Rod Dreher

Rod Dreher


‘The rich are different: they are more ruthless.’

posted by Rod Dreher

Data suggest that the rich are different from you and me:

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.
Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.
“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Sooner or later, this kind of thing is going to start mattering to ordinary people, and all the shushing and how-dare-yous around the subject of so-called “class warfare” is not going to have the effect it usually does. This is a moral scandal as well as an economic one. People don’t mind others getting rich, as long as they believe the rich are playing fair (incidentally, a colleague of mine was telling me only yesterday about a study that found Americans are unique in the world in having this attitude). I think that attitude is one of America’s great strengths, because it blunts the vice of envy.
But if you rub people’s noses in data showing that wealthy people are gaming the system and not doing their fair share, things may change. In this way, wealthy people undermine one of this nation’s moral (and economic) strengths: the conviction that individual prospering is something to be welcomed. This data, and the “ruthless” quote, suggest that the wealthiest people are much less sentimental about their moral obligations to pay their debts than most of us are. Like I said, sooner or later… .



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lancelot lamar

posted July 9, 2010 at 10:06 am


Tom Hicks, owner of the Texas Rangers, lives in a 30,000 sf Strait Lane mansion in Dallas, a $30,000,000 house at least, but he is stiffing his lenders to the tune of 500 million dollars. His unwillingness to sacrifice any of his personal wealth and opulent lifestyle to help get the Rangers sold demonstrates this contempt of everyone–his lenders, fans, major league baseball, fellow owners–but himself.
Guys like that give being rich a bad name.



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Cannoneo

posted July 9, 2010 at 10:23 am


I think, on mortgages, we’d be better off emulating the rich.
A mortgage is a secured debt. The lender is making an investment, not doing you a favor. If you stop paying, they get the house. That’s the deal. If the house is worth less than what you owe, that’s the risk they took. You weren’t under any obligation to protect them from that.
I don’t think you have to worry about some broad disintegrating effect on trust and community stability, either. For small-timers like us, leaving a home will always be traumatic, and we’ll do all we can to avoid it. Does anyone imagine it could ever be easy for me to move my family out of the house we’ve worked so hard on, and bonded with so deeply?? That’s the stuff of my nightmares, *whether or not* I give a crap about my obligation to the debt … which I don’t. That feeling simply doesn’t exist in my moral universe.



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Richard

posted July 9, 2010 at 10:28 am


Cannoneo, that’s an interesting perspective, but it’s wrong. A mortgage is a loan, pure and simple. You did not solicit investments for an IPO – in which let the buyer beware – you went and applied for a loan. You said you’d repay it, and the bank’s guarantee that you would is the house.
This comes down to whether or not we are trustworthy: we committed to something, are we willing to see it through or is our commitment only as good as the day it’s given on?



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Rob

posted July 9, 2010 at 10:37 am


Actually, Richard, Cannoneo is one to something. The way a mortgage is structured is that you 1) either pay the principal back or 2) the bank takes the home back. If it were a personal loan, you’d have some sort of personal guarantee on it that would allow the bank to come after your other assets. But that’s not how mortgages are structured. If a person has a home that has dramatically dropped in value, it seems a perfectly good investment decision to walk away rather than throw good money after bad. The banks that lend money are sophisticated players that understand the risks of lending.



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Cannoneo

posted July 9, 2010 at 10:40 am


Well, banks do look at their mortgage businesses as profit centers, and buyer beware certainly does apply to any lender. But you’re right, they are betting primarily on our credit-worthiness, with the home as only an emergency backstop.
My point is that my trustworthiness is a product of my commitment to home and family, not to the debt as a moral obligation, which it isn’t. I don’t think there is any danger in seeing that feeling erode among more people.
If anything, the broad effect of more foreclosures would be for real-estate market corrections to happen more efficiently. Combined with a tighter mortgage market, we’d all benefit from a more responsible and accurate picture of the costs of home ownership.



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Michael C

posted July 9, 2010 at 10:43 am


A gentleman’s word is his bond



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stefanie

posted July 9, 2010 at 10:53 am


Somebody’s not paying enough taxes.



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Richard

posted July 9, 2010 at 10:54 am


Sorry, Rob, I don’t think so. You are taking a promise to pay on your part and turning it into an investment after the fact.
Many states still allow lenders to come after your other assets if there is a deficiency between the loan amount and the house’s value at foreclosure (PA and MD for example, do not have anti-deficiency laws).
Banks do understand risk management, but there is no way to underwrite moral hazards, e.g. people just refusing to pay off their debts. The bank doesn’t want your devalued house any more than you do.
Now, you may decide to stiff the bank and not honor your word, that is your choice. But it is not an investment choice – let’s not kid ourselves about that.



