Strategic foreclosures and short-sells and the church's standing

[bytor2112]

Many things are legal but are not right no matter how much they are spun.

Phoning up a financial expert or lawyer will always help one find ways around penalties. Does it make it right?

Yes...it does.

[NeuroTypical]

Well, I don't think they got a loan specifically with the intent to default . . . if that is the case why get a loan? The bank does get to repose the house. So if you intend to default you are just wasting money. No one gets a loan with the intent to default (unless you truly are a scamster). I am just explaining that default is an option, you don't have to be "struggling to make payments" to default, the bank knows it and assumes that and defaulting has nothing to do with being ethical. It is embedded in everything about the loan buying process.

Hi yjacket. You're a bit closer, but you're still avoiding my direct, easy to understand, easy to answer question.

I'm not asking about the intent of people obtaining loans. I'm not asking about the bank's recourse if the person stops paying. I'm not asking about scamsters. I'm not asking you to re-explain default processes or your opinion about them.

For the third time - I'm asking you a simple yes or no question: If you, yjacket, are as upfront with a potential lender as you are being with us, do you, yjacket, honestly believe anyone would enter into a contract/mortgage/loan with you?

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

[Guest]

Hi yjacket. You're a bit closer, but you're still avoiding my direct, easy to understand, easy to answer question.

I'm not asking about the intent of people obtaining loans. I'm not asking about the bank's recourse if the person stops paying. I'm not asking about scamsters. I'm not asking you to re-explain default processes or your opinion about them.

For the third time - I'm asking you a simple yes or no question: If you, yjacket, are as upfront with a potential lender as you are being with us, do you, yjacket, honestly believe anyone would enter into a contract/mortgage/loan with you?

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

LM. Yes, you can actually say this to a lender. That is, if you never had any intention of paying off a loan (which to me is assinine business-wise... in reality, there is close to zero chance of this ever happening - that is, a person asks for a loan without intention of making payments). The lender has 2 choices - increase the LTV requirement, reject the loan application. There are a lot of ways where a bank can profit off of your intent not to pay the loan.

[yjacket]

Hi yjacket. You're a bit closer, but you're still avoiding my direct, easy to understand, easy to answer question.

I'm not asking about the intent of people obtaining loans. I'm not asking about the bank's recourse if the person stops paying. I'm not asking about scamsters. I'm not asking you to re-explain default processes or your opinion about them.

For the third time - I'm asking you a simple yes or no question: If you, yjacket, are as upfront with a potential lender as you are being with us, do you, yjacket, honestly believe anyone would enter into a contract/mortgage/loan with you?

"Hi there potential lender! I just wanted you to know that I don't believe any of this stuff I'm signing actually means I "must" make payments! That's not a problem for you, right?"

And for the 3rd time, I'm telling you yes they do-all the time.

One makes payments b/c it's in your best interest to do so, not b/c you "must" make payments. The bank doesn't evaluate you whether or not you think you "must" make payments, they evaluate you whether or not you "will" make payments. The two are totally separate.

Just b/c I know what the contract I sign means and I know there are exit clauses doesn't make me any less credit worthy or less likely to pay the money back. If something in my past says that I won't make payments then the bank will be less likely to lend to me. What I think about the contract is irrelevant it is about what I will do.

[yjacket]

LM. Yes, you can actually say this to a lender. That is, if you never had any intention of paying off a loan (which to me is assinine business-wise... in reality, there is close to zero chance of this ever happening - that is, a person asks for a loan without intention of making payments). The lender has 2 choices - increase the LTV requirement, reject the loan application. There are a lot of ways where a bank can profit off of your intent not to pay the loan.

Absolutely.

Banks unfortunately did lend to people who had no intention of paying a nickle on the loan during the housing bubble. NINJA loans (no income, no job, no assets). They did it b/c they could get the closing costs, repose the house if they defaulted and sell it at an even greater profit. Stupid business-wise and has gotten the banks in a lot of trouble. The banks didn't evaluate what would happen if home prices went down.

[Just_A_Guy]

I agree with a lot of what you say yjacket. But for my part, my wife and I just closed on a house Friday at a 3.5% interest rate and I'd be pretty mad to see the bank use some so-called "exit clause" when rates go back up in order to force me into a 7 or 8 percent rate just because it is now more advantageous economically for the bank to do so.

For this particular transaction to work I need a certain of commitment from the bank. I'm willing to reciprocate in kind, and I'm not inclined to look kindly on those who jack up my costs by misrepresenting their intentions to the same institution that happens to carry my loan.

[Guest]

Absolutely.

Banks unfortunately did lend to people who had no intention of paying a nickle on the loan during the housing bubble. NINJA loans (no income, no job, no assets). They did it b/c they could get the closing costs, repose the house if they defaulted and sell it at an even greater profit. Stupid business-wise and has gotten the banks in a lot of trouble. The banks didn't evaluate what would happen if home prices went down.

