
photo: bitzcelt via Flickr
The New York Times recently published an article about people facing foreclosure. Many of them stop paying the mortgage, and stay in the house free until the lender pushes them out. They save the money they would have spent on the mortgage, and use it to rent a place after the foreclosure, or they use it for ordinary living expenses. David Dayen’s post on this article, the NYT article, drew hundreds of comments. Let’s take a look at the arguments.
1. It will hurt me by driving up the cost of borrowing money. Doubtful. Nothing can affect the terms of existing mortgages. Your interest rate, monthly payment and other obligations are fixed by contract. As to the future, there is no doubt that interest rates will increase, and credit standards for mortgages will be higher, but not because of foreclosures, or because people stay in their houses while waiting for foreclosure. It will strictly be supply and demand for long-term money. There will only be modest impact on credit-worthy borrowers. Banks need to lend money, and are looking for good borrowers. It is the only marginal borrower who faces increased interest costs, which is reasonable.
2. My taxes will go up. Doubtful. Mortgage defaults could cause federal taxes to go up if a) the losses at Fannie Mae and Freddie Mac are very large; and b) Congress decides to pay for the losses by raising taxes on middle Americans. That’s not likely. Property taxes won’t go up, because they are paid when the property is foreclosed, and after that, the lender is on the hook.
3. The banks brought it on themselves. Mostly irrelevant. It is relevant to individuals whose lender cheated them. But it isn’t at all relevant that many lenders cheated many people. Whether my actions are right or wrong relates to my transaction, but not to any other transaction.
4. You should be ashamed. Nonsense. Business is business when it’s business. It’s also business when it’s personal business. Nevertheless, most people are ashamed, even when their problems aren’t solely their fault.
5. “If Americans didn’t live like such gluttonous pigs – they wouldn’t have these problems.” Commenter exkiodexian. Perhaps this is a rude way to say that people should live within their means, which is true, but irrelevant. Individuals are where they are, and the country is where it is. People have to act to protect themselves and their families. . . .
6. From commenter karens:
I guess what bothers me about all this is that because I DO pay all my bills, I do not have money to do the things that these foreclosed upon people do. I do not go out to dinner (and if I did, I would order the cheapest thing on the menu), I do not have an airboat! etc. It just really sucks for the people who play by the rules–who live within their means even when it is tempting not to.
I just find the whole thing (and I am not forgetting about the banks) discouraging and defeating.
This argument gets at something important. Walking away from debt offends our sense of fairness, and that feeling is aggravated by the sense that people who stay in homes they can’t pay for, or use procedural protections of court systems, are taking advantage of the situation.
The hallmark of the middle class is a strong sense of responsibility, to ourselves, to our families, our Churches, our unions, our neighbors, our towns and cities. It is self-defining, a part of our understanding of civic life that just goes without saying. When someone violates that unwritten rule, we feel let down, and somehow cheated. It undermines our sense of living in a good society. Complex societies rely on the cooperation of all of us, and our compliance with the rules. It is devastating when people realize that large numbers of their fellow citizens can’t or won’t live up to those rules.
It is worse when the massively wealthy cheat the rest of us for a few extra dollars, and keep the money they stole, with no consequences. Karens expresses this disgust and dismay clearly.
I was a bankruptcy lawyer for years. I know the reality that the people in the NYT article are facing. Almost all of them will suffer the legal and practical consequences of their misbehavior. The debt collectors call, lawyers sue, they eat up their retirement savings trying to survive, and eventually they file bankruptcy. They will have lousy credit ratings, the airboat will be repossessed, the expensive TV will get old and they won’t be able to replace it. If they should, heaven forbid, lose their jobs, they won’t be able to protect themselves from their creditors by filing bankruptcy again for years. They are stressed out and their health suffers. Their families suffer as the parents battle over money. Many will get divorced. Those are the consequences of fouling up in debt, and those are the sanctions they face.
