Friday, June 11, 2010

Thin ice and the FHA

Will home prices fall another 5%? WSJ on the FHA:
Nearly two-thirds of FHA borrowers that took out loans over the past year have less than 5% equity in their homes, illustrating the risks that just a 5-10% decline in home prices could have on the agency’s reserve funds.

Critics say the agency is doing no favors to taxpayers or new homeowners by providing relatively easy loan terms. “Insofar as the FHA was encouraging people to buy homes in bubble markets that were not deflated, that’s not good for the FHA and you didn’t help the homeowner,” says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal think tank.
If two-thirds of recent FHA borrowers find themselves underwater, is it ethical for them to walk away leaving Uncle Sam with the bill?


  1. Is it ethical for any borrower to walk away and leave a lender with the bill? I think not.

  2. I used to think it was unethical, but there is a contract and in walking away, you are honoring that contract: you lose whatever money you put in and the lender gets the house. Businesses make these kinds of decisions all the time--if a CEO running a company did not make this kind of decision, he'd be fired. Why should individuals be treated differently in their business dealings?

  3. I'll agree with JAC. As long as people who walk away face the consequences of their actions, it's just.
    The trouble is that our government seems to be burning billions of dollars to see that they DON'T face the consequences.
    A mortgage is just as easy to get today as it was two years ago. Which makes me wonder if the bubble ever really popped.

  4. Ethical is really a point of view. Its as silly to argue about as arguing about religion.

    Perhaps all these sinners walking away from their mortgage will have Jesus punish them in the afterlife....perhaps not, whats it to you?

    If I had a mortgage right now that I could afford, I would walk away too...and I wouldnt give two sh*ts what anyone thought of me.

  5. Keep in mind that when the government is making the loans, JAC is getting stuck with the bill, as are you and me.

    I'm sorry, but we taxpayers never signed a contract allowing mortgage borrowers to stick us with their mortgage bill.

    Also, as has been pointed out many times before, the contract does NOT give you the option of either paying back the loan or giving up the house, as if they are equivalent. When you sign the mortgage agreement, YOU AGREE TO PAY BACK THE LOAN. Period. Losing your house is simply the lender's recourse if you fail to live up to your end of the agreement. When you walk away from your house, you are NOT honoring your end of the contract.

  6. Generally speaking, it is "unethical" to break a legal contract for any reason. Will you go to Hell for it? I guess that depends on how you judge yourself over it.

    In any case, it is NOT unethical to break a legal contract if you entered into the contract not knowing the terms of the contract were manipulated by a third party, without your knowledge.

    The manipulation I refer to is the manipulation of the US economy by the international central bankers who privately own the for-profit corporation Federal Reserve.

    The gist of the situation is this: Is it evil to hurt the Devil? If you hurt the Devil, don't you decrease the odds that the Devil will hurt others -- which means you are then obligated to hurt the Devil? By "hurt" I mean to financially hurt (not physical violence).

    Similar ethical question: If you have an opportunity to imprison Hitler before he executes 6 million Jews and you don't take that opportunity, are you also guilty of killing 6 million Jews? IMO, that would be a big "yes."

    You do have to be careful, however. You see, the international central bankers want the financial system to collapse in this country, so they will have more power afterward. The best thing you can do is leave the bankers with your debt that they created, and then preserve your wealth in precious metals while the economy collapses. That is the maximum way to inflict pain on them.

    This also accounts for the numerous news articles we have been seeing lately, which are written by paid-for journalists. These articles go on and on about the "gold bubble" that is about to pop. They are trying to scare you from preserving your own wealth. If you don't gain that wealth -- they will. Somebody has to. Money does not disappear into thin air.

  7. Ethics have nothing to do with it. When home prices drop another 10-15% both the tiny down apyment will be gone and the 8k tax credit will look really small in comparison.

  8. It seems to me the banks are getting lots of $ to make up for their losses.
    When you walk away it is tax payers you are screwing. Legal it is but if your own went up in price you would pocket the gains so why would it be reasonable to have tax payers pay the losses?

  9. "Losing your house is simply the lender's recourse if you fail to live up to your end of the agreement."

    Ok, so whats the problem then James? The lender DOES has a recourse after-all.

  10. Anonymous said...
    "Ok, so whats the problem then James? The lender DOES has a recourse after-all."

    When the lender takes the house, it only gets PART of its money back, due to the costs of the foreclosure process. This is especially true if the house is worth less than the loan. Keep in mind that taxpayers are guaranteeing these loans via the FHA, so WE are the ones who take the losses.

    You don't mind high taxes, do you?

  11. "When the lender takes the house, it only gets PART of its money back, due to the costs of the foreclosure process. "

    Sounds to me that the lender needs to do something to correct this, dont you think?

  12. Oh, Canada! What We Could Learn From Your Mortgage Market

  13. It is unethical to put yourself and/or your family into a worsening financial situation because you signed a contract that ended up being a poor fnancial decision in hindsight. The ethical thing to do is walk away.

  14. The loss is covered by the FHA insurance pool. (not the taxpayer) Each borrower contributes to the pool via their mortgage insurance premiums monthly. The FHA program has not cost the taxpayer a nickel.