Tuesday, June 1, 2010

Mortgage Chutzpah Not Just On Wall Street

Two years ago, while driving past a new subdivision of $600,000 homes in suburban Detroit, my sister-in-law told me an interesting story about one of the families who faced foreclosure in that neighborhood.

It seems she had overheard a group of mothers at their charter school joking about the family, who these mothers scoffed hadn’t “played the game” properly.

“What game?” my sister-in-law asked, confused. She knew the family in question - husband and wife are both highly-educated engineers - and was surprised to hear the snide remarks directed towards them by this group of women.

“Why, you don’t pay your mortgage every month, do you?” one of the mothers shot back.

My sister-in-law was caught off-guard. Of course, she and my brother pay their mortgage every month. What does that have to do with anything?

Apparently, quite a lot. That day, she learned that people all over Wayne County have been living beyond their means for years. Like a secret code, mortgages and car loans had become a big joke among social-climbing, keeping-up-with-the-Jones’es suburbanites all around my brother and his family, who had settled for a house they could afford and drive used vehicles. And when this group of mothers learned that my sister-in-law made sure the mortgage got paid monthly, they basically said the joke was on her. She and my brother were suffering through an unnecessarily low standard of living when, with a little overextension, so much luxury could be within reach.

Bankrupt Fiscal Morality

People who justify such a bankrupt fiscal morality do so by claiming that banks and mortgage companies scam their customers and jack up prices, so they have a right to fight back. How else could anybody afford to live in high-priced places like Michigan without scrimping on paying debt obligations? They still had other stuff to acquire, like vacations, boats, impressive wardrobes, and tons of toys to help their kids ignore the fact that both parents were working themselves to death trying to just keep up with the minimum payments on the bloated American Dream.

As we’ve now seen, however, the joke was on the entire country – both the people with ethics who paid their bills and lived within their means, those who bit off way more than they could afford, and those who helped create the illusion that debt was cheap.

These days, in suburban Michigan, it's no secret that many people have stopped paying their mortgages yet continue to reside in homes they’re not paying for. Anecdotal evidence suggests it will take about three years to process most foreclosures in Michigan, due to its sheer volume of defaulted mortgages. So many homes already sit empty that banks actually want foreclosed families to stay in their homes to prevent vandalism and keep the heat on. And next door, invariably, reside honest homeowners who’ve either paid up their mortgage or continue to pay, and in effect subsidize those who either can’t or won’t pay for their own debts. It’s a sad, sad scenario of greed, materialism, and selfishness.

A Nationwide Disgrace

In today's New York Times, an article entitled "Owners Stop Paying Mortgages, and Stop Fretting" confirms the stories my brother and his family began hearing two years ago about people who intentionally overextended themselves. In the Times piece, several Floridians who have stopped paying their mortgages have allowed their names – and even photos of themselves – to be used as examples of frustrated borrowers who find themselves upside-down in their loans. Apparently, there's no shame to be found anymore in financial mismanagement.

True, during the past ten years, money lenders have been particularly cunning in how they’ve marketed themselves to borrowers. No shortage of evidence exists to show how banks intentionally encouraged home buyers to purchase more than they could afford. Compounding the problem was the banks packaging and re-selling of mortgages they knew were sub-prime – and therefore of a higher risk – without fully disclosing the risk to their customers.

But what part of this scenario negates any borrower’s obligations to repay the loan for which they signed? Just because it might be proven that a bank employed deception – whether criminal or not – can a homebuyer simply take the law into their own hands and stop paying on their debt?

Pot = Kettle

One of the Floridians who has stopped paying on her mortgage justified her actions by derisively dismissing all bankers as “crooks,” which, granted, might aptly describe a good many of them. But is that a legal or moral reason for not waiting for due process? In saner times, when foreclosures were more infrequent, and therefore more punitive, homebuyers would scream bloody murder if banks called their loans in an aggressive fashion, expecting due process in the execution of the foreclosure. But now, when the tables are turned, suddenly due process doesn’t apply?

Another person quoted in the Times piece said the decision to stop paying their mortgage became a simple matter of survival, which almost sounds noble until you read further and learn they still visit casinos. Whatever happened to "once bitten, twice shy"?

It remains to be seen how all of the legal battles over the nation’s mortgage mess will be sorted out in courts of law. For now, it does appear that no individuals will be prosecuted for the lies and corruption which helped bring us where we are today. And for people who have desperately tried to figure out a way to escape the crushing mortgages they ill-advisedly signed, it would be terribly tempting to exact one’s own form of justice on this unfair system by simply stopping mortgage payments.

But two wrongs have never made a right, have they? And it is wrong, isn’t it, to not pay back what you’ve signed for on the dotted line. If you think people should be able to keep stuff they can’t afford, then our whole economic system will crash all around us.

We Keep Coming Back to Greed

The manifestations of the mortgage meltdown have proven to be complex, but the basic reason is simple: greed.

- Greed on the part of banks, mortgage companies, and Wall Street players for quick profits regardless of risk.

- Greed on the part of home buyers who wanted more house than they realistically could afford in the long-term.

- Greed on the part of real estate investors who flipped properties in a race to push up market values.

- And greed on the part of certain liberal politicians and bureaucrats who were pushing lower-income blacks into the housing market, waving the specter of racism against loan officers who questioned their credit.

Just because the cause is easy to identify doesn’t mean the fix will be just as easy. Indeed, the fix will require some painful choices, not the least of which will probably be further government meddling into our economy. Thanks a lot, all you greedy bozos!

In the meantime, how does having thousands of borrowers across the country refusing to pay their mortgages help anything? Are banks still steadfastly resistant to working with homebuyers to negotiate lower payments? Does not paying your mortgage put you in a more favorable light with your bank? Just because up to 40% of your home’s value is currently gone, does that mean that throughout the life of your mortgage, the 40% won’t be recouped, and you should just go ahead and throw in the towel now? How much longer might it take for property values in your area to rebound with people intentionally defaulting on their loans?

Has our nation reared a bumper-crop of such financially-stupid citizens that not paying one’s mortgage can make sense? If indeed, all bankers are “crooks,” does anything get fixed by dignifying their tactics with similar ones of your own?

Doing the right thing is rarely easy, fun, or cheap. But has easy, fun, and cheap usurped hard work and diligent morality as watchwords for the United States of America?

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