Article: UofA Law Prof Discusses Why Most Homeowners Aren't Strategically Defaulting But Should

[Irish Gal]

Good article w/ linked paper (54 pages) by Brent T. White, Law Professor at Univ of AZ. He discusses why homeowners aren't strategically defaulting in droves, even when it's in their best financial interests to do so. His theory is based on the premise of "norm asymmetry" (double standard) between borrower/lenders i.e. that moral norms are exclusively applied to borrowers, while market norms are applied to lenders. Lenders routinely bank on borrower shame/guilt and this moral club (while they routinely behave immorally but play by market rules solely) to trap underwater borrowers (by their unwillingness to truly negotiate fair and reasonable mortgage outcomes which addresses the totality of the problem, including the negative equity issue [not addressed either by gov't programs thus far] ). Don't be scared off by the 54 pgs. Half of it is reference notes!


Professor: Fear, Shame Keep Homeowners From Defaulting | UANews.org

[KFish]

Great article!!

I especially loved the part "...walking away may be the most financially responsible choice if it allows one to meet one's unsecured credit obligations or provide for the future economic stability of one's family," he said. walking away may be the most financially responsible choice if it allows one to meet one's unsecured credit obligations or provide for the future economic stability of one's family," he said.

Agreed!

[kbspots]

The only way I am walking away is them carrying me out screaming or in a body bag. I do not care about meeting my unsecured credit obligations. I care about having a house to live and work in. If I have no house, I will have no job, and I will be living in my car, the street or heaven. Now how is that going to provide future economic stability of a family?

[Social Apocalypse]

Thanks for sharing. GOOD STUFF! I wish CONGRESS would read this! I WISH MY SERVICERS WOULD!!!

[knownick]

Originally Posted by kbspots

The only way I am walking away is them carrying me out screaming or in a body bag. I do not care about meeting my unsecured credit obligations. I care about having a house to live and work in. If I have no house, I will have no job, and I will be living in my car, the street or heaven. Now how is that going to provide future economic stability of a family?

There are other houses. Trust me.

[kbspots]

This is my home and I have lived here most of my adult life, 35 years, my life is here in this house. I am too old to start over in another house.

[auroraproblem]

I don't believe the article is there to convince those that want or desire to stay in their homes to leave. It is simply an attempt to level the playing field between lender and borrower.

Many people who have not been in their home but 5 years or less and are upside down by 30+% don't really wish to enslave their family for the next 12+ years just to try and break even on what could be their only investment for their families future.

I believe the article is just to give some insight to those that face these types of decisions and to not let the 'moral' factor in on the decision, but what is best for you and your family.

[knownick]

Originally Posted by kbspots

This is my home and I have lived here most of my adult life, 35 years, my life is here in this house. I am too old to start over in another house.

I understand that. A house is just a house but home is home.

Hope it works out for you.

[THANKS2U]

Originally Posted by knownick

I understand that. A house is just a house but home is home.

Hope it works out for you.

There is NO WAY I would walk away. Not unless i was literally forced to do so by the sheriff in town.

This is my home.

We all have been ILLEGALY defrauded, manipulated and discriminated against.

I think the article is correct about not feeling any shame or blame for what the Banking Institutions INTENTIONALLY CAUSED.

The shame and blame and legal responsibility needs to be put back where it belongs, on the Banking Institutions and our bamboozled government, who MUST FORCE these corrupt BANKS, SERVICERS and INVESTORS, to be made accountable and do the right thing and make everyone whole again, by making our mortgages affordable - PERIOD !

My slogan is

WE WILL NOT WALK AWAY THE BANKING INSTITUTIONS MUST PAY !

[Irish Gal]

Originally Posted by auroraproblem

I don't believe the article is there to convince those that want or desire to stay in their homes to leave. It is simply an attempt to level the playing field between lender and borrower.

Many people who have not been in their home but 5 years or less and are upside down by 30+% don't really wish to enslave their family for the next 12+ years just to try and break even on what could be their only investment for their families future.

I believe the article is just to give some insight to those that face these types of decisions and to not let the 'moral' factor in on the decision, but what is best for you and your family.