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tscott

posted July 9, 2010 at 11:00 am


Money isn’t bad, but it places people in a strong position of moral failure. They have already been bribed if they would search the truth.
We here in the U.S. understand this intuitively. We have tried to elect leaders whose families have resisted. The Kennedy experiment was a mistake to me, although I applaud our reaching out to the RC community. Likewise, I feel Carter and BushII were mistakes. One generation of wealth is enough to spoil a child. Democracy to me is successful, not so much because of giving everyone a say, but rather it reaches out to those who don’t feel they can lead(those with true humility). Reagon, Clinton, and Obama- right,center, left- it doesn’t matter the position- their inital instincts for the call to leadership were not influenced by greed. The rich are different.



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Stuart Buck

posted July 9, 2010 at 11:11 am


Another interpretation, though, is that many of the people with > $1 million mortgages weren’t really “rich,” but were more over-extended. Then if they lose their jobs, they end up in much more financial trouble more quickly.



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Clare Krishan

posted July 9, 2010 at 11:13 am


See my comments re: “noblesse oblige” under earlier LeBron post. The banks all played fair as long as the Fed made it possible to earn fabulous spreads from holding interest rates at zero. They can’t call foul now they have egg on their faces: they’re the ones who preached “The Goose that lays the Golden Egg” fairy tale of FIAT fractional reserves secured against “real” assets. Let them enjoy the secured asset… its as secure as their political masters let it be, fettered at zero interest…



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Ashley

posted July 9, 2010 at 11:19 am


Richard wrote:
Banks do understand risk management, but there is no way to underwrite moral hazards, e.g. people just refusing to pay off their debts. The bank doesn’t want your devalued house any more than you do.
Actually Richard, there is a perfectly good and traditional way to underwrite that: it’s called a sizable downpayment. Remember the conventional mortgage that required 20% down? That ensures that even, in the worst case, if the price of your house dropped 20% the very day after you bought it and you simply walked away from the house, the bank would be able to sell it without losing anything in the deal. Why did the sizable downpayment disappear during the housing bubble? So greedy lenders and middlemen could make even bigger profits by taking on outsize risk by selling houses at inflated prices to those who could not afford it. Reasonable and traditional mortgage types have returned now that the consequences of the lenders’ greed have caught up with them.



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Peter Hoh

posted July 9, 2010 at 11:20 am


“How do you think I got so rich?”
People who watched Philly TV in the 1970s will remember that tag line from the Chateau Luzerne ads. For the rest of you, Chateau Luzerne was a cheap, blended wine that ran an ad featuring a guy serving this wine on his yacht. His date says, “Chateau Luzerne? But you’re so rich.”
His reply, “How do you think I got so rich.”



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Cannoneo

posted July 9, 2010 at 11:20 am


More generally, I think it is a great error to apply socially conservative morality to economic exchange that has already been structured by a state-corporate-market system that is indifferent to the social relations that undergird that morality. You’re putting your highest values and relationships into the service of another power. I don’t mean to call for widespread civic disobedience. But you’ve got to clarify for yourself where your first obligations are.



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Betty Carter

posted July 9, 2010 at 11:23 am


I agree with Stuart Buck. People like this may live at a very high level (thanks to their ability to borrow money), but in what sense are they really wealthy? Their assets belong to someone else. They’re essentially estate managers.



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Loudon is a Fool

posted July 9, 2010 at 11:31 am


Assuming the mortgage is non-recourse debt Rob’s formulation is accurate. The promise being made is not “I will repay X.” The promise is “I will repay X, or I won’t, in which case you get the security interest.” So the gentleman’s word is not being broken. I don’t think mortgages are non-recourse in all states, but they are in many. And the analysis may be a bit different if a state is generally non-recourse but has an avenue pursuant to which personal liability could be sought. There might be a class issue involved in the willingness of the wealthy to walk away from mortgages given their experience in business contexts with non-recourse loans versus the general understanding of a loan in the public mind with which they are more familiar (which would be a recourse loan on which the individual is personally liable, like credit card debt or a car loan).