Actually they did... they had Fannie and Freddie. What they didn't anticipate is the Feds picking and choosing who to bail out.

[yjacket]

Actually they did... they had Fannie and Freddie. What they didn't anticipate is the Feds picking and choosing who to bail out.

Yeap . . . you are right, forgot about that.

(Sigh) The entire system is corrupt, corrupt to the core. It is really quite sad when you delve into the problem, research it and understand it. The entire banking/loan/monetary system needs to be completely burned down with a reboot. We'll get there, but it will be forced on us rather than done voluntarily. We will eventually have an event like Argentina 2001 or Greece, etc. It is really quite sad.

[yjacket]

I agree with a lot of what you say yjacket. But for my part, my wife and I just closed on a house Friday at a 3.5% interest rate and I'd be pretty mad to see the bank use some so-called "exit clause" when rates go back up in order to force me into a 7 or 8 percent rate just because it is now more advantageous economically for the bank to do so.

For this particular transaction to work I need a certain of commitment from the bank. I'm willing to reciprocate in kind, and I'm not inclined to look kindly on those who jack up my costs by misrepresenting their intentions to the same institution that happens to carry my loan.

I understand the concern. But everything is spelled out in your contract.

Back in the old days (pre-1930s), banks did actually do something similar . . . they recalled loans. And in some instances today they can do the same, but again it is spelled out in the contract.

In today's world to my knowledge there is nothing in the contract which stipulates that banks can renegotiate interest rates when it is fixed. The contract does spell out exactly what happens if you do not pay. That is my point, the contract you sign with the bank explicitly spells out what happens if you do not pay the mortgage.

That why it pays to read all the fine print of the contract. Banks could be sneaky and put in a clause that allows them to reset the interest rates.

My whole point is a lot of people claim that not paying the mortgage is going outside your contract. That is incorrect the contract and the law specifies exactly what happens when you do not pay, therefore non-payment is in the contract and is covered by law and therefore ethical as well as the ramifications of non-payment.

[applepansy]

2) Currency is actually destroyed.

This is the only reason money is destroyed. Our money was destroyed when we allowed our government to go off the gold standard.

[Just_A_Guy]

My whole point is a lot of people claim that not paying the mortgage is going outside your contract. That is incorrect the contract and the law specifies exactly what happens when you do not pay, therefore non-payment is in the contract and is covered by law and therefore ethical as well as the ramifications of non-payment.

Anything other than full performance of a substantial term of a contract, is a breach. It does not matter that the contract then spells out what happens in the event of a breach. It is still a breach.

It may nevertheless be ethical - judges and philosophers have grappled with this dilemma and the notion of "efficient breach" for centuries - but let's not pretend at a homeowner who quits paying his mortgage is still in compliance with the mortgage note. He isn't.

And I do think LM has a powerful point: if a mortgage company knew that default were more than a relatively unlikely contingency, then (barring the expectation of a bailout) it wouldn't have made the loan at all. Hence the credit checks and interminable approval processes.

[Guest]

This is the only reason money is destroyed. Our money was destroyed when we allowed our government to go off the gold standard.

Apple... this is not quite true. A gold standard is merely the government telling you exchange rates are fixed. There's nothing about it that says money is "destroyed" if we adopt to the idea that exchange rates are volatile - as a reaction to market fluctuations.

[john doe]

Just because something is legal does not make it ethical, right, or honest.

[yjacket]

Anything other than full performance of a substantial term of a contract, is a breach. It does not matter that the contract then spells out what happens in the event of a breach. It is still a breach.

It may nevertheless be ethical - judges and philosophers have grappled with this dilemma and the notion of "efficient breach" for centuries - but let's not pretend at a homeowner who quits paying his mortgage is still in compliance with the mortgage note. He isn't.

And I do think LM has a powerful point: if a mortgage company knew that default were more than a relatively unlikely contingency, then (barring the expectation of a bailout) it wouldn't have made the loan at all. Hence the credit checks and interminable approval processes.

Sure it is a breach, or breaking the contract (or whatever you like to call it). I'm saying that the contract spells out what happens in that event. And that whether or not it is ethical depends on the person and the situation and that it is not for us to judge whether it is ethical or not. We do not have all the facts of the situation. A strategic default in and of itself is a business transaction with no ethics attached. It is covered in the contract. One might be breaking the contract but one is not going outside the contract.

