Wednesday, June 15, 2011

Mortgages (2004-2007) are not like normal loans

Megan argues that defaulting on your mortgage is not OK just because your house is underwater. Having the property secure the debt does not give you a free put option.

Ordinarily I would agree, but not for loans made during the housing bubble. During that time, lenders were not concerned about the borrowers ability to repay (see NINJA), but were, in collaboration with the borrower, making a bet on rising housing prices.

Since ability to repay was not part of the loan decision, there is no obligation to pay on the part of the borrower.

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3 Comments:

Blogger Reverend Moon said...

Please explain why the agreed upon contracted property rights associated with a mortgage contract and loan are not the appropriate means of resolving payment or default obligations. They are contracted property rights not some subjective moral obligation. Default is not a violation of the mortgagees property rights. Megan is clueless. And apparently you believe that, other than during a housing boom, people have an obligation beyond the one they contracted, to repay the bank whether they want remain the rightful owner of the house or not. Besides fraud what does it matter what the motivation is, of either party to the contract? Buyer beware. That's what a down payment is for.

9:08 AM  
Blogger Reverend Moon said...

If shoplifting and defaulting on a mortgage are equivalent we should rightly bring back debtors prisons.

9:22 AM  
OpenID windyanabasis said...

In a non-recourse state, the lender is made whole by the return of the property. In that case, why is there a moral obligation to do more than make the lender whole? Since when is providing surpluses to the lender an ethical burden placed on borrowers?

If the lender does not believe that they will be made whole by the return of the property, they should impose higher downpayment amounts.

9:24 AM  

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