Exactly. I should have added to the thread name "but should" to say "but should think about it." Each case is different, very personal, and up to each homeowner, ultimately. Whatever one chooses to do in this mess is the best decision for them. Plain and simple. Re the article, if one wants to walk but is struggling with the moral double standard that banks and gov't (and anti-homeowner citizens) play on distressed or underwater homeowners, then this article may be helpful to them to see the moral double standard for what it is. The more information people have, the better.

[knownick]

Originally Posted by THANKS2U

There is NO WAY I would walk away. Not unless i was literally forced to do so by the sheriff in town.

This is my home.

We all have been ILLEGALY defrauded, manipulated and discriminated against.

I think the article is correct about not feeling any shame or blame for what the Banking Institutions INTENTIONALLY CAUSED.

The shame and blame and legal responsibility needs to be put back where it belongs, on the Banking Institutions and our bamboozled government, who MUST FORCE these corrupt BANKS, SERVICERS and INVESTORS, to be made accountable and do the right thing and make everyone whole again, by making our mortgages affordable - PERIOD !

My slogan is

WE WILL NOT WALK AWAY THE BANKING INSTITUTIONS MUST PAY !

Guess I was lucky. I had no emotional attachment to my house. It was a business decision and nothing else.

I accept my fair share of the blame. The banks are not without their responsibility but neither am I. No one held a gun to my head and said YOU MUST BUY THIS HOME. I'm just glad I got out when I did.

[azhardspot]

banks did not force you to buy
the biggest wrong they did was that they gave these bad loans and inflated the home prices .... banks are suppossed to check the credibility of the loan applicants ... but they instead decided to put blinders on .... this in my opinion is what was out of control of a genuine buyer .... walking away is the way to keep checks and balances ...

[tb702]

I strongly agree with the article. I have been trying to work out with my lender but if the terms do not seem reasonable fair I am also planning to walk away.
Our house has lost almost $100K in value and that is in Las Vegas area foreclosure city of the country. It will take several years for home prices to come back up here. We have lived in the house for almost 2 years now. I feel so foolish for making the payments every month knowing what the banks did to cause this crisis.
It is time for some action and thanks for posting this.

[caldwellb02]

I know of one of us who walked away. She left her home and got a rental. Almost a year later they (the bank) contacted her and said she was approved for a loan mod, but she had to move back into the house. With her kids. And she was DENIED the mod. It is not that easy.

Be careful. Don't leave till you know the house is sold. Then ask for cash for keys.

[THANKS2U]

Originally Posted by azhardspot

banks did not force you to buy
the biggest wrong they did was that they gave these bad loans and inflated the home prices .... banks are suppossed to check the credibility of the loan applicants ... but they instead decided to put blinders on .... this in my opinion is what was out of control of a genuine buyer .... walking away is the way to keep checks and balances ...

I beg to differ - THE BANKS DID FORCE PEOPLE TO BUY !

Here's how they forced millions of Americans to buy homes.

First, in order to fully grasp what the banking Institutions have done, a person needs to really get into the minds of these sinister money manipulators.

About 30 years ago the banks started to manipulate inflation so that most people could NOT afford basic living expenses, not without going into debt just a little by using a little piece of plastic called a credit card.

Then, when the banks saw that they had maxed out the credit card SCAM game, inflation came down for a few years...

But then something magical happend - When the Banking Institutions saw that women wanted to enter the work force in FULL FORCE - CHA CHING $$$ Cha Ching INFLATION COULD BE MANIPULATED HIGHER AGAIN !!

WHY ? Because of 2 family incomes.

Then the government comes along and says that home purchasing needed to be made availabe to more lower income people ..

Remember, up until about 8 years ago, banks only approved lower income loans for people who would be paying from 21 % to 35 % of their income for PITIA.

But in the past 8 years banks got greedy and FORCED BORROWERS, YES,, I SAID FORCED ! Borrowers into loans at 40 % - 50 % & 60 % + percent loans for PITIA.

I say forced because the banks had forced inflation to the point that RENTALS for apartments and homes was just about the same price as it was for buying a home, so why pay HIGH RENT and get nothing, when you can pay HIGH MORTGAGES and get something..

The real problem is that banks forced inflation to the max and people thought they could afford the inflated prices because the banks Defrauded ALL of America and much of the world into believe all was well, because they were regulated and they were the good faith experts...

