do we have a moral obligation to pay our mortgage like the banks say?

I'm in California, and most of you know that this is still one of the most expensive housing markets in the country, even with the current conditions. That being said, I have a few friends who paid WAY too much for homes several years ago, and got into loans that, at the time, seemed good, mainly interest only for 3 years which turns into an ARM at a 7%+ rate.

Well none of these friends managed to pay a dime towards principal, they just floated along paying their interest only, so then when the ARM kicked in, and their payments went from $1900 a month to $3800 a month, they were fucked. They have absolutely no equity to speak of, since the market turned to crap and they didn't pay down their loan at all. Now they're all not paying their mortgages, trying to get loan mods, or living there until they get an official foreclosure and walking away. Probably to go rent somewhere for the next 10 years.

I don't blame the banks for their situation necessarily. They're all big boys and girls and can make their own financial decisions. Fact is, they didn't have the incomes to support a $500,000 mortgage, and they knew going in that the rate would adjust and their payment would double. I'm sure they didn't know the housing market would take a shit and their homes would be worth half of what they owe.

Now, here's my situation, which has a lot of similarities to what I wrote above. I bought my current home at the height of the market, and probably paid too much, BUT, I sold a house at the height of the market too and made about $275K from the sale, so I knew what I was getting into.

At that time, I also got an interest only loan with BofA, however, I paid an additional $2,000 or more toward principal each month, which over 5 years, has lowered my principal by almost $100k. A year and a half ago, when the ARM was about to kick in, and the banks had all the TARP money for loan mods, I decided to get on BofA's ass and see if they would convert my current loan into a fixed rate, which, after a few months of hassling them, they did. They modded me to a 5 year at 3.75% which then goes into a 30 year fixed at 5.5%. I had never missed a payment, but I just played the story that when the ARM kicked in, I might have a difficult time making the payments, so why not preemptively help out someone in good standing, instead of wasting all your money on modding these loans for people who will probably get foreclosed on anyway. So they did, and I'm still throwing as much money as I can toward principal each month.

As for my house value. I could probably sell it and break even or maybe make a little. I'd estimate that the value is down about $200k from the $850k price I purchased it, which isn't bad for Southern California. Like I said, my friends have $500k loans on homes that are only worth $250k now.

So what's the moral of the story here? Having a house you can't afford is your poor decision, not the bank. Unless they purposely lied to you or completely mislead you into a loan that wasn't what you thought you were getting, it's still your problem, not the bank. If some of the shadier lending institutions purposely screwed people, then they should be held accountable, but for all the people that have too much house and too big a loan to handle, that should have been something to think about back when you decided to live way above your means.
 


Just business as usual. Banks can make deals with anyone they want. Same goes for the borrower. If both agree on some sort of contract and its broken both parties will pay or take the loss. The borrower gets a dent in the credit and the bank takes a loss. This is still America, take any risk you want. If you got some lame ass idea and the bank is willing to back you, then I wish you luck on your endeavors.

MORALS.
So you lost and the bank lost, and now you want the tax payer to foot the bill? Its morally wrong to ask for money from the tax payer when it was your loss and no one elses. Also, it was a big mistake for the banks to sell those shady loans. Buyer beware,,,,, as usual.

Back in the old days, two people/entities could cut a deal. And if they lost, they took RESPONSIBILITY, in one form or another.
 
justo_tx said:
Not directly true (but the end result was the same). The banks that needed the bailouts (JP Morgan, BoA, Citi...) never made the original loans, that was shady fucking originators doing no docs, ARMs and interest only loans knowing they could resell loans that would likely default to the bigger banks, who wrapped the loans into Collateralized Debt Objects (chopped up into tiered tranches based on loan quality) and sold off on the bond market. Credit default swaps were issued against the CDOs, mostly by AIG, because Moody and S&P rated the CDOs as AAA under the assumption that the mezzanine tranches (the lowest tier/highest default rate likelihood) of the of CDO defaulting wouldn't affect the CDO as a whole (quality loans at top tranches where packaged with junk) which turned out not to be the case, only a small percentage of the entire object had to default to spoil it. By '06 all the big banks that originally traded the CDOs realized they all bought junk and started buying the credit default swaps against the other bank's holdings to hedge their bets. When the defaults started hitting en masse in late '06/'07 AIG and the other insurers couldn't cover the CDSs and the whole thing came tumbling down.

.... hence TARP.
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Morality and big business have nothing to do with each other. But, like others said, if you can no longer afford it, best take your medicine. Or turn that shit into a fortress.
 
If ask your friend to borrow 100$ and he lends you the money, I sure hope you feel morally obligated to pay him back.
 
If you can't look at your income and make a wise decision about what you can or cannot afford without the bank telling you no - you should walk away from your upside down home and take the shitty credit that comes with it, because - you fucked up.

If you are a gold investor and gold prices fall when china starts to offload gold, should China pick up your losses. They can't help but impact the market. It's the same w/ the banks - they can either flood the market or offload slowly - but the borrowers fucked up.
 
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