I have to admit that I didn’t necessarily agree with Geoff’s position here in full, but *it made sense* — heck until you are in that position we can only speculate. I can tell you that if I lost my job immediately and things were tough, my family would certainly make decisions we normally wouldn’t…not illegal, not un-ethical…but realistic and responsible ones for the survival of my family’s well being and future…and some of those might include stopping to pay certain things. As a member of an HOA board I see this daily…people who don’t pay their community fees because they lost their job. Frankly, I don’t blame them and probably a first place I’d look to.

Anyway, enough ranting. Here’s the study entitled ‘Underwater and Not Walking Away:
Shame, Fear and the Social Management of the
Housing Crisis’ by a University of Arizona legal studies department: http://sacbee.com/static/weblogs/real_estate/SSRN-id1494467.pdf

Besides, it’s immoral for a bank to demand someone pay $1.2 million dollars, plus interest, in exchange for a house worth only $500K. Someone is getting robbed in that transaction, and it’s the homeowner.

It’s true that second mortgages are not currently foreclosing for non-payment. But the lien remains on the property for a long, long time.

This can come back to bite you if you ever wind up with equity in the property again. The 2nd mortgage guys can always foreclose then. And you’re going to be stuck with a big backlog of payments you’ll need to bring current.

So I’d hardly call this anything more than a short fix for a family who is underwater at the moment.

And what happens if the bank hands off the second mortgage to a sleazeball collection outfit at a discount rate?

Those guys can be very unpredictable. Some might even force a foreclosure just so they can sue you later for a wage garnishment on the unsecured portion. They, frankly, don’t have to care about losing the house in foreclosure because they never dumped much money into it in the first place. To them, it will just be another unsecured debt to collect on, and they won’t care one jot about forcing a foreclosure on your home – even if they won’t get a dime of the equity.

A far safer option if the 2nd mortgage is unsecured, might be to declare Chapter 13 bankruptcy. Then you can strip off a totally unsecured 2nd mortgage or HELOC and get rid of it with your monthly plan payments. And since the whole process takes place under the aegis of the Bankruptcy Court, there’s a lot less room for funny business from the creditors.

Note, this “strip off” of a mortgage is only a viable option when the first mortgage exceeds the current market value of the house. If so, you can toss all unprotected mortgages in the pile with the credit cards and get rid of them.

Bankruptcy can offer other viable options for troubled homeowners as well.

But don’t pretend that simply ignoring a 2nd mortgage is anything more than a quick short-term fix.

As for Michael – people who default on their mortgages ARE keeping their covenants. They agreed to pay, or the bank can take their house or sue them.

If they don’t pay, they are still keeping that agreement they entered into. No dishonesty involved.

Article of faith 12 states: We believe in being subject to kings, presidents, rulers, and magistrates, in obeying, honoring, and sustaining the law.

Foreclosure is a legal transaction in this country. In doing all you can do and still not having it be enough, some people must allow a home to be returned to the bank. They move out, they have their credit tarnished and live with the stigma of foreclosure for quite a few years.

Michael you act as if this is a flip decision made in folly. It is not folly, and it is not fun. It is legal and allowed. And I’ll be damned if I sit here and read your comments and not speak up. These people are not less than. It is a business transaction that is sanctioned under the laws of this nation. Morality is a two-way street.

Nowadays we have the FDIC, etc. so what banks do isn’t exactly immoral, let alone illegal. However, the resulting monetary inflation is essentially the equivalent of a government endorsed 4% property tax on all dollar denominated assets. The primary beneficiaries of this “tax” appear to be borrowers. Of course the banks make a pretty penny too – most of the time…

Velska: It didn’t matter what Keynes said or didn’t say – the reigning Keynesian economic policy of the 1970s (which should sound familiar) was to print and spend our way out of recessions. Instead we got high unemployment, high inflation, and high interest rates for more than a decade.

Keynesian economics has only one claim to fame – to justify the policy of running deficits to lower unemployment. The only problem is that it has never worked. It is certainly not working now.

We have been told to honorably clear our debts. However, depriving our own family of all security is not required, and draining your savings is exactly that. Besides, it’s not like banks are moral beings; they’ll steal all they can without qualms. I know it’s beside the point, but hell, I hate bank managers!

As far as getting a windfall after walking away from a mortgage and/or being released of obligations towards it? I’d say my morality would dictate I go and make a payment, but that’s me. Despite what I just said.

Actually, I don’t think Keynes could have predicted a circumstance like the oil crisis of the 1970s, which was essentially responsible for stagflation. His theory didn’t assess variables so totally beyond any control by the government/national economy and independent of global business cycle (oil price kept rising with demand shrinking while world economy was in recession! Add to that recent minimum wage increases, rent controls and other independently growing regulation/bureaucracy…). So no, Keynes didn’t say stagflation couldn’t happen; it’s more like he had nothing to say about it. The discrediting done in the seventies was done by ideologues, who cherry-picked their way through Keynes, helped with much misunderstanding by their predecessors.

Generally speaking, five to ten years after an ordinary debt becomes delinquent, it is no longer legally collectible. It is called the statute of limitations. The Old Testament documents a similar rule:

At the end of every seven years thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord’s release. (Deuteronomy 15:1-2)

I think this is a good thing.

I am pretty sure that there is an Ezra Taft Benson quote about not using bad language. I cannot believe how this younger generation does not see the connection between their personal language transactions and their moral obligations.

:)