And, even if a person was smart enough or had TIME enough to figure out that all was not well, a person was still faced with either paying HIGH RENT with no returns, or paying a HIGH MORTGAGES with a false sense of some returns..

Now that the banks have manipulated millions from defrauding mortgages and premeditated TARP funds and they have caused a financial crisis, prices are coming down, to the point where there are no raises, not even with Social Security, although there should be raises, because inflation is NOT truly down that much - - BUT ANYWAY -- people can afford some decent rentals now

ETC ETC BLAH BLAH I dont have the time to spell it all out, as I hope you can clearly see the reality of how banking Institutions forced inflation for their own swindling sinister good and that the BANKING INSTITUTIONS are always 2 to 4 steps ahead of us all.

So YES ! The banks literally FORCED this finacial crisis and Mortgage crisis upon Good Faith and Innocent borrowers.

And thus, the banks forced people into defrauding inflated Mortgages, because the only other choice was to pay about the same price for some bogus rental..

The banking Institution games continue and they alone know the rules and they are always several steps ahead of us all.

BANKING BAASTARDS

[knownick]

Yeah, just not buying it. Part of the problem with America today is that nobody accepts personal responsibility for anything.

I'm the last person to defend the banks but suggesting that there was a vast nationwide multi-decade conspiracy that "literally forced" people into buying homes is just a little bit tinfoil hat for me.

Banks were out of control. Consumers were out of control. I can say without doubt that nobody forced my hand. I got caught up just like everyone else and now I'm paying for my own decisions. It is somewhat unfortunate that I'm also paying for the bank's decisions (through my tax dollars) despite walking away - but that's another story for another day.

[THANKS2U]

Originally Posted by knownick

Yeah, just not buying it. Part of the problem with America today is that nobody accepts personal responsibility for anything.

I'm the last person to defend the banks but suggesting that there was a vast nationwide multi-decade conspiracy that "literally forced" people into buying homes is just a little bit tinfoil hat for me.

Banks were out of control. Consumers were out of control. I can say without doubt that nobody forced my hand. I got caught up just like everyone else and now I'm paying for my own decisions. It is somewhat unfortunate that I'm also paying for the bank's decisions (through my tax dollars) despite walking away - but that's another story for another day.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Part of the problem is no responsibility - ?????

I would say that is correct for 95% of the banks, as the banks being irresponsible and illegal and about 5 % of the borrowers trying to beat the banks at their own grimy games.

But only about 2 to 3 % beat the banks at their own game. A very acceptable loss for the banks

I was not suggesting a conspiracacy theory at all, I was giving you the facts of the conspiracy, their plotted plan that has worked so well for the banks.

Our own President Obama has stated that he feels the banks did this all on purpose to gain TARP funds and other money....

He did NOT say why the government does not go after them to prove it.

BUT obviously it would only prove how stupid the U.S. government is and would end up putting thousands of people in prison and that would only make the crisis worse and the banks knew that beforehand also..

Forcing a person into something can be done many many ways, not the least of which is through manipulation -

If you anything about Religion, or have ever been MARRIED, you should know this FIRST HAND BIG TIME !

You say you are the one responsible - And so I believe you, as you must be the very small percentage of people / the 5 % who were fully aware of what you were doing and ALSO FULLY AWARE of how the BANK WAS F... ing you over and did not care, as you must have thought you could beat the bank at their own game.

Actually, some did beat the banks at their own game...

There are always exceptions to the rule, just like in Las vegas, a few people win, VERY FEW !

I am sorry to hear your luck ran out. But I still belive if the laws and regulations were in place the banks should NOT have allowed you & millions of Americans, to play the banks game in the first place, but that is just my opinion

Basically I beleive we were all played and betrayed by the Banking Institutions.

Our 4th President of the United States saw this coming even way back then, as Moe has a quote from him.

Michael Moore has a movie out about these Banking Plots

And New York Times Columnist Bob Herbert has written about how the banks have been operating for the past 30 + years, just so the banks could get to this planned and plotted point in history.

Yes, some less than 5 % in my opinion, were 100 % aware of themselves and 100 % aware of the banks sinister practices and they went ahead and gambled and threw the crooked dice anyway.

