Pro and Cons of Mortgage Strategic Defaults.

[sheeplady]

"The other option is dump his bad investment on the rest of us and we can carry him."

Well, actually, no.

Actually, yes. To afford a default and the following write-offs, the potential for such write offs are written into everyone's mortgage. So, yes, other mortgage holders pay for it. Just like if you total your car or collect on your homeowners insurance, other insurance payees pay for it too because chances are you haven't paid that much in as an individual. Yes, it is calculated into the system, but companies don't have a magic pot of money that just gets there somehow- they figure a capital charge on every loan they put out. There's a level of foreclosures that are planned for (i.e. have been charged back for) and once it surpasses that level is when we get into problems like tightening credit, etc. If people didn't default, your origination and interest rates would be lower.

It's kind of like those "free" ketchup packets in fast food places. They do not charge you per packet, but the charge is spread out over all their customers. Some customers will use the ketchup and some won't. They even calculate the charge of if there are a few people who purposely take more than they need (hoard them) to have a "free" supply ketchup at home. However, there is a tipping point where if people are stuffing their pockets with ketchup packets that the company must do something- either start charging for ketchup directly, increase the hidden cost per customer, or start putting procedures in place to limit the amount of ketchup .

I am going to say that taking extra ketchup specifically for the purpose of taking it home with you is stealing as opposed to accidentally taking a packet or two that you don't use and then take home with you. I understand that some people are basically mixing it with hot water to make soup because they need to feed their families and I would say that while it is stealing, I understand that and would find that to be ok. But a huge portion of people who purposefully take way more ketchup than they need to take it home aren't going to make ketchup soup, they're just greedy because they don't want to spend $1 on a bottle of ketchup. A few cents ketchup packet doesn't seem like a big deal, but it is something that we all pay for as customers. It's an example of a hidden cost to consumers, just like mortgage fees and interest.

 

[vitanola]

Actually, yes. To afford a default and the following write-offs, the potential for such write offs are written into everyone's mortgage. So, yes, other mortgage holders pay for it. Just like if you total your car or collect on your homeowners insurance, other insurance payees pay for it too because chances are you haven't paid that much in as an individual. Yes, it is calculated into the system, but companies don't have a magic pot of money that just gets there somehow- they figure a capital charge on every loan they put out. There's a level of foreclosures that are planned for (i.e. have been charged back for) and once it surpasses that level is when we get into problems like tightening credit, etc. If people didn't default, your origination and interest rates would be lower.

It's kind of like those "free" ketchup packets in fast food places. They do not charge you per packet, but the charge is spread out over all their customers. Some customers will use the ketchup and some won't. They even calculate the charge of if there are a few people who purposely take more than they need (hoard them) to have a "free" supply ketchup at home. However, there is a tipping point where if people are stuffing their pockets with ketchup packets that the company must do something- either start charging for ketchup directly, increase the hidden cost per customer, or start putting procedures in place to limit the amount of ketchup .

I am going to say that taking extra ketchup specifically for the purpose of taking it home with you is stealing as opposed to accidentally taking a packet or two that you don't use and then take home with you. I understand that some people are basically mixing it with hot water to make soup because they need to feed their families and I would say that while it is stealing, I understand that and would find that to be ok. But a huge portion of people who purposefully take way more ketchup than they need to take it home aren't going to make ketchup soup, they're just greedy because they don't want to spend $1 on a bottle of ketchup. A few cents ketchup packet doesn't seem like a big deal, but it is something that we all pay for as customers. It's an example of a hidden cost to consumers, just like mortgage fees and interest.

Ah! So you DO agree with me that these current common business practices, many of which date back to the very foundations of our current economic system are essentially immoral.

Or do you, like so many others maintain that it is only immoral for an individual actor to externalize risk on to society at large?

 

[sheeplady]

Ah! So you DO agree with me that these current common business practices, many of which date back to the very foundations of our current economic system are essentially immoral.

Or do you, like so many others maintain that it is only immoral for an individual actor to externalize risk on to society at large?

Yes, I do agree that these are age-old business practices. There is nothing immoral for a business to do so, so long as it is reasonable. On the other hand, I do think it is unreasonable for both the business and for the individual to take advantage and cheat the system. For instance, just because I know that someone else is paying for the ketchup packet doesn't mean I get to take 20 of them when I well know that the system is only accounting for a reasonable amount of ketchup.

ETA: I want to qualify something: it is not a case of businesses externalizing risk on society at large in this scenario of the ketchup packets or in the scenario of pre-bailout banks. Capital charge backs only work on *customers.* If I do not want to share in the communal risk and charges, I can choose not to be a customer. When it comes to the bailouts, which were funded by taxpayer money, then a taxpayer has no choice to be a customer, as the penalty for being a non-taxpayer is a federal offense.

So, basically, yes, I think it was immoral for both the banks to take the bailout and immoral for mortgage holders to strategically default using bailout money.

 

[Stanley Doble]

Don't worry about dumping the financial burden on the government and therefore on generations of taxpayers unborn. The US national debt is now over $16 trillion dollars and growing at a trillion a year. None of it will ever be paid back. Not the principle, not the interest, none of it. Nobody has any intention of ever paying it back and never has. It can't be paid back and it won't be paid back. So don't worry about it.

 

[sheeplady]

Don't worry about dumping the financial burden on the government and therefore on generations of taxpayers unborn. The US national debt is now over $16 trillion dollars and growing at a trillion a year. None of it will ever be paid back. Not the principle, not the interest, none of it. Nobody has any intention of ever paying it back and never has. It can't be paid back and it won't be paid back. So don't worry about it.

That has absolutely nothing to do with it. If you buy a car and never make a payment, and I steal the car, does that somehow absolve either one of us of our separate wrongs? Just because you never paid a penny on the car, does that make my stealing it ok? And just because I stole it, does that make the fact that you never paid a penny on it ok? They are separate moral issues.

 

[PrettySquareGal]

That has absolutely nothing to do with it. If you buy a car and never make a payment, and I steal the car, does that somehow absolve either one of us of our separate wrongs? Just because you never paid a penny on the car, does that make my stealing it ok? And just because I stole it, does that make the fact that you never paid a penny on it ok? They are separate moral issues.

I think he was being sarcastic...

If not....

Yikes.

 

[LizzieMaine]

As I said...

The solution isn't "well, they do it so why shouldn't I?" It should be "It's wrong for me to do it, so why exactly are we letting *them* get away with it?" Until we insist on putting morality above the dollar at *all* levels, nothing's going to change except for the worse