Those consequences are the social methods of enforcement of the moral standards we set. We don’t have any other way to force people to behave in accordance with our own moral sense, or in the harsher morality those like exkiodexian espouse. There isn’t any other way to enforce the social trust rules. We can talk all we want to about the morality of business decisions facing people, but in the end, we have to accept the limits of our own power to enforce the rules. We are largely reliant on people’s personal willingness to enforce those moral rules against themselves. If they don’t enforce the rules against themselves, there is nothing we can do past the social sanctions.
I never met anyone who deliberately set out to screw up their personal finances. Filing bankruptcy was the last thing people wanted to do. They were ashamed. I used to see couples at meetings of creditors, and the women did all the talking; the men just sat with heads bowed looking at their hands. That sense of shame is the personal enforcement of moral norms. The NYT reporter only discussed the actions of the people, not their personal feelings. The bravado we see may be a defense mechanism to hide their sense of shame and dismay. I doubt they feel so courageous and self-righteous in the middle of the night when they wake up sweating. But if they don’t care, there is nothing else we can do.
People who live like karens don’t lose sleep at night, they meet their responsibilities, they keep their assets, and they are able to take care of themselves and their families in most circumstances. Eventually, they will be able to retire comfortably. I hope that will happen for all of the people devastated by the Great Crash.



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Thanks, massacio, I can’t always make it through all comments on posts like dday’s. Glad you took the time to filter for us.
I do take issue with karens’ perspective, though; it seems as if a wide brush was used. While foreclosure and bankruptcy do not share a one-for-one relationship, we do know that 65% of bankruptcies in this country are related to medical expenses. Being forced to pay for a mortgage which is likely underwater (believe a substantive percentage are these days) and having to come up with the money to pay for health care is an ugly decision many defaulters must take. Exactly what percentage of people are making this decision electively, without health care or other rational challenges eating their income? Look at the example of the woman who had breast cancer in the NYT’s piece.
Look again her situation: how many people have simply gotten fed up with the borderline to outright fraudulent terms of their loans, particularly adjustable rate subprime ones, or on which the borrower is now upside down and/or the bank unethically refuses to renegotiate different terms due to a hardship, and decided to walk away rather than continue to support the insupportable? This number just doesn’t come up anywhere, and shouldn’t be extrapolated into steak dinners at restaurants and airboats for all.
Eventually, they will be able to retire comfortably. I hope that will happen for all of the people devastated by the Great Crash.
Not if Pete Peterson has bought off Obama and the Democrats, as seems likely.
This is personal for me – I have been unemployed for over a year, no income from employment for going on 3 years (I was working for stock in a start up company that failed). Living on savings, selling assets. I’d be in foreclosure if not for a family loan in April, and haven’t been able to make payments since then, so I expect a notice of default in July (possibly August if I can sell my motorcycle for close to book value and they’ll accept a payment for April only).
I’ve been very actively seeking employment. Things are looking up – when the start up failed I’d been looking for other work already – basically since Lehman Brothers crash. And I was seeing suitable openings about one time a quarter. Since October 2009 that has changed, I’m seeing suitable positions and it has been accelerating – October it was about 3 per month, now it is about 15 per month.
I’m a software engineer, Masters degrees in Mathematics and Computer Science. I specialize in Unix application performance and high performance computing (parallel and supercomputing), am good with customers (both external and internal). I network extensively my professional connections from previous work – I’ve got a good reputation with my former colleagues and they wish they had a way to hire me and have referred me to hiring managers.
I read the monthly BLS releases – see that unemployment for Bachelors and above is under 5%. This keeps me hoping, if fewer than 1 in 20 people with my academic credentials are unemployed there shouldn’t be too much competition. But then I hear from a colleague that directs a research lab at a large company that they get 1,000 resumes for every opening.
I do feel I should pay my debts. Once I’m working in a regular full time position again I expect I will be able to modify my mortgage – tack interest owed to the principal and extend term of mortgage 3 months. I also expect that I’ll be doing tutoring outside of my regular job to dig my way out faster (and to get a motorcycle again).