In those few instances I agree, those very few people PERHAPS, should take 50 % of the responsibility.

For most of us here, the banks are 100 % to blame and shame.

Much success in your endeavors

Respectfully,

Thanks2u

[InTheDeepEnd]

Not trying to place any blame here, but the banks and the real estate industry sure did lobby to keep that mortgage interest tax deduction in place in the 80s when all of this mess really began. Being a married man with average income and no kids, renting a house means a huge tax bill at the end of the year...even if we claim zero. It sure is a nice perk to be able to get a deduction for the mortgage interest....but what's so wrong with renting in this country?

May have been a tangent, but just something to think about.

[AZ Meltdown]

Originally Posted by InTheDeepEnd

Not trying to place any blame here, but the banks and the real estate industry sure did lobby to keep that mortgage interest tax deduction in place in the 80s when all of this mess really began. Being a married man with average income and no kids, renting a house means a huge tax bill at the end of the year...even if we claim zero. It sure is a nice perk to be able to get a deduction for the mortgage interest....but what's so wrong with renting in this country?

May have been a tangent, but just something to think about.

Exactly right!!!

Social engineering by the Govt via tax breaks helped cause this debacle.
Compound that with wild FED lending with interest rates BELOW that of inflation and you have the making of a unsustainable bubble, that is one day had to burst.

Now they think the cure is more engineering with Cash for Clunkers, 1st Time buyer tax breaks and MORE cheap money lent out WAY below the real inflation rate.

The BIGGER and Biggest bubble is being inflated right now, it's bursting will cause a long lasting depression.

[THANKS2U]

Originally Posted by AZ Meltdown

Exactly right!!!

Social engineering by the Govt via tax breaks helped cause this debacle.
Compound that with wild FED lending with interest rates BELOW that of inflation and you have the making of a unsustainable bubble, that is one day had to burst.

Now they think the cure is more engineering with Cash for Clunkers, 1st Time buyer tax breaks and MORE cheap money lent out WAY below the real inflation rate.

The BIGGER and Biggest bubble is being inflated right now, it's bursting will cause a long lasting depression.

OUCH !

You are right on and it hurts to admit it

A depression is in our future, unless they keep the money presses printing 24 / 7 and keep giving money away for the next 10 to 15 years, but they also must figure out a way not to account for it and pretend that the economy is just a play money monopoly game, until the real deal economy comes back full force ...

Just keep printing and using monopoly money until the economy can generate real money

It could work ? Well actually it is working for the time being..

The real question is, how much time have we got ?

[we're_still_reviewing]

Originally Posted by InTheDeepEnd

Not trying to place any blame here, but the banks and the real estate industry sure did lobby to keep that mortgage interest tax deduction in place in the 80s when all of this mess really began. Being a married man with average income and no kids, renting a house means a huge tax bill at the end of the year...even if we claim zero. It sure is a nice perk to be able to get a deduction for the mortgage interest....but what's so wrong with renting in this country?

May have been a tangent, but just something to think about.

Wow, My eyes are getting more and more open to how deep this really goes. Scary stuff.

[Riley18]

How many of us have had escrow shortages with homes purchased since 2004? I've noticed several people have mentioned that their mortgage payments increased by hundreds of dollars a month because the bank did not escrow the correct amount from the beginning.

I know I was conned by BofA when I bought this house. The bank rep assured me over and over that my payment would be $1,225 a month which would include taxes and insurance. Then each year for two years they sent me form letters telling me my payment would have to increase. I don't know about other people here, but that is a first for me. Never in over 20 years of various mortgages have I ever before experienced this type of fraud. Now this house is totally unaffordable and not worth the money. After putting down close to $100,000, it looks like we will be walking away from it. I'm ready to start living again, and am looking at some very nice rentals in my area for half my mortgage payment.

[we're_still_reviewing]

Originally Posted by Riley18

How many of us have had escrow shortages with homes purchased since 2004? I've noticed several people have mentioned that their mortgage payments increased by hundreds of dollars a month because the bank did not escrow the correct amount from the beginning.