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Sean

posted July 9, 2010 at 11:42 am


Reality is reality. It’s a closed structure. The seed of creation within it, is relativity. There is no such a thing as up unless it is related to that known as down, nor hot without cold, nor rich without poor.
If there are people starving in the world and suffering numerous illnesses, that means that there are others elsewhere experiencing the opposite. Those who suffer seem not to be able to think even a single thought of how to get out of such a situation, but in truth that is because there is a power over them which prevents them from having such thoughts, a power over them which forced them into such poverty. All this occurs as a natural balance between positive and negative is maintained.
Then comes the nasty news. Some have chosen to go Satan’s way and thus have chosen to continue this act of accepting positives at other people expense, and do so for an eternity. But it gets worse!
Within a closed structure, there are boundaries, thus there are limits to the extent of which positives can reach. However, if one remains at one of the extremes, such as being selfish ignorant and thus wealthy, one benefits to the maximum when Satan proceeds to split this reality in two, and thus in turn is creating two new realities that forever fly apart.
The further they are apart from each other, the greater there differences become, thus the paradise for the selfish, forever and ever grows better and better while the opposite occurs forever and ever for those now located at the opposite extreme, and all this due to boundaries and limits now haven been broken.
Meaning, the poor become the scapegoats and thus pay the price of a forever worsening hell, such that the rich then experience the exact opposite, and do so free of charge.
Fortunately the Christ fellow prevented this eternal splitting, thus the rich will eventually have to pay the bill, such experience all of the suffering of the poor which occurred as a result of their selfishness and greed.



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Franklin Evans

posted July 9, 2010 at 12:23 pm


We need a tort/property lawyer (is there a lawyer in the house?), but I think the mortgage debate here is wrong on both sides.
A mortgage loan is a contract. It states the interests and obligations of each party. That the property reverts to the lender upon default is a consequence of a violation of the contract, plain and simple. Compare this to credit card debt: If a cardholder defaults, the credit card company — failing the efforts of collection agencies — has a lawsuit as its only recourse to recover the funds lent under the credit card contract.
It should be noted, too, that the borrower under a mortgage loan contract has no recourse if the lender does something iffy, let alone wrong. Their only recourse is a lawsuit, and we all know how that can work out when a private individual goes up against a corporation.



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Richard

posted July 9, 2010 at 12:25 pm


Go and read your mortgage documents, folks. Yes, the house is the bank’s security. But you are indeed making a promise to pay. Period. Parse all you want, but failure to pay is not Option B in your loan agreement or some such – it is delinquency.
Ashley raises a very good point about down payments. Now, I am not a big defender of the banks, but the party most responsible for encouraging “creative” mortgage tools was the federal gov’t who thinks (thought?) home ownership should be extended to EVERYONE. Although I will admit many banks jumped on the bandwagon enthusiastically and with no regard for the consumer.



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Jordan Zarembo

posted July 9, 2010 at 12:27 pm


Call it what you like, but I’m not concerned about the ethical and moral “lapses” of the wealthy or once-wealthy. There’ve always been people who speculate or front a nouveau riche lifestyle without the bank statement to back up their overspending. The real victims here are homeowners that aren’t overextended but have suffered real damage to their property value. “Walking away” is a very selfish decision. It’s far from a victimless crime: all those in the community suffer because the value of their home drops every time someone decides to renege on their mortgage. As always, it better to live within your means and not end up stealing from the bank and your neighbors.



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hlvanburen

posted July 9, 2010 at 12:28 pm


Sean: “Fortunately the Christ fellow prevented this eternal splitting, thus the rich will eventually have to pay the bill, such experience all of the suffering of the poor which occurred as a result of their selfishness and greed.”
Pie in the sky by and by. And thus we really don’t have to do anything in this present sinful world because God has taken care of all of that in the afterlife. Suffering becomes noble, and the poor sod who is screwed over by banks and the wealthy simply needs to maintain the stiff upper lip until the judgement seat.
Meanwhile, the wealthy live the life of Riley until their death beds, when they confess their sins and receive salvation. All is forgiven.
And it’s not just Christianity that enables this. Many other religions teach that suffering in this world will be compensated for with some form of paradise, and that those behaving in an evil/selfish manner will get theirs when their time comes.
Herd the sheep and keep them in line. All the better to fleece them. The only way the sheep are going to wake up, Mr. Dreher, is if they figure out that the promise of justice after death really holds no value, and they decide that they should be working for justice in this world. If that happens, not only will the blood of the wealthy be spilt on the streets, but the blood of many pastors who are viewed as complicit in “keeping order” may well be spilt at the same time.