Those unemployment numbers are low – they don’t count a lot of people any more.
I know one guy who’s been unemployed for long enough he’s fallen off the books. He’s still trying, but he’s old enough and been out of work long enough that he’s unlikely to be hired. (His personality doesn’t help.)
Thanks for the reminder about medical expenses. Even the scrimpers and savers can be bankrupted by illness and our unscrupulous health insurers.
Also, the moral superiors should remember that the system is stacked against all of us and it only takes one financial mistake to set off a cascade of consequences.
Individuals borrowing from a bank are not required to be more “moral” than businesses. If a person borrows from someone they know or a business that is owned by people they know or respect then questions of ethics might have a place. In today’s highly corporate environment, where all transactions are based upon their own profitability, businesses must either be held to a higher standard than is currently the case or individuals must treat corporations with as much distain as they receive from the same businesses. At the very least people in financial distress should always be primarily concerned with solving their debt problems in a way that is legal while also trying to avoid becoming a slave to that debt.
The idea of financial morality is a concept that if applied would never matter a whit to the members of a corporation, especially one based in another country. Since we are not likely to remove corporations from existence people that have notions of ethics in business transactions will always be at a disadvantage unless they use the same profit and loss calculations used by businesses.
As it currently stands the large financials are still reliant on taxpayer handouts. The who-owes-who ball is still in their court.
Gretchen Morgenson at the NYT writes a bit about the ethical behavior of banks.
It is much much worse what the uber rich and shysters of Goldman’s and JP Morgan et al have done than a person trying to survive.
These uber rich sicko shock doctrinaires have turned this place into a country where there is no more a social contract. The rule of law went away for good at the end of 2000 in the coup. The powers that be were not pleased with the results of that election. So they changed it. Many of us finally began to see clearly that there are laws for regular people and no laws for the powerful. Enron should have been a huge wake up call. But it didn’t happen.
The game is rigged. So some people react like Karens and some like a husband trying to retain some sort of control over his destiny by staying in his house instead of putting his family in a tent.
If we don’t start talking about the social contract, we are lost. We have been cowed into not being allowed to discuss some sort of socialism as an alternative to this b.s. economic system we have.
We should have had a moratorium on foreclosures and a payroll tax holiday and a jobs program like the WPA. We should declare a worldwide Jubilee and have every debt forgiven, large or small, deserved or undeserved. We should have a national bank that puts money into circulation to build schools and pay for health care.
By trying to work within this failed system we just keep spinning our wheels in the ditch.
Believe me, it keeps me awake sometimes, being a scrimper/saver but having multiple health problems in the household. A very minor heart attack with a subsequent heart catheterization, one stent and a two-day stay in a cardiac ward costs well over $50k, not including follow-up care with the cardiologist, cardio rehab, and meds (one drug alone costs $6 per pill). Don’t get me started on multiple outpatient surgeries for hernias and pre-cancerous cell excisions. Insurance covers some of this, but insurance premiums have risen by double-digits over the last year, out-of-pocket costs increased and there’s a snowball’s chance in hell this is the last of the big medical expenses one might see in a lifetime. One major event can hose out a lifetime’s plans and savings along with a home.
The number of openings I’m finding is another thing that is good for my morale. I’m getting interviews too, and the frequency of that also has a positive second derivative. And not withstanding the “1000 resumes” anecdote I’m hearing from colleagues the same thing – hiring is picking up.
I look at BLS stats to find a boost for morale as well. I know that they cook it somewhat – how can they accurately determine that I wasn’t in the workforce from June 2007 to October 2007 voluntarily? (I had severance pay, had the start up gig lined up for October and felt a few months of R&R were appropriate). Does a household survey catch this accurately?
