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.