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hlvanburen

posted July 9, 2010 at 12:33 pm


“Ashley raises a very good point about down payments. Now, I am not a big defender of the banks, but the party most responsible for encouraging “creative” mortgage tools was the federal gov’t who thinks (thought?) home ownership should be extended to EVERYONE.”
But is that not the intent of the “ownership society” concept? If people took ownership of property they would be more invested in the system, and thus more involved with maintaining that system.
en.wikipedia.org/wiki/Ownership_society
“…if you own something, you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America, and the more people have a vital stake in the future of this country.” – President George W. Bush, June 17, 2004
“We’re creating… an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.” – President George W. Bush, October 2004.
This was the ideal in the early part of last decade, and has been the ideal in conservatism for much longer than that. Strange how it played out.



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bike bubba

posted July 9, 2010 at 1:19 pm


One correction; those with a million dollar mortgage are not necessarily rich. They have most likely demonstrated high income, but high income is not equal to rich–having accumulated a large amount of assets. It actually turns out (see “The Millionaire Next Door”) that the truly rich eschew debt for the most part.
So the proper headline is “High earners with high debt may be more ruthless.” Given that we know a priori that excessive borrowing violates God’s Word, that should come as no surprise to us.



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Mal

posted July 9, 2010 at 1:39 pm


The rich are the ones who take all the risks! They do it in business and fail as well. Eighty percent of businesses fail! No one seems to care about that! They are the ones that keep the economy going through their risk taking and failures.
This has nothing to do with morality, it has everything to do with the personality that can stand up to the stress and effort; risk taking demands.
Yes, it does spill over into their personal lives and they make aggressive decisions there as well. Without these behaviors the economic wheels would never start and no one would be employed or have a home.
To find the real lack of morality; look to our government; republican, independent or democrat!



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trotsky

posted July 9, 2010 at 1:44 pm


A few points:
Jumbo mortgages carry higher interest rates because they are more risky. Banks know what they’re getting into. It’s not actually even new.
Where in the Bible is it written, “Thou shalt pay your debts.” Seriously, whence this supposed moral obligation? I feel we can have a moral obligation to our parents, our neighbors, even perhaps our fellow countrymen — but to Citibank? Seriously?



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Richard

posted July 9, 2010 at 1:50 pm


Actually, hlvb, that’s not been the intent of a conservative view of ownership. What GWB was talking about – and that Congress enthusiastically agreed with him about – was a radically egalitarian system where EVERYONE gets to own a home, regardless of income, ability to pay, job situation, credit history, etc.
That’s not the conservative viewpoint – at least the traditional one. I don’t know many people, including supporters, who would refer to GWB as a conservative, let alone a traditional one.
I appreciate you looking up what GWB had to say about ownership in 2004; the irony is that Barney Frank, Chris Dodd, Ted Kennedy, etc. all agreed with him – so much for it being a conservative idea, eh?



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Amber

posted July 9, 2010 at 1:56 pm


It’s more than just moral conduct about repaying a debt. If the homeowner(s) lost their jobs, just how does one expect them to keep paying on the mortgage? Yes, they should have enough savings to pay the mortgage for 6 months while out of work but in reality for the average person, the savings is not there. I’m not condoning that lifestyle but it’s fair to point out that banks knew exactly what they were doing when they gave out the mortgage loan. They knew the average home buyer did not have six months savings to cover the monthly payments.
The mess with mortgages going into default is mostly the banking industry’s fault because they ignored their basic training. They didn’t follow their own rule of thumb. Yes, there are folks out there who share the blame for agreeing to sign up for a house they could not afford during bad times. But the banks were stupid enough to let them. And we all know why the banks made those choices…. they were greedy and presumed the feds would bail them out.



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Richard

posted July 9, 2010 at 2:00 pm


Trotsky, I am dumbfounded by people here who think they have no moral obligation to repay their debts as best they can. Do you not think legally binding agreements should be enforced? That men should be bound by their word? That reneging on promises is somehow beneath honorable people?
If you didn’t want to pay back the money, you shouldn’t have borrowed it. It was your free choice and your own free will.
When people argue that “Well, the banks got the house, didn’t they?” I want to scream: You’re the one who wanted the house, the bank didn’t and doesn’t even now!! But because it turned out to be a bad deal you want out – how convenient for you!
And, that is quite a nice post-modern reading of debt obligations: fine, as long as it suits me to pay. Which, of course, isn’t an obligation at all. Good grief.