In May BLS showed the size of the Bachelors and above workforce went from 45,794,000 to 45,573,000 – that 221,000 people dropped out of the workforce. The number employed dropped by 217,000, suggesting 4,000 people found work. Interesting that from March to April the workforce increased by 354,000, and the number of employed by 310,000. At least that’s what BLS says… their methodology isn’t completely clear.
I recall an article in the Times about six months back where one of the large banks just walked away from a huge mortgage on some housing complex. The head of the firm said it’s just business. The real problem is that there’s one rule for big business, and another for the people. We’re expected to be good citizens, work hard, play by the rules, and pay our bills. While the big boys game the rules and stuff the winnings into their pockets. The bottom line is you can be honest all your life, but if the big players aren’t you can lose it all.
I don’t buy any of those arguments. I think that the operative word is “survival”. Sure, some of these people are gaming the system but I suspect in the majority of the cases, they have reached this decision after a whole lot of soul searching and trying to play within the rules. By the time the choice is made whether to continue paying a mortgage that’s being foreclosed, these people have reached bottom. I am usually supportive of almost anything people have to do for bare survival and am usually not supportive of kicking a person while they are down. If you find what these people are doing offensive or unjustifiable, maybe when you’re in their position it won’t seem so bad to you.
Thank you massacio, for your empathy.
The one truly significant cause of foreclosure these days is unemployment. For those of us facing the general depression of their market, unemployment has become a long term state. Do not image manufacturing, imagine instead the construction industry. Our jobs are not going overseas and we do not need re-training. With a master in Architecture, 25 years experience, 17 years owning and running an Architecture firm while simultaneously teaching at the University, I do not need a new profession. I need an economy.
I have been wondering when the people living through the Great Depression began to realize that things were not going to get better “soon”. The Great Depression started in 1929, and the New Deal WPA jobs did not start until 1936. (They were supposed to start in 1935, but were held up by the …wait for it…the Senate!)
So what we need people, is a little more empathy and a lot more economic planning.
Isn’t this all solved by Cram Down. In the MBA sense, if the payback by continuing a loosing position is negative then there is no logical reason to continue that position. Since the present value of the house, the value of the house at the time of the loan, the terms of the loan, and the ability to payback the loan by the customer are all out of balance the only solution is to turn it over to a third party with the capability to change all of the items involved. The morality of the business is a Non Sequitur constraint.
Hear! Hear! I got laid of January 13, 2009. If it hadn’t been for the holidays, I would have already finalized the buying of a home that I could easily afford at my salary but no way can I pay for with UI benefits. Would I have then been guilty of “living outside my means”? Again, I’m sure that in some cases that’s what has happened but the vast majority are people who have lost their jobs through no fault of their own and now have no real hope of finding work due to the sociopathic deficit hawks in the Congress.
It seems that the people that are often first to argue about the immortality of a behavior are also the quickest to use it themselves when the situation presents itself. My guess is that they often judge harshly because they find the option so attractive. Sexual behavior or financial behavior, for some seems, to require harsh judgements for those that they would most like to emulate. External versus internal self-control.
The G-20 meeting results and the government deficit hawks braying seem to indicate that Europe and the US are getting ready to tighten up budgets by dropping things like stimulus, unemployment, Social Security, Medicare, Medicaid, and so on. Already other economic indicators (stock market, employment numbers) show that the next leg down may soon arrive. If that happens, and (unfortunately) follows a pattern seem in the Great Depression, then this:
Could be out the window for most of us.
Those same societal norm rules that “set” middle class behavior were thrown to the ground, doused with gas, and set on fire when Wall St imploded and our government bailed them out. Failed companies were given trillions rather than going into bankruptcy. Congressional hearings are full of cries of “whocuddaknode?” when it is fraud and corruption. Banksters were handing out record bonuses the next year. Our government is getting ready to declare “hurray, the elites have been saved!”, and move on, leaving behind tens of millions of people who have lost almost everything as an acceptable price for keeping a bankster’s income at record levels.
