the contract. If it was "wrong" why would either party sign?

And to be clear if someone reads this and not my earlier posts - I'm talking about a legitimate foreclosure, per the contract - not where someone damages/neglects the property and walks away. That is against the terms of the contract, and that would be breaking the law, and be "wrong".

-ERD50

Let me be clear then.

"Default" means the borrower did not meet his contractual obligation.

Your view casts default as merely a second way for the borrower to satisfy the contract, which is not correct. It is one of several courses of action a lender may take in event of default.

Why would such a default damage your credit if it is another way of meeting the contract terms?

Having said that, if you still misunderstand this, then there is little more I can say to make it more clear. But I do look forward to your almost always insightful posts in the future.

 

[zippy2020]

A great epiphany for me was when I realized that people I disagree with aren't always wrong.

I loved this, and have found it's indeed true. And if nothing else, a little empathy can make a big difference sometimes.

 

[zippy2020]

Luke 12:48

I agree (and I'm a Buddhist, lol). Thx to my spouse we have retirement health benefits. Now that we've joined Medicare, the premium for each one of us is about equivalent to our retiree health premium for the TWO of us.

So we are paying now paying 3x more per month - our basic health policy plus the Medicare charges for 2 people - for the exact same benefits. Nothing gained, nothing added.

We also have twice the net income we had when we were working. We just count the premiums costs as 'the price of doing well'.

Much preferred to the alternative, frankly. We live in a HCOL area, and it is a rough place in which to be poor. It can be done; we have several friends in those situations. But it's limiting, and somewhat (sometimes VERY) stressful for them.

 

[cyber888]

3x more is that like "very expensive"

I agree (and I'm a Buddhist, lol). Thx to my spouse we have retirement health benefits. Now that we've joined Medicare, the premium for each one of us is about equivalent to our retiree health premium for the TWO of us.

So we are paying now paying 3x more per month - our basic health policy plus the Medicare charges for 2 people - for the exact same benefits. Nothing gained, nothing added.

We also have twice the net income we had when we were working. We just count the premiums costs as 'the price of doing well'.

Much preferred to the alternative, frankly. We live in a HCOL area, and it is a rough place in which to be poor. It can be done; we have several friends in those situations. But it's limiting, and somewhat (sometimes VERY) stressful for them.

 

[youbet]

Related hot button for me.... Most of us were "forced" to pay Medicare taxes all our working careers. But some of us paid a lot more in Medicare taxes than others. (no income limits) And when we retire, we all get the exact same "earned" benefit/coverage as everyone else. However, once again, some of us are forced to pay three or four times as much for our Part B Medicare coverage (IRMAA). Legal? Yes! Moral/fair/just?

Yeah....... I admit this is an area where I sometimes struggle to be comfortable with paying more (lots more) than others for the same thing. Somehow it bugs me more than being in a higher income tax bracket than folks who seem to live pretty much the same as we do. Not saying I'm right to feel that way. Just admitting that when we pay upper teens annually for Medicare coverage, I wish there was some tiny perk we'd get. Even a computer generated letter acknowledging our contribution would make us gleeful! Oh well..........

 

[ERD50]

Originally Posted by ERD50 View Post

... The lenders sign a contract that has the stipulations for foreclosure spelled out, I'm sure they try to account for that as a cost of doing business. Foreclosures do happen, it's part of the business. ...

And to be clear if someone reads this and not my earlier posts - I'm talking about a legitimate foreclosure, per the contract - not where someone damages/neglects the property and walks away. That is against the terms of the contract, and that would be breaking the law, and be "wrong".

-ERD50

Let me be clear then.

"Default" means the borrower did not meet his contractual obligation.

Your view casts default as merely a second way for the borrower to satisfy the contract, which is not correct. It is one of several courses of action a lender may take in event of default. ....

Well, maybe we need a lawyer to chime in here. But to my eye, the fact that the contingency is spelled out in the contract means it is just an alternate way to meet the contractual obligation - even if it isn't the expected routine way. Sure, the borrower is expected to pay on time, and if he doesn't, the contract spells it out. If he allows the bank to take the home in good condition, I would say he met his contractual obligations.

I think the term "default" means they defaulted on the payments (failed to meet them), triggering late fees, and eventually foreclosure. That's not the same as breaking the contract, but IANAL.

... Why would such a default damage your credit if it is another way of meeting the contract terms? ...

That's completely separate, and should be obvious. Not being able to (or choosing not to) make the payments on a loan is a sure sign that you.... may not be able to (or chose not to) make the payments on a loan! And many types of credit offerings are provided with no collateral - so that lender will certainly be wary.

There are many ways I can damage my credit rating w/o breaking a contract or anything close. And I imagine I could break some contracts w/o damaging my credit rating(I dunno).

... Having said that, if you still misunderstand this, then there is little more I can say to make it more clear. But I do look forward to your almost always insightful posts in the future.

Maybe this one was insightful as well, but you just haven't seen it yet? (edit, I best put a 'smiley' after that!)

Or we can move on, that's fine too.

-ERD50

 

[arcyallen]

ERD50 and Montecfo (and whoever else interested), I have a "let's tweak the question a bit" question:

How does the scenario of "a person choosing to default on a mortgage because it's underwater and letting the lender take the property back" change for you if you the lender is a close friend? Your mother? Your child? Does that change anything for you, and if so, why?