The death of the stigma of default revisited
I know this is a futile battle. Not sure why I keep trying to fight it. I can’t help it. So, here I go again.
In January 2008, I lambasted the bipartisan “victim politics of foreclosure” and the disappearance of the stigma attached to defaulting on your mortgage.
A refresher:
From President Bush to Hillary Clinton, Barack Obama and John Edwards, to Mitt Romney and John McCain, virtually everyone in Washington agrees: The government must Do Something to stop home foreclosures across the country. These leaders agree on the total presumption of homeowner innocence. The borrower-as-victim and lender-as-predator storylines are etched in stone. Can’t let reality get in the way of election-year pander-monium.
Special guests at the State of the Union address are usually extraordinary heroes, entrepreneurs or citizens who’ve gone above and beyond the call of duty. On Monday night, one of those guests was an Indiana woman whose claim to fame is that she called a 1-800 number and was assisted by the “Hope Now Alliance,” a group Bush convened, which, according to him, “is helping many struggling homeowners avoid foreclosure.”
Subprime victims are the new heroes. Welcome to the politics of foreclosure.
Housing Czarina Hillary immediately jumped on the president’s address and on news that foreclosure rates skyrocketed 79 percent over the last year. She reiterated her call for “a 90-day foreclosure moratorium on subprime mortgages and a 5-year freeze in rates on subprime loans.” Borrowers who knowingly bought more house than they could pay for have no place in Hillary’s world. “It is indisputable that brokers and mortgage companies lured families into mortgages that were designed to end in foreclosure,” she stated in a Denver Post questionnaire this week.
Continuing the theme of duped borrowers, Sen. Chuck Schumer is crusading for more federally subsidized “mortgage counseling.” He wants $200 million more, in addition to the $180 million for “Housing Counseling Assistance” that he helped stick into the omnibus spending bill last year. A significant portion of that will go to government-approved counselors affiliated with left-wing activist groups such as La Raza and ACORN.
I certainly have sympathy for borrowers who may have been misled. But for every “predatory lender” out there, you can find a predatory borrower. For every fraud-minded loan officer or mortgage broker, you can find a homeowner who secured financing and bought a home he knew he couldn’t afford with little money down and bogus or no income verification. Washington is silent about this reckless behavior, which it is encouraging both tacitly and explicitly.
Now comes word from California that some of these homeowners Washington is rushing to rescue are simply walking away — abandoning their mortgage commitments and contractual obligations. Poof: “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on,” one homeowner blithely told the Los Angeles Times this week.
The stigma of default is gone. Political rhetoric absolving borrowers of their responsibilities — and encouraging them to spend, spend, spend even more — has made it possible. And so has federal legislation intended to “help.” The omnibus spending bill passed last year prevents the IRS from taxing mortgage forgiveness as income up to $1 million for a two-year period.
Finance blog Calculated Risk reported last week that increasing numbers of homeowners are walking away from their homes by choice. A Wachovia executive noted during a conference call that they are “people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…” Some are bailing for cheaper homes in the same neighborhoods. There’s even a term that’s become popular over the last couple of years — “Jingle Mail” — that describes when homeowners cut loose and mail in the keys to the bank. Ho, ho, ho.
The true victims in this “crisis” are those who paid for homes within their means and those who waited to enter the housing market.
In September, I noted how “The Ant and the Grasshopper” fable extolling the value of thrift had been completely turned on its head.
In October 2008, I provided a grim update of the continued spiral of fiscal recklessness stoked by both parties:
I can’t tell you how disgusted I am by the apathy over the Paulson/Bush/Pelosi/Reid wealth confiscation program in full swing. Every time I hear someone yammering on the radio or TV about Barack Obama’s plans to socialize this or that, I want to hurl.
The bank nationalization Trojan Horse was brought to you by a GOP administration.
Both presidential candidates have enshrined mortgage “rescues” and foreclosure prevention as primary government goals.
Both candidates supported the $25 billion automakers’ bailout. And now GM wants more.
