Rolfe Winkler
Option ARMageddon
60 Minutes on walking away
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The weekly news magazine doesn’t break any new ground, but publicity like this may encourage many more to walk away. If this becomes common behavior among underwater borrowers, it could lead to a deflationary spiral. That would be very bad news for banks and, ultimately, the paper wealthy.
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My view on walking away is that having consumers (i.e., mortgage holders) continue to overpay for an asset is counterproductive.
In paying more for something than its worth, you diminish your own prosperity as well as all the producers who cannot sell to you because you are throwing your money down a rathole. Economies also work by price signals – housring price signals were out of whack – delaying the correction is like taking off a band-aid – you can have quick temporary pain, of you can make the pain last a long time.
A lot of people and government officials conspired to sell the idea that house ownership is a no lose deal.
Not once in this video do people question WHY housing prices increased so rapidly; and that these people have such huge debt burdens. The answer is the same banks that are now taking losses.
And these people who live in one of the magic nine states that don’t allow deficiency judgements… if you’re stuck in Florida or other states you’re in serious trouble.
Why not walk away when there is little alternative. Government plans to assist those who can’t meet the usurious payment rests have not been effective. Banks do nothing to prevent foreclosure. Regulators walked away from their jobs of oversight. Political appointees walked away from protecting the public and instead opened the floodgates for predatory lending and over leveraged derivative products. So the only ones who are suppose to be responsible and pay for the con game are the underwater homeowners who can’t both make mortgage payments and put groceries on the table. Walk, baby, walk.
Being underwater and not being able to make payments are two different things, and one does not imply the other.
Walking away because you can’t pay anyway is one thing.
Walking away because you made a bad investment is quite another.
Walking away from a mortgage that has been structured as untenable by the lender or parties adjacent to the lender is not a crime. Throwing taxpayer money at unscrupulous lenders and unscrupulous parties adjacent to the lender to prop up the fictitious value of the mortgage at issue, on the other hand, is.
We need a little Jubilee action. Debt forgiveness used to happen. The money is just digits on a spread sheet in a computer that the bank has. The people who invested in the mortgages will be in a tough way if they depend on the loan payments for their livelihood. These people might be a bit richer than the people with the loans, but it could be that the mortgage holders are the retirement funds for the people walking away. We seem to be more willing to save the creditors than the debtors. In closing, lets all repeat the Lord’s prayer focusing on the forgiveness of debts.
I wonder how many of those who have walked away despite being able to afford the payments actually bought the house at an overinflated price, and how many bought before the bubble (at a fair price) and then refinanced one or more times during the bubble, and spent the cash.