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Who wants to be a deadbeat?
Answer: Probably nobody. However, due to either poor planning or
circumstances beyond their control, it happens. It is in everybodies best interest that we foster a morality that expects people to pay their debts even though it is a hardship and even though we may lose money on them. Is it unusual for people to default on a debt where the collateral is worth less than the loan? Answer, NO. Consider how many people default on car loans where the car is immediately worth less than the loan as soon as it is driven off the lot but the repo man coming after a persons car is very common. OK, but that is a not much money, what about bigger loans? Boats are an example. For some reason, people have no qualms about defaulting on boat loans and we all know how much boats depreciate and repoing boats is a normal business in Florida. For some reason, we all think very hard about considering defaulting on a home loan even when the home is underwater. In general, this is good. However, does it make sense individually when many people have no problems defaulting on other loans? We seem to have one morality that applies to cars and boats and another that applies to homes. In the past, this was never a problem because homes always appreciated (in general). Now that the fundamentals of the economy have changed, is it unreasonable for our attitudes toward default on home loans to change? If people begin to default in larger numbers, lenders will no longer do the absurd zero down loans and will demand at least 5% or 10% down like they used to. We should not favor defaulting but when the lender who has been given federal money at very low interest will not even refi at a lower rate, what do they expect? They do not lose money by refinancing on the principal and in cases of being severely underwater they could even reset the loan at the rate they get from the feds until the principal was down to the actual value and then raise it back. Home owners have taken a huge hit economically whereas the large lenders have done well because the feds gave them billions which the lenders are not lending. Why should the poor economy fall only on the homeowners? If the banks are taking taxpayer money at low rates and then will not lend it. do they expect individuals to operate on a higher moral plane? I would never consider an adjustable rate mortgage but apparently it is the norm in most of the world. Most of the world has economies far less stable than ours so lenders demand to be able to adjust mortgages. |