The rules have changed whether we like it our not, and this leaves me with some more basic questions (as opposed to wondering about my and my peers morals):
Where will they go?
How will they eat, sleep?
What can they do?
How can I help?
Yeah, the banks could have been forced to recognize the losses on their books and been forced to renegotiate new terms with all comers at current market rates versus the existing rates.
But who benefits from avoiding cramdown? The guys who get paid based on the banks’ bottom line — and that may well include investors, not just the banksters running the banks.
My guess is whatever they do, don’t bother folks like karens.
Unemployment is one of the causes of the increase in foreclosures. Certainly it is in my case, if I end up in foreclosure it’s due to unemployment.
Strategic default is another cause. Some homes were purchased at the top of the real estate bubble, and defaulting on the loan is a better financial decision for some people that are able to pay.
In my case I’m likely still above water – the debt on my house had me at 75% LTV at the peak, and I was paying my mortgage up until recently. I’m likely 95% LTV or above now. I also like my house and want to live in it for many more years. Once I’m working that won’t be a problem, and the combination of payments and slow recovery of value will drive my equity back up – in five years I’d expect to have my LTV back under 80%.
Yes.
I know half a dozen people who had to take a job in another city or whose company shut down their local branch and all they started working 70-100 miles away at the next largest hub. They are carrying two houses now, or one house they can’t sell and an apartment they in live so their commute isn’t deadly. After awhile they lose the house they can’t sell, and if anything else goes wrong (and it usually does) they end up in bankruptcy much of the time. I hate hearing this nonstop rhetoric about what deadbeats Americans are. I don’t think that describes the situation in most cases.
I myself had to take a job 80 miles from a house I COULD afford in 2007 and that job went belly up in late 2008. (BTW it was a bank.) Now I do subcontract work at half the pay. I’m 57, I live in Michigan. I will likely never get another ‘job’ for the rest of my life. I didn’t live beyond my means, I was never late on anything until the crash. I never hear about people like me–people who are living within their means but keep getting squeezed by employment conditions. Trust me, there are tons of us, and we’re not deadbeat losers. I thought the people in the NYT article were making a practical, sensible decisions to stay afloat. You’d be surprised by how many people are defaulting on credit right now, or paying every other month, or whatever. It’s not the rare thing it’s made out to be. Everyone around here is in survival mode but you don’t hear it.
Take another look at the comment. How can you say that? Karens says she is “defeated”. Her moral sensibilities are totally conflicted, almost useless. What can you say when your moral instincts provide no guidance to the horrible situation around us? That is the issue I tried to address in this post.
I think that we have moral sensibilities, social rules, and constraints, and in this case they are worse than useless. They push people towards trying to fulfill their contracts when that isn’t in their best interests, and when it isn’t clear that it is even in the best interests of the economy. How should we deal with the conflict that poses? The conflict in our own lives between the reality of the economy and long-held and important moral sensibilities? What do you think?
If I was deeply underwater I’d be thinking about defaulting even if I had income to get current.
Say I was at 150% LTV (market value of house is 2/3 what I owe) – paying mortgage wouldn’t be sound financially. Better to default and rent. And that does have a moral dilemma in it – I agreed to pay those loans regardless of changes in the market value of the property. 150% LTV isn’t unheard of; there are cases where the amount owed is more than twice the current value of a property.
Since my house is somewhere between 90% and 105% LTV I can see a clear path to recovery. Once I’m working again restructuring my mortgage makes sense to me and should make sense to my lender.
Monetary policy is trying to induce inflation. If home prices can be inflated then many loans would no longer be underwater. But it is pushing on a string until the employment situation improves and banks make loans they perceive as being low risk.
I think that as one of the long term unemployed, who is about to lose UI benefits, with no hope of any income on the horizon, that I am defeated as well and am also not in the best position to judge others. I’m rapidly going into survival mode and if that makes me a bit less understanding than I normally would be, why is that okay for karens and not for me? Unlike most people, I have NO family to turn to. No spouse or partner who would have earning potential and no other resources. It’s just me and my cat so if I seem callous, again, try a few steps in my shoes.