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allbetsareoff

posted July 9, 2010 at 2:14 pm


Perhaps the greatest rhetorical/conceptual victory of the right wing since 1980 has been to define “class warfare” as the non-rich going after the rich. During that time, the reality has been just the opposite: A political and policy-making machine, financed by wealthy people, systematically undermining the well-being of people who aren’t wealthy.



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Bryan

posted July 9, 2010 at 2:15 pm


This might be the worst example of the pitfalls of sola scriptura I’ve ever seen:
Where in the Bible is it written, “Thou shalt pay your debts.” Seriously, whence this supposed moral obligation? I feel we can have a moral obligation to our parents, our neighbors, even perhaps our fellow countrymen — but to Citibank? Seriously?
No moral obligation to pay the debts we owe? Are you serious?



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Rod Dreher

posted July 9, 2010 at 2:23 pm


Perhaps the greatest rhetorical/conceptual victory of the right wing since 1980 has been to define “class warfare” as the non-rich going after the rich. During that time, the reality has been just the opposite: A political and policy-making machine, financed by wealthy people, systematically undermining the well-being of people who aren’t wealthy.
You may be right, but if so, do you know why this works so well politically? Because a cultural class associated with monied professionals, particularly in the media, academia and the legal profession, have been waging class warfare on many of the non-rich, fighting on cultural grounds. We are not simply economic creatures.
[Captcha: rehash cultural]



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trotsky

posted July 9, 2010 at 2:24 pm


I’m not advocating wholesale reneging on debts, but I am asking a question: Whence the moral obligation? Much of the Bible abhors debt altogether, and most readers of this blog probably the know the curious history of usury. And to whom do we have a moral duty. In the case of banks, it is certainly not reciprocal: Bank directors have fiduciary obligations to their shareholders, but their bylaws include no moral obligations to borrowers.



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trotsky

posted July 9, 2010 at 2:26 pm


And Richard, a legally binding agreement exists and is legally binding — but is that the same as being morally binding? The law tells me to drive the speed limit, and I’m happy to oblige, generally. If I’m on an open straight road in the desert and push it up to 85, I am breaking the law, but am I sinning?



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Broken Yogi

posted July 9, 2010 at 2:43 pm


I think it’s a given that people with more money take a more analytic point of view about money and investments, rather than the emotional point of view common to the lower economic classes. That, indeed, is how they generally get rich in the first place. Being able to cooly analyze finance is what separates the rich from the poor, for the most part. Some may call this amoral, and even rightly so, but it’s really just a sign of being smart about how money actually works in our world. People who get caught up in the emotional aspect of money generally don’t make the right decisions. And it’s also fair to say that a lot of these rich people did get caught up in the emotional aspect of money, by buying expensive, overpriced mansions they didn’t need. They big each other up up up in price until these properties became unafforable, even for the rich, and so now there’s a fall and the piper gets paid. Of course, no one put a gun to any banker’s head and forced them to make these stupid loans, so we can’t say that they were decieved into making these loans. And contrary to what’s been said, a bank making loan is an investment, and it’s certainly not the same as some friend lending you money to help you out personally. The unsophisticated make this mistake all the time, and this episode in our economic history should help dispel this myth. The sooner that’s done, the better of our economy will actually be, in that housing prices will reflect actual economic value, rather than a distorted value based on people’s emotional attachments to property and a moral sense that banks merely manipulate and take advantage of.



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Loudon is a Fool

posted July 9, 2010 at 2:45 pm


Do you not think legally binding agreements should be enforced? That men should be bound by their word? That reneging on promises is somehow beneath honorable people?
I think you may be assuming facts that do not exist, Richard. If the governing documents (or law controlling the governing documents) provide that the borrower will pay $X per month and if he doesn’t the loan will go into default but the borrower will not be personally liable and the lender can only recover against the security interest, where is the lie or the broken promise? If the borrower and the lender both know that the borrower is not personally liable on the loan how is default a broken promise? The loan could have said “In the event of default you will be personally liable” in which case walking away from the loan and not paying would be a failure to meet your obligations under the loan.
I’m not saying that people shouldn’t pay their debts, but I’m not sure people are obligated to perform above and beyond their responsibilities under the contact. For example, maybe you took out a mortgage in the last couple of years. Assume in five years mortgage rates are 25%. Your mortgage will be a very bad deal for your lender. Will you pay him the extra 20% interest because you feel bad that his deal turned sour? I guess you will, but is everyone else obligated to do that as well?