The Democrat Congress and the GOP White House are pursuing home ownership/preservation at all costs…
Just walk away.
Now, here we are at the close of November 2009. Has anything changed? Only for the worse:
Obama is pressuring lenders to give defaulting homeowners even more of a reprieve through permanent mortgage modifications — a new entitlement supported by both parties that is a recipe for more and more mortgage defaults and even bigger entitlements for wealthier homeowners looking for a bailout.
Meanwhile, a law professor has discovered what underwater homeowners have been incentivized to do since at least January 2008 when I first warned about it: Walk away. Oh, and he also recommends that you splurge on big-ticket consumer items right before you bail.
Hey, why the hell not? We live in the Land of No Consequences now, remember?
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don’t feel guilty about it. Don’t think you’re doing something morally wrong.
That’s the incendiary core message of a new academic paper, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” by Brent T. White, a University of Arizona law-school professor.
White argues that far more of the estimated 15 million American homeowners underwater on their mortgages should stiff their lenders and take a hike.
Doing so, he suggests, could save some of them hundreds of thousands of dollars they “have no reasonable prospect of recouping” in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume.
“Homeowners should be walking away in droves,” according to White. “But they aren’t. And it’s not because the financial costs of foreclosure outweigh the benefits.”
Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, “one can have a good credit rating again — meaning above 660 — within two years after a foreclosure.”
Better yet, you can default “strategically”: Buy all the major items you’ll need for the next couple of years — a new car, even a new house — just before you pull the plug on your current mortgage lender.
“Most individuals should be able to plan in advance for a few years of limited credit,” says White, with minimal disruptions to their lifestyles.
***
Repeat after me: Property-value preservation is not a civil right. Teach your children. Tell your friends. Maybe it’ll sink in. I’ll keep trying.
***
On a related note about the loss of stigma: Reviewing NYT’s Food Stamp Report, Part 1 of 3: Paper Cheers Growth, Loss of Stigma
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The “stigma” of defaulting on your mortgage is gone? None of the three credit rating agencies take note or care anymore? Banks don’t care either? Oboy. Where’s a REALLY big house? Cmere house. Oh, yeah. Hmmm. A REALLY big house smothered in small houses, please. TYVM.
For Charlie Rangel?
Alas, at one time when you made a promise, gave your word, or signed your name on a piece of paper you lived up to it. Fiscal responsibility is not only dead, so is the concept of Honor. Honorable men and women do not walk away from their mortgages, or from anything else.
Michelle, Michelle, don’t you know over-priced homes are guaranteed to go up in value forever?
benjamin franklin said, when we make poverty acceptable, we are lost. the poor should be made as uncomfortable as possible so they will work hard to escape poverty. WHAT A CONCEPT! instead today we have congress continuing to extend unemployment insurance, despite that they don’t pay for that, states do through fees charged on businesses, and as companies leave or go out of business, states go broke. isn’t obama compassionate?
These people are allowed to vote.
For awhile my mother was a mortgage payment or two behind, thisclose to foreclosure but managed to get by. Finally enough was enough. She sold the rest of her stock and paid off the mortgage. This happened 3 months before the market crashed and the home owner “crisis” began. She considers herself prudent and lucky.
If these people were in charge 50 years ago, we would still be manufacturing the Edsel and trying to sell it.
Over the 20 years I spent in the Military my wife and I saved all my bonus pay I got and pretty much everything she made so we could make a substantial down payment on a house after retirement. Between this and my retirement check we where able to buy a nice house that we paid off after 5 years. Boy do I feel like a sucker now, sigh.
I’m a victim! My SHCitibank credit card sent me notice that my interest rate was going up to 26%! I pay on time! WT? It seems like they’re trying their hardest to get me to default! They took TARP! And now they’re back again!
I am in mourning…
The death of shame as a motivating factor to do the right thing is now dead and buried. The entitlement culture has killed any inkling of effort to succeed in many people.
The country will suffer…and our people even more so for many generations to come (if our country can survive the current “leadership” from both parties).
Wow, so many people get to stop paying for something.
