Borrowers go to a bank to borrow money to purchase a home. Bank lends them money in good faith. In exchange these individuals enter into a written contract agreeing to pay the money back with interest to the bank over a period of time. The borrowers then begin living in the home, paying the mortgage as they promised to do. They begin enjoying what many feel is the American dream; owning a home. The housing bubble bursts and the market crashes. Fortunately, these borrowers have not lost their job or suffered any financial hardship that would make them unable to continue paying the mortgage. The borrowers then decide they want to stop paying the mortgage because the value of the home has decreased significantly. They are "underwater" and the value of the home is less than the debt they owe to the bank on the home. They eventually enter into a short sale of the home. In a short sale the proceeds of the sale falls below the debt owed on the home. That is, the bank will not recoup the amount of the original bargain.
Now here are the justifications I've heard from such hypothetical borrowers who chose to enter into a shortsale:
1) One claim I saw online was that because some of these banks owe such large amounts to the government, the borrowers who owe to the bank are just a drop in the pale and should not feel obligated to the bank. They listed numbers. It was something like an individual homeowner on average owes 100,000 times less to the bank than the bank owes the feds. (A number I did not investigate, but let's take it at face value because its actual value is irrelevant.)
A simple refute goes something like this: do not use other bad behavior to justify your own. Their general premise is that because the bank made bad investment choices and ran to the federal government for a bailout they, as the borrowers, are entitled to act equally poorly and stiff the bank. What a third party does is irrelevant to your own integrity. These borrowers try to further their justification by using some asinine ratio about the amount they promised to pay versus the amount the bank promised to pay a third party. I ask, what is the value of your integrity?
2) This claim is related the previous one. Borrowers will argue that they are just screwing over a "big corporation" who can afford it. So it really does not matter. Let's use Bank of America as a simple example. This evil corporation is listed on the New York Stock Exchange, and thus, is publicly traded. By definition, a publicly traded company is owned by its shareholders. Who tends to be shareholders? Well, often public pension funds are invested in publicly traded companies. Who gets public pensions? Teachers, DMV workers, social workers, and other government workers. Also, private pensions are invested in publicly traded companies. That includes: auto workers, truck drivers, doctors, accountants, etc. What about mutual funds? Yes, they are also invested in publicly traded companies. As you might have guessed where I'm going with this, mutual fund holders include the average middle class and upper middle class earners. Simply put, when borrowers "screw over" the "evil corporation" they are essentially harming the value of their own neighbors' investment portfolios and retirement plans.
3) The third argument I've heard is these borrowers are doing what any rational actor in a capitalist system would do and bail on a poor investment. Well a "rational capitalist system" requires dependence on contractual agreements. When contracts no longer operate as the framework to set expectations of lenders and borrowers, the system breaks down. Would you lend money to someone under a contract if you knew that the contract could just be ignored when the borrower felt it convenient to him? When you bail on your contractual agreement, you are essentially breaking down the very system that enabled you to purchase a home. My new favorite is the complaint that only borrowers with extremely high credit scores can get credit. Consequences much?
4) Others claim that the bank misled them into entering into the loan initially. This is my personal favorite. Personal responsibility people. When you choose to sign your name on the dotted line, you better be sure. If you are not, get an attorney or other specialist to go over the documents with you.
5) I'm entitled to a "bailout" and want my share of "government money." There is no such thing as "government money". Government money is essentially, your money. Whether you pay it directly to the government or not, you will pay in the end. How does that work? Well the usual claim is the "rich" will pay, not the innocent plebes. Isn't your employer rich? If your rich employer has less money to spend because he is paying for your mortgage, there will be no upcoming raise, or additional hiring. He may cut back on the perks you once enjoyed at your job. Potentially, he will go so far as laying individuals off. Additionally, when you squeeze the rich, they give up yachts and a new Porsche. You give up a raise that would have paid for your family trip to Sea World. Who really hurts in the end?
Integrity is my central issue with these borrowers. For me, integrity is simply doing the right thing when no one is looking; Doing the right thing even if it is not popular or easy. How can you make an agreement, in writing, and then decide that after the other side has performed their agreed part you just "don't want to" anymore? The bank has given you a loan; Possibly in the amount of hundreds of thousands of dollars. You were able to enjoy the benefit of the bargain and purchased a home you would never have had if the bank had not extended you credit.
Just seems like a flawed plan on how to go through life to me.