Seems to me there is a disconnect here. A business/bank makes a “business” decision that is hurtful to others and no moral judgment is made. It’s just business. An individual walks away from his/her mortgage because it makes good financial sense, and they have not honored their moral commitment.
That capitalism is totally devoid of morality is exactly why it must be regulated.
Karens isn’t talking about you. Neither am I.
IOKIYATBTF (It’s okay if you are too big to fail).
When the titans of the universe don’t even pretend to behave morally, why should we expect average citizens to do so anymore? We’ve not only been let down by all of our big institutions – ALL of them, from banks to the Catholic Church – we’ve been made patsies by most of them. Americans are too passive to take up pitchforks. But cutting and running on a mortgage, easy. Too bad more people don’t do this as a protest.
I’m one of those people who did a strategic foreclosure; my story is in the comments for david’s earlier post. My situation is not interesting or unusual, it’s just typical of the times we find ourselves in. I agree with montanamaven, who cited the 2000 election as the point when the rule of law no longer applied. I’ve felt punked by America and its sheeple ever since then. We all should have been out in the streets. Until a majority of us figure out the game is completely rigged, we’re all screwed. I say this as someone who tried and failed to move to Canada (it’s harder than you think) after that election, and then tried once more to just blend back into American consumer society, fix my credit score, buy a house, shut the fuck up. Those of us who allowed ourselves to believe one more time, just the tiniest bit, got punked again by the oligarchy and Obama. I was naive enough, despite my 50 years on this planet, to think that America had no choice but to FINALLY provide its citizens with universal healthcare. It’s cheaper for the capitalists in the long term, but capitalists don’t give a rat’s ass about the long term. In 2010, it doesn’t matter if you follow every single rule to the letter. The empire is going to fall and those who are counting on the system to save them are in for quite a big surprise.
It’s pretty natural to try and relate economic posts to one’s own situation. I probably shouldn’t have talked about my own situation… I did because it sets the stage for a calculus that is on my mind – should I allow foreclosure to proceed if/when I get a notice of default.
My gut is saying if I’m above 150% LTV default makes sense, regardless of how much I like this house. Another way I look at it is how long it will take to regain significant equity in the property. These are kind of benchmarks for me and may enter into the calculus for other people in a similar quandry.
If I’d been earning income I doubt I’d be thinking this way. Even with the drop in value of my property I’d be under 95% and likely below 90% LTV. Walking away from 10% or more equity doesn’t make sense.
Upthread someone said cram down doesn’t fix the problem. It does help one aspect – distressed sales don’t happen on a crammed down property, which helps keep a floor under property values.
I understand your dilemma, but only partially. It might make sense for you to talk to an experienced bankruptcy lawyer about this decision, because the laws of your state are a crucial consideration. The way you handle the problem is important, and you could use some help on that. Good luck.
I have researched the process here. I’m limited because I don’t have income yet, so I can’t restructure. If lender accepts late payment for April and I start getting paychecks by July I’ll be in a situation where I can propose restructuring my loan by adding June and July interest to the principal, pay August payment on time.
If I don’t have a paycheck in early July I’m going to see a notice of default in July or August depending on the lender’s acceptance of late April payment. That starts a 90 day clock ticking, some possibilities of restructuring still exist during this period.
I pretty much have to get income starting this month or I’ll be out of this house in October due to foreclosure. I’ve got an interview on Tuesday, and expect to interview with another company later next week.
one thing often overlooked is that people are making a pure financial decision: “I owe $300,000.00 for a home that is now worth $100,000.00 If i do not pay (at 10%), I am saving $30,000.00 a year in interest. If I can avoid foreclosure/writ of possession for 2 years, that is the financial equivalent of selling my house today and putting $60,000.00 in my pocket. If it costs me $1,000 a month for rent and $500 a month for a lawyer, I just made $30,000.00 net.” And if the lender tries to get a deficiency another $1,000.00 for a chapter 7 bankruptcy and the deficiency is gone with the discharge. Pure Ayn Rand/ John Galt economics working for the homeowner. Except the banksters don’t like it when Ayn Rand works against them.
