Banks Say: It’s Okay, Don’t Pay Your Bills

Posted on Jul 11 2011 - 1:00am by Harrison

They call it a “home” not an “investment opportunity” because it’s where you make your life and when the majority of people lived their lives that way there were no problems.  But when people began buying a home to flip it in 2 months and squeeze out a profit, things started to get shaky.  Democrats in Congress (Barney Frank and Chris Dodd were the biggest offenders) made sure that government entities Frannie Mae and Freddie Mac didn’t turn off the taps on unqualified buyers.

Now, some banks are simply saying we’ll cut what you owe in half because, you know, homes are overvalued and we never expect to be repaid anyway:

Bank of America Corp and JPMorgan Chase & Co have started modifying tens of thousands of mortgages where the banks deem the loans especially risky, even if the borrowers have not asked, the New York Times reported on Sunday.

In some cases, the paper said, the banks are slashing the amount borrowers owe, citing one case in Florida where a woman’s principal balance was cut in half.

What this move goes to show is that the banks knew they were playing with fire but, as long as everybody was making a buck or two why not try and collect?  I know a few people who simply stopped paying their mortgage.  It’s been a few years now and they’re still living in their “home.”  I know several other people who complain the values of their homes have dropped by 30-40% and they are now upside down (owe more than the property is worth) but they’re still paying because they signed a contract.

This brings up an interesting point in that nothing, by itself, has any value.  People assign a value to something (maybe one day 1978 Chevrolet Chevettes will be worth something?).  The second point is that people only remember the highest number they were given:

Your house could be worth from $300,000.00 to $375,000.00.

Conclusion?  My house is worth $375,000.00!

Why are banks cutting the principle owed by some if they are especially risky?  Because the banks think their lenders will look at how much they owe versus how much their home is “worth” and simply refuse to pay assuming there are so many other people in the same boat there will be no repercussions.

And why would people refuse to pay their mortgage under this scenario?  Because they don’t plan on living in their home for the next 30 years, that’s why.

When raising children do you think it’s better to be consistent and always tell them no desert until they’ve finished their dinner or, maybe, just tell them something different every day?  Human beings, by nature, always look for what will benefit them the most just like pack rats who grab shiny objects and take them to their nest while leaving dull pebbles behind.  Should a pack rat come across a more lustrous object it will drop what it has to take it.  The shiny objects just seem “better” to them.

People are the same way.

If you lie you can only get away with it because most people tell the truth.  During the housing boom, some people could buy and resell houses for a profit because most people didn’t do that.  A few can benefit themselves because most people don’t operate that way.  So, the people who bought their homes, lived in them, paid their bills every month, and lived up to their word allowed everybody who didn’t do that to get away with it.

Now, the same thing is happening.

Do you think if you’ve been paying on your mortgage for 20 years and never missed a payment your bank will cut your principle the way it did for the neighbor who is drowning in debt and tried to flip his house?

Of course not.

So it is the responsible people in society who enable the ones trying to burn the house down.  Just like in Government.  Had George W. Bush run up a multi-trillion dollar debt could Obama and his party have done the same?


And that’s the sad part about life… if you do what you know is right all the time what you’re really doing is allowing somebody else to get away with murder and, with the reduction of loan principles this message is being rebroadcast again, loud and clear.

10 Comments so far. Feel free to join this conversation.

  1. Steve Dennis July 11, 2011 at 3:09 AM -

    It seems that we are always rewarding bad behavior and the real suckers out there are those of us who try to do things the right way. What incentive do we have to continue to do right when there are so many people gaming the system? I guess it is just what is inside.
    Steve Dennis recently posted..Flooding in Minot, North Dakota

    • Jack Camwell July 11, 2011 at 5:40 AM -

      “What incentive do we have to continue to do right . . .”

      Knowing that you get to say “I told you so,” when their bad behavior catches up to them.

      Virtue matters most to the virtuous and those who strive to be virtuous.
      Jack Camwell recently posted..Dumbass Idea of the Week

      • Harrison July 11, 2011 at 9:19 AM -

        You’re right Jack. It also matters most to the freeloaders who count on this attitude to cover their bad behavior.

  2. Jonapope July 11, 2011 at 5:14 AM -

    Agreed! Of course you also had the story come out last week where Obama is pressuring banks to let the unemployed stay in their homes for up to a year free of rent. It’s an Obama world….

    • Harrison July 11, 2011 at 9:20 AM -

      Very true!

  3. dean July 11, 2011 at 8:35 AM -

    The banks, for good reason, were reluctant to “modify” loans up until now. What are we missing here?

    Is there another back door bailout in the works? ‘Cause the banks are not doing this out of the goodness of their hearts. SOMEONE has to pay for the amount of the loans the banks are forgiving.

    I want some answers, people!
    dean recently posted..Project Gunrunner/Operation Fast and Furious update

    • Matt July 11, 2011 at 4:24 PM -

      That’s an interesting thought, or are they preparing for some point in the near future when the economy does a double dip? They might be doing some preemptive CYA.
      Matt recently posted..“I’m a Democrat” Parody…or is it?

  4. BobO July 11, 2011 at 9:04 PM -

    Hey, Harrison – guess who? My real name should give it away. Gave up the political blog temporarily and am on a different journey right now. Figured I’d check in.

    As for this article..what a bunch of whooey…not the article…the gubmint and the banks. I have a BOA loan and I attempted to get one of them modifications under the Obambi program. I guess I’m not high risk enough. Rather than a modification – they offered a refinance at 0.01% less than what I already have. They can only do a modification or refinance if there is a loan-to-value of 125% or less. My home is worth 135% less than what I currently owe…so…after all was said and done…they turned me down. I wouldn’t have taken it anyway since the reduction would not have helped on bit and would have reset my loan back to 30 years.

    I bought this house in 2001. The market is so depressed here in florida that I lost 10 years+ in equity. I guess if you aren’t having problems paying..they really don’t give a flying hoot. Bogus.

    • Harrison July 11, 2011 at 9:16 PM -

      Hey I was on your site last week and I saw your article saying you were taking time off. I hope you accomplish your goals. I rent so I guess I’m in a different kind of boat from most. I might not be upside down but I don’t have equity either.

      Please drop by again and let me know when you resume blogging.

    • eots July 11, 2011 at 10:49 PM -

      I’m sure they are not going to modify our loan either — because we are actually ahead paying our debt. We should have stopped paying instead.