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Franklin Evans

posted July 9, 2010 at 3:13 pm


I believe that Trotsky’s POV and the responses to it are telling.
We are discussing the legal entity of the contract. We are talking about the legal bindings that ensue. We are further paying lip-service (from my POV, of course) to the legal consequences of breaking those bindings. The moral question is easy: When is it moral to ignore or sidestep those consequences? Trotsky’s driving example/analogy is easy to answer: No, there is no sin if you are alone on the open road, but as soon as your speeding results in the material damage to others, the Christian definition of sin is very easy to apply. Or should we make vehicular homicide a lesser crime, excusable on some moral grounds? Anyone who has read my comments on driving knows my answer, so I’ll just add a bumper sticker I’d like to see:
Tailgaters should be boiled in oil. 10W40 would serve nicely.



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Abelard Lindsey

posted July 9, 2010 at 3:25 pm


I think the farces of the past 10 years (bubbles and collapses) should make it clear to anyone with a room temperature and above IQ that those “on top” are just as stupid and clueless as the rest of us. They only difference is that they are greedier and nastier than the rest of us.



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Richard

posted July 9, 2010 at 3:38 pm


Loudon – there is a very simple test to see if I am assuming anything. Go and read some loan documents. Mine say that my wife and I agree that we will pay $X according to the terms set forth…blah blah blah. In my state, the lender can come against me for the full amount of the loan, never mind foreclosure value (although they often don’t). Maryland is pretty typical in this respect.
Now as far as your example – of course I’m not going to pay the bank extra, becaue I’m doing my damndest to honor the terms of the blinking contract. I’m not the one who apparently thinks it is OK to skip out on the loan when it becomes an inconvenient bad deal.
In fact, I’d ask you the same question: if it’s ok for you to not honor your loan commitment when the home value goes down, is it acceptable for the bank to re-po the house when the value goes up? When you walk away, you cancel your debt with the bank and they get the house to cover their losses. Why shouldn’t the bank be able to take back your house, give you all your money back plus a small bonus, then re-sell the house to someone who can pay more?
If we’re not going to honor our commitments, where does that end?
Last comment: if you – by your own free will – obligate yourself to someone (whether by a financial instrument or not) haven’t you yourself created a moral obligation of some sort? If not, in what way is it an obligation?



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BobSF

posted July 9, 2010 at 3:45 pm


“The rich”. Hmmmm… if you look at the breakdown by type of owner, the rich — those wealthy enough to own SECOND homes with $1M mortgages actually have a lower rate of default than, in order of “ruthlessness”, family-home owners and investors.
So, what does that say? Well, investors are clearly the most “ruthless”. (Martha, fetch the smelling salts!) The second group probably has quite a few people who are not voluntarily walking away from their mortgages. As for “the rich” who are leaving their vacation homes? Either ruthless or squeezed. Hard to say.



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Oengus

posted July 9, 2010 at 3:49 pm


Rod: “they are more ruthless”
Rod, next time you’re up in North Idaho, take a stop at Templin’s Resort in Post Falls. There get on the riverboat cruise up the Spokane river. You’ll be slacked-jawed in gaping astonishment at some of the millionaire summer mansions built on the banks of the river. I just can’t wrap my mind around why anyone would need to live in such HUGE houses. What on earth do they do with all that room? Is there a seraglio up in there for all their wives or what? The rich aren’t just ruthless, they’re insane. Wastefulwise that is. I wonder sometimes.
Captcha: the kestrels



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Loudon is a Fool

posted July 9, 2010 at 3:56 pm


In my state, the lender can come against me for the full amount of the loan, never mind foreclosure value (although they often don’t). Maryland is pretty typical in this respect.
I don’t think this is true. I think there is a split among states. I’m by no means an expert on this but I believe that in some states the borrower is not personally liable. So the contract is not “I will pay you $X.” It’s “I will pay you $X or give you my house.” I don’t think lenders in those states are caught unawares by the terms of the contract.
The extent to which I obligate myself to someone in a commercial transaction is governed by the intent of the parties. I would agree that if I sneak something sneaky into a contract that the other side did not intend, or attempt to interpret the contact in a way that was not contemplated at the time it was entered into, I might have ethical obligations outside of the four corners of the document. But whether a loan is recourse or non-recourse (i.e., whether the borrower is personally liable on the note or not) is typically not an ambiguous question. It either is recourse or it is not. The contract (or the law of the state) will say which it is. It’s not a failure of the borrower to honor his commitments to let the lender keep the house. By giving the lender the house the borrower has fulfilled his obligations. Granted the lender didn’t get his money back. But that is an inherent risk to the lender under the contract. In a non recourse loan the lender is taking on more risk which additional risk should be reflected in the interest charged.