You know what I’d like to stop paying for? Other people’s mistakes!
Can I have my tax dollars back now please?
We are a changing for the worse. Below is information about James Braddock – the movie Cinderalla Man is based on him. Damn inspiring to those of us who still believe in personal responsibility.
Why stop there? Clearly credit card people are “ripping off” the people so STOP PAYING THEM AS WELL!!!
Car payments? Owning a car is clearly a right.
Water? Power??
In fact lets just pay 95% tax, have the government pay our bills, and spend like there is no tomorrow!!!
Sarcasm off.
I have a story that will cheer you up. Where I live in WA ST is fairly rural and shame still is a motivator. There are lots of small farms that sell eggs from their chickens and some produce. Well one of these small farms had a customer who bought some eggs on good faith and never paid the bill. So the farmer built a billboard on the main road adjacent to his property that read (the persons name) Pay Your Bills!! She owes me money! Well it did not take long before the woman in question was so embarrased that she found a away to pay her bill.
I do what I can to help the poor-those individuals and families thrown for a loss by unseen, uncontrollable situations. The “poor” of which I speak are not the scam artist, spendthrift and dodger.
One of the few pieces of advice I will give a young person is to avoid consumer debt as if it were the plague-for it surely is. Drive that car ten/fifteen years, whatever you have use it up, wear it out and make it do. No you do not need that next bigger house. If you do not borrow you do not have to pay it back-savings in good/try it/you might like it.
But like anything else if we make bankruptcy and default acceptable we will get more of it. It worked for illegitimacy and family abandonment. Ask Mel Gibson or most any Hollyweirdo.
Not OT, but on a tangent…..
Out-of-wedlock pregnancy. For many teenage girls, it’s a badge of courage, not a shame.
When I was in high school, if a girl got pregnant, she would disappear from the face of the earth (well, maybe an aunt’s farm in Kansas).
Now, they have classes here (Hawai’i) that girls bring their spawn to. They nurse in class, are taught how to work the welfare/WIC system, and are allowed to graduate in gown holding their screaming kid.
Parents tell their daughters “pick me up a couple of ribeyes and some more milk at the supermarket.” It’s free!
Thanks…it helps a bit. In the rest of the country, the poor farmer would probably be sued for slander and have the ACLU go after him…
Do I sound bitter??? Or just resigned???
All true. What is also true is there are many in this society who are masters of seeing only what they want to — and their politicians are running the country right now.
I have had variations of this conversation with my donk relatives, and they’re perfect examples of seeing only half of the problem: they condemn the greedy, predatory, sleazy banks and other mortgage lenders, but the people who took on mortgages they had no business taking on are invisible to them.
This kind of denial/wishful thinking hit its high point for me when on Thanksgiving I listened to my mother and one of my sisters bemoaning the condition of the economy — but they could only talk about the year 2008. Neither could bring herself to contemplate what has happened in 2009, because to do so would force them to confront the fact that our economic woes have more than one parent.
Dealing with donks and other leftists is confirmation of an axiom: Never underestimate the power of the human brain to partially or wholly disregard reality when the need for self-delusion is great.
Only part of it Michelle.
Yes in a perfect world people would honor their financial commitments, at all costs and suffer in silence as their nest egg is depleted.
Once depleted they are either in a tent or begging off the government in Section 8 housing, food stamps and a welfare check.
The other option is default, securing their nest egg, move on and rent at a rate that allows them to stay off welfare.
It would make more sense for the mortgage company to reconsider the rates and payment schedule.
Should it compromise their credit ratings? Sure and it will because they are now a credit risk.
Considering that up to 1/3 to 1/2 of home owners in some areas are underwater
you might consider this is not a problem limited to deadbeats and Democrats.
Your neighbors are suffering too Michelle. Tred lightly on those that are facing this decision, not everyone in financial trouble are trying to get one over.
If this happens it won’t matter
*There is an end game to all of this, and it will not be a happy ending; The government will end up powerless, and the individuals who presently do not know better will feel considerable pain as a consequence; It’s mostly about the behavior with a little bit of head knowledge thrown in.