The more likely a default the more the bank will put heavier penalties to that loan. Absolutely, they want to protect themselves. This is one reason why interest rates should be a lot higher (to compensate for the higher rates of defaults). I would say NINJA loans where people never made a single payment were probably in some degree unethical, but I do not know the situation of each and every person so I can not say for sure. But this conversation did not start with NINJA loans, it started with strategic defaults; that specifically people who defaulted when they could pay were being unethical. My point has been and continues to be that hardly anyone goes into getting a loan saying "I'm going to default", why get a loan if that is the case? But the situation changes and sometimes it becomes necessary to break a contract.

LM was (maybe still is) trying to pin me down into saying that because I don't feel that I "must" pay a mortgage means that I "won't". I wouldn't get a 30 year mortgage unless I felt it was in my best interest to pay a 30 year mortgage. But I also recognize that at some point it is possible that my situation changes and it is no longer viable to continue to do so. If that situation occurred, I would carefully weigh my options, if defaulting ended up being the best outcome for me, my family, my long-term mental, emotional, financial health then I would default. Sometimes you just have to cut bait. I do not claim it is "good" to default, but that sometimes those things are necessary and it isn't my place to judge someone else.

[Guest]

I guess it all depends on what your definition of "is" is.

[some]

If you are referring specifically to someone who has a loan on a house, buys another house 1st and then defaults on the 1st house. An individual has to be in a very, very good financial position to do so. And if they are in that good of a position, they didn't get there by accident, they worked for it.

Sorry I do not agree with your view no matter how much stuff you heap up, the result is the same. It seems you do not believe LDS members should hold a higher standard.

[applepansy]

Apple... this is not quite true. A gold standard is merely the government telling you exchange rates are fixed. There's nothing about it that says money is "destroyed" if we adopt to the idea that exchange rates are volatile - as a reaction to market fluctuations.

again, I'll agree to disagree.

[Guest]

again, I'll agree to disagree.

I'd ask you to expand on your point but it will be thread hijack...

Here. This article may clarify where I'm coming from:

Why A Gold Standard Is Still A Bad Idea - Seeking Alpha

[Guest]

Sorry I do not agree with your view no matter how much stuff you heap up, the result is the same. It seems you do not believe LDS members should hold a higher standard.

Some... I don't understand what your views are. What "higher standard" are you talking about? I understand you find breaching a loan contract as a business transaction as unethical (lower standard?)... why?

[yjacket]

Sorry I do not agree with your view no matter how much stuff you heap up, the result is the same. It seems you do not believe LDS members should hold a higher standard.

Which result? and to what higher standard? This isn't rocket science here. If they lie on an application that is wrong, Liar loans, stated income loans etc. are obviously wrong, but we aren't talking about that.

The bank requires a crud load of documentation. Very, very few people can actually hold two mortgages at once, that requires financial reserves that very few people have. You can't just walk into a bank with a loan on one house, pick up another house with another loan and default on the 1st the next day. It just doesn't work that way. The bank will put that person through the ringer to verify assets, LTV ratios, etc. to ensure that in the event of a default the banks rear is covered. The bank who had a loan on the defaulted house will come after other assets, the second house, etc., which is why many times a strategic default situation requires bankruptcy or some sort of restructuring.

You've built yourself a box by saying that defaulting when one can pay is unethical. There are tons of situations where that may not be the case. What about people who have vacation homes, that they want or need to unload, it's unethical for them to default b/c they can pay? Sometimes it is impossible to sell. If you have a 300k mortgage but can only sell the place for 200k that means in order to sell the house you have to bring 100k to the table when you sell. Many people who can afford to pay the monthly nut can't afford to bring 100k to the table to sell. So they default even though they can make the payments.

Sometimes it is necessary to get rid of the debt, even when you can pay . . . unless you'd like us to go back to debtor's prison.

That is why I have consistently said that it may be unethical to strategically default but that it may not be, a blanket statement is wrong. Unless you are their CPA then you have no moral grounds to make a claim that strategically defaulting is unethical.

[yjacket]

I'd ask you to expand on your point but it will be thread hijack...

Here. This article may clarify where I'm coming from:

Why A Gold Standard Is Still A Bad Idea - Seeking Alpha

Haven't read the article, but yes going back to the Gold Standard we had prior 1930s would be a bad idea because it doesn't solve the problem. The root problem is fractional reserve banking/lending (which can still exists under a Gold Standard). On top of that is ability to inflate the money supply at will.

[Just_A_Guy]

LM was (maybe still is) trying to pin me down into saying that because I don't feel that I "must" pay a mortgage means that I "won't". I wouldn't get a 30 year mortgage unless I felt it was in my best interest to pay a 30 year mortgage. But I also recognize that at some point it is possible that my situation changes and it is no longer viable to continue to do so. If that situation occurred, I would carefully weigh my options, if defaulting ended up being the best outcome for me, my family, my long-term mental, emotional, financial health then I would default. Sometimes you just have to cut bait. I do not claim it is "good" to default, but that sometimes those things are necessary and it isn't my place to judge someone else.