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Richard

posted July 9, 2010 at 4:57 pm


Loudon, these statutues vary widely. MD, DE, and PA have no anti-deficiency statute. That’s where I’ve spent most of my life. CA, as you might expect, has an anti-deficiency law.
Look, I’ll stipulate that your mortgage loan documents allow you the “out” of default the same way a car loan does. If you stop paying, they take it back. To suggest that this is somehow Option B, and not just skipping out on your commitment, takes a blindness I don’t have. Especially since if you told your loan office you’d just skip out if the value bit the dust, he wouldn’t have given you the loan.
Good night all.



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Loudon is a Fool

posted July 9, 2010 at 5:21 pm


Car loans may vary by state as well but I suspect that most of those loans ARE recourse. So skipping out is not option B under those loans and if you do skip out on the loan without paying the amount on which you are personally liable you will not have fulfilled your obligations under the contract. Secured loans can still be recourse. I’m also willing to consider that an anti-deficiency statute coupled with a recourse loan might not be equivalent to a non-recourse loan.



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trotsky

posted July 9, 2010 at 5:28 pm


Richard,
If you look at loan practices, it is obvious that banks and other lenders are happy to make loans against properties that are rising in value and extraordinarily tight in their demands for down payments, etc., when lending in, say, the current environment. That’s what risk-management departments do all day. In other words, the banks know exactly what they’re getting into.
It’s a business transaction. I fully agree that we’re all better off if people generally feel a sense of decency that compels them to make good on their obligations. But a rise in “strategic” defaults in this environment isn’t the least bit surprising, let alone the sign of moral decay.
(Captcha: green henchman)



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Jon

posted July 9, 2010 at 6:58 pm


Re: be slacked-jawed in gaping astonishment at some of the millionaire summer mansions built on the banks of the river.
You can do the same in Fort Lauderdale, taking one of the tour boats on the Intercoastal. I recall being dumfounded at seeing a house that didn’t just have a wrap-around front porch, but also a wrap around swimming pool, with fountains at either end.
Of course in Lauderdale one can amuse oneself with the thought of what’s going to happen when a really big hurricane sweeps through someday.



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Peter Hoh

posted July 9, 2010 at 8:48 pm


“Of course in Lauderdale one can amuse oneself with the thought of what’s going to happen when a really big hurricane sweeps through someday.”
Yeah, they’ll get to rebuild their underinsured McMansions, and the rest of us will pick up the tab.
Captcha: status lechery



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Sherry

posted July 9, 2010 at 11:06 pm


More expensive planes are being repossessed, too.



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Jon

posted July 10, 2010 at 1:01 am


Re:
Yeah, they’ll get to rebuild their underinsured McMansions, and the rest of us will pick up the tab.
Have you actually been to the area I am talking about? There will be no rebuilidng. I am not talking about a Cat 1 hurricane that breaks some windows, blows off some shingles and leaves some minor water damage behind. I am talking about a storm that scours everything down to the bottom of the channels. There will be no rebuilidng because there will be no land left to rebuild on.



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Heritage Hills

posted July 12, 2010 at 4:43 am


Please, let’s not paint ALL “rich” people with the same brush. Some are not paying their mortgages? Oh well. There are a lot of not-rich people doing the same. I hear about them daily. Thomas Stanley wrote a book called “The Millionaire Mind”, in which we find that one of the top traits displayed by deca-millionaires (people with more than $10 million) is that they are exceedingly ethical. Yes, that’s right. that’s not what the envy-and jealousy-ridden Left would have you believe, but it’s true. George Soros is one exception I can think of, but the rest by far had to be ethical in order to be successful. The “rich” are also paying the lion’s share of the income tax burden in this country. If you’re making less than $60,000 or so, sorry but your contribution to the national till is next-to-nothing. And you should thank those “rich” people for paying for all your goodies.
Just stop bashing people who have a dollar more than you do. It gets old.



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