One of the biggest problems with this crisis is that the rapacious hedge funds, banks and “investment” firms suffer no consequences. Rather THEY get saved from “consequences” of their behavior. The rest of us not only have to suffer the consequences of OUR behavior, but also have to pay for THEIRS.
Paying off a loan is a matter of tactical and strategic advantage which can be calculated over the short- and long-term. Small fry are often better off if they pay their debts. But any felt duty to pay off a debt ought to issue from economic interest, not a personal moral sense.
Put differently, any individual should care about their bank’s well-being to the extent that the bank reciprocates in kind.
I wish Obama — and Geithner and the rest of the Goldman Sachs predators — would “hear about” [and care about] you and the millions like you.
Instead they focus on protecting those “people like them” and their multi-million dollar bonuses.
It’s sick and immoral, and I continue to be surprised that no one calls Obama on it. If I had my way, there would be a story every day of a different person like you in the paper on or local tv.
There’s such pain out here, and it is so little acknowledged.
I’d really like to hear more about that.
Perhaps a diary on The Seminal?
‘Cause Canada looks awfully good to me.
Put me down w/the frugal group who have paying off our bills & been saving when we can who are disgusted & outraged at those who are walking away from their debts, both personal & especially corporate. The social contract is broken and ants like me are pretty tired of supporting those grasshoppers getting a free ride. Most notably those “Masters Of The Universe” grasshopper types at Goldman Sachs whose bonuses last quarter were individually more money than I’ll ever earn in my lifetime.
I’ve been out of work since May 2008 & at 53 won’t find work that pays anywhere near what I was making ever again. Fortunately our living expenses are low, we have no children or dependents (at least those that do not meow), we’re in good health & my dear missus makes great money as an senior RN. But I’m real concerned that when I go to my local credit union to withdraw our retirement savings I’ve been saving for 30+ years I’ll find them ‘unavailable’…
Mortgages are secured loans. The security is the only thing that is bound by the relationship. There are no moral or ethical obligations as to the quality of the security and the terms of the loan define the relationship.
Risks of quality of repayment is defined by the terms and non-return of loan is covered by the security. There was a chain of financial interests hell bent on providing more money than the securities are worth, but the borrower is ethically or morally responsible only to those that live or lived under the roof of the property in question.
This is an interesting discussion and, I think, a useful one. The answers, if any, are not obvious. As to the legal situation, I’m with YYSyd @39: “…the borrower is ethically or morally responsible only to those that live or lived under the roof of the property in question.”
In fact, staying in the house until someone actually removes you may even be a favor to the creditor, who may not want to be stuck trying to sell or hold another property which will deteriorate gravely, losing value, if it becomes vacant.
The larger interest of the question for me is that it forces us to confront the question of our distributed responsibility and our personal roles in living in a country and a society where debt has supplanted saving as the mainstay of economics.
Pulling back further to a master shot of our whole way of life, I don’t see how individuals can be held responsible for actions and events which they don’t understand or can’t control, such as taking out an excessive loan or losing their jobs. We don’t hold soldiers responsible for their acts, contenting ourselves with saying, “Thank you for your service.” How then can we hold consumers responsible for the supposed crime of borrowing an excessive amount of money from a wealthy company or individual waving it in their faces?
Borrowers, thank you for your service to the economy! Maybe.
In fact morality itself is a concept whose scope is limited. We are beings closely embedded into a social system. I have no answer to a concern that is troubling to some peoples’ consciences, but in perspective, I think putting Bernie Madoff into prison while leaving non-paying mortgagors alone is pretty reasonable behavior at the moment.