I agree 100% with the above, because it includes the term "viable". That's what bankruptcies, short sales, and loan mods are for--for people who truly need them because standing by the loans as-made would be unduly burdensome.

I would not agree if you simply used the term "advantageous" or "in my best interest"; and I get the impression that that's what the OP (and Eowyn, in one of her posts) are talking about. Not "I can't pay", and not even "crud, things changed and this is getting hard". Just "I can make more money doing something else".

And that whether or not it is ethical depends on the person and the situation . . .

Agreed.

. . . and that it is not for us to judge whether it is ethical or not.

Naturally, eternal judgments are beyond our prerogatives; as are any determinations regarding who should or shouldn't hold a temple recommend.

But I have no problem with taking a hypothetical situation (such as the OP provides) or an anecdote where sufficient information is provided (as Eowyn relates) and saying "this is wrong" or "such behavior constitutes dishonesty" The scripture doesn't say "never judge", it says "judge righteous judgment".

A strategic default in and of itself is a business transaction with no ethics attached.

The default per se, yes; but I think it's important to note that the context of the default and underlying transaction (including both parties' initial intentions, their understandings of the opposing parties' intentions, oral representations made, motivations for the default, etc) can very easily make a strategic default not only unethical, but positively evil.

As an attorney I've filed consumer bankruptcy cases that resulted in a domino-effect of bankruptcies and lost businesses by my client's creditors. These aren't faceless corporations we're talking about--it's people. I have a pretty low opinion of anyone who would do that when they didn't absolutely have to.

It is covered in the contract. One might be breaking the contract but one is not going outside the contract.

I understand, but then in this sense, it's well-nigh impossible for anyone to truly "go outside" the contract. Contracts are signed under the auspices of contract law, which includes a variety of remedies for breach by either party above and beyond whatever is or isn't within the four corners of the contract. The only way you could really "go outside" the contract in the sense you're talking about, is by taking your assets and fleeing to a place where American law can't reach you.

My point has been and continues to be that hardly anyone goes into getting a loan saying "I'm going to default", why get a loan if that is the case?

I will agree with you in this regard, and further note that given current conditions, lending regulations, etc I daresay that the OP's hypothetical is pretty unlikely at present. But I doubt it will always been the case, and it seems it certainly always hasn't been so in the past.

[some]

This is why people don't like to do business with Mormons.

Most of the flood of responses are from yjacket who cannot possibly represent the Mormon church as a whole.

[Just_A_Guy]

Most of the flood of responses are from yjacket who cannot possibly represent the Mormon church as a whole.

A point of order:

Nobody here represents the Church of Jesus Christ of Latter-day Saints as a whole.

[yjacket]

I agree 100% with the above, because it includes the term "viable". That's what bankruptcies, short sales, and loan mods are for--for people who truly need them because standing by the loans as-made would be unduly burdensome.

I would not agree if you simply used the term "advantageous" or "in my best interest"; and I get the impression that that's what the OP (and Eowyn, in one of her posts) are talking about. Not "I can't pay", and not even "crud, things changed and this is getting hard". Just "I can make more money doing something else".

Agreed.

Naturally, eternal judgments are beyond our prerogatives; as are any determinations regarding who should or shouldn't hold a temple recommend.

But I have no problem with taking a hypothetical situation (such as the OP provides) or an anecdote where sufficient information is provided (as Eowyn relates) and saying "this is wrong" or "such behavior constitutes dishonesty" The scripture doesn't say "never judge", it says "judge righteous judgment".

The default per se, yes; but I think it's important to note that the context of the default and underlying transaction (including both parties' initial intentions, their understandings of the opposing parties' intentions, oral representations made, motivations for the default, etc) can very easily make a strategic default not only unethical, but positively evil.

As an attorney I've filed consumer bankruptcy cases that resulted in a domino-effect of bankruptcies and lost businesses by my client's creditors. These aren't faceless corporations we're talking about--it's people. I have a pretty low opinion of anyone who would do that when they didn't absolutely have to.

I understand, but then in this sense, it's well-nigh impossible for anyone to truly "go outside" the contract. Contracts are signed under the auspices of contract law, which includes a variety of remedies for breach by either party above and beyond whatever is or isn't within the four corners of the contract. The only way you could really "go outside" the contract in the sense you're talking about, is by taking your assets and fleeing to a place where American law can't reach you.

I will agree with you in this regard, and further note that given current conditions, lending regulations, etc I daresay that the OP's hypothetical is pretty unlikely at present. But I doubt it will always been the case, and it seems it certainly always hasn't been so in the past.

A very well thought out and good reply. I think we are probably closer in thought than farther apart.