It’s all part of Liberal-think:
Everyone gets a trophy.
Grades harm self-esteem.
Keeping score will hurt feelings.
Bench the gifted athletes so the other team doesn’t feel bad.
If you work hard to be successful, it’s unfair to those that don’t and aren’t.
Criminals are victims.
Everyone deserves more house than they can afford.
Yes. I know 2 families that have had a disaster happen. Now both could be out in the street. One had $50K in the bank, this time last year, but because of loss of health insurance and needing 2 immediate operations, a trumped up criminal charge causing loss of job (later aquittal) for 2 months he is behind on everything with car repossessed. He could lose the home too. Sad situation, but he is proud and independent. The other was loss of job and 4 kids to care for. Both don’t want a government handout; just a push to get restarted. For some, it’s very humilating to ask for help, especially if you have spent years helping others, as they both have been doing.
The place where my brother and nephew work, there’s a man working there that had his retirement plans ruined by the new brankruptcy law passed by President Bush. His plan was to buy all the toys he needed for bankrucptcy: boat, RV, truck, etc. Then file for bankruptcy, and own them while the bank was stuck holding the bag.
But, thanks to President Bush, that didn’t happen.
We need pride in self-reliance and trying ones best, and shame in failure and in being a leech again.
I know it is completely foreign to most but you don’t HAVE to borrow money to own a house (or car or boat). There are those who scrape and save and then purchase outright. Guess what – NONE of them are facing foreclosure.
Agree with many of the posters…..not everyone facing default is a deadbeat.
Our small community in Michigan’s Thumb is one of the hardest hit areas in the country. The job loss dominoes fell throughout 2008 and extend through 2009 so far. First to go were the small parts “shops” reliant on the automotive industry who had 20 to 100 employees whose beniffits were suspended; thus causing the collapse of the medical clinics and doctors offices.
Next to go was anything to do with the building/construction industry as well as realestate as there was no demand for these services. Of course the lumber retailers suffered along with any ancilory businesses. Retail of every discription were forced to curtail hours, lay off people or close seasonally or completely. Of course the local banks remain open but one wonders as to their stableness.
Although the local paper claims a 17%-20% unemployment rate in the county it is locally understood that a more realistic figure would be over 30% if under-employent and those who have stopped looking for jobs were included.
Some may logically assume that moving to another area of the country might be a solution. We have 6 children 18 yrs. through 11, 5 in the local school system, we have owned our home for 18 yrs on a 30 yr. fixed. I am 3 payments behind ($497. mo) in December. Any suggestions? Or should I accept that I am just a deadbeat?
Man, I thought I was struggling. God bless, and I pray you can keep your home.
While much of what MM says here is true, perhaps it misses the larger reality.
MM wasn’t aiming this post at everyone that couldn’t make mortgage payments.
MM aimed her post at those encouraging others to default deliberately and at those implying a borrower shouldn’t feel obligated to repay borrowed capital.
Don’t pay property and other taxes, and the government will “foreclose” you. If that doesn’t happen, they can claim your place as eminent domain and turn it into an empty field, with the idea that they were going to build a business there…someday…maybe. Then there is the community “association”. Banks aren’t the only threat to private homes.
Chances are items purchased on credit cards and carried as a long term balance are sent to Goodwill long before those items are paid for. How smart is that?
The housing market is still shaking out and it makes me ill thinking the gov’t suggests giving loans to more people that can’t pay for them. How smart is that?
Our country is broke, bankrupt, and insolvent. I solely place this at the feet of our elected congress critters. If they’d kept their nose out of so many areas of finance it would have worked itself out. Now the entire country is hurting and like any domino effect – millions are facing tough times.
Tonynoboloney – prayers for your family.
The stigma of default was left behind well before the current economic downturn. Look to corporate “bankruptcy” (that term is now almost without meaning) and endless carousel of restructurings and reorganizations. The business schools and pundits extoll the virtue of restructuring