I know I was conned by BofA when I bought this house. The bank rep assured me over and over that my payment would be $1,225 a month which would include taxes and insurance. Then each year for two years they sent me form letters telling me my payment would have to increase. I don't know about other people here, but that is a first for me. Never in over 20 years of various mortgages have I ever before experienced this type of fraud. Now this house is totally unaffordable and not worth the money. After putting down close to $100,000, it looks like we will be walking away from it. I'm ready to start living again, and am looking at some very nice rentals in my area for half my mortgage payment.

Our broker told us that our payment would be $2200 PITI. 5 days before closing that turned into $2200 Interest only and they did not escrow for t&i. We now have an escrow shortage up the wazoo. Our home is no longer affordable as well and my husband pulled money from his 401K to buy this pile of sh*t. So, now, no retirement and no house. Welcome to America.

I guess just another shady tactic of this grand mess.

We're ready to start living again, too. I'm tired of just struggling by and still falling short.

Good Luck to you.

[caldwellb02]

In california we can also get taxed on the forgiven debt after foreclosure. If I lose this house then I get to pay rent, get a measly counts for nothing "renters credit," lose the tax write off from paying mortgage, and get a tax from CA state on the forgiven debt. Tell me why I would choose to do this? I don't, but the bank is forcing me to. I've thrown up twice today with the stress - I don't know why I'm so stressed today and I don't have the flu it's just I did not see myself here. I did not see my bank screwing me over and my credit cards cutting limits and/or increasing interest rates and/or increasing minimum payments. I have been suckered into this and I'm pissed. I have been pushing so hard and F-ing nothing is working. I do have a job, so that makes me more fortunate than others, but my kids are coming home to what may be the last Christmas in this house and it makes me sad. Just so sad.

[pookey]

Excellent paper and one that every homeowner and legislator should read. I'm sending it to my House and Senate representatives, as well as appropriate Committee members.

The emotional blackmail of one's credit score being a reflection of whether a person is a "good person" or not is not fair. Yes, it provides a means to judge responsibility with credit in some ways, but in many ways it keeps all of us who have had perfect credit for 40 years from making clear and unemotional decisions about our financial future with respect to this unprecedented housing and financial meltdown.

I have been told that because we have a very good income the bank is having a hard time justifying why we say we can't pay our mortgages on our investment property. Why??? Because when the house took a 40% hit in value because of the mortgage and financial meltdown they caused we had no ability to sell.

The house was a remodel that we put a large chunk of money into because it was an estate sale purchase and undervalued at the time. We could easily recover our initial investment and make money after the remodeling. But the remodeling market was so hot we couldn't find any contractor to take on our job..."maybe in 6 months" some said. Bby the time the remodel was completed sale prices had seriously eroded and we were "underwater." We still attempted to sell it with no interest. So not only could we not sell the property but had had no rental income on it during the months it was being remodeled and up for sale. Carrying costs + remodeling cost + inability to sell = debt.

Finally resorting to renting it resulted in a net loss every month, but we had no choice. Carrying costs + remodeling cost + inability to sell + monthly net loss = heavy debt.

We requested and were denied a loan modification from BofA even though it was a toxic Pay Option Loan with negative equity. To even attempt to carry it while we waited for the "adjustment" in the housing market to level off and attempt to sell it again we had no option but to pay the minimum payment every month. Carrying costs + remodeling cost + inability to sell + monthly net loss + negative equity accumulating = crushing debt.

We began taking cash advances just to pay our monthly bills. Then the housing market and financial markets imploded sending our value crashing by even more. Carrying costs + remodeling cost + monthly net loss + inability to sell + negative equity accumulating + rising credit card debt = crushing debt and mortgages amounting to more than $350,000 than what it could be sold for in the present market.

We are now over $225,000 in credit card debt, took out all of our home equity money out on our primary house, took loans on our 401(k) and we are paying interest only on our primary house mortgages - all so we could keep paying on a property that has put us in a huge hole of debt. Our renter left in July and we finally realized there was no more money to keep borrowing to keep paying the mortgages on this house.

The emotion of having our credit ruined kept us from making a clear business decision when we should have. Instead we dug ourselves a deeper and deeper hole that we may not be able to get out of without bankruptcy. And we are people who have NEVER been late with a payment to any creditor in 40 years, no matter what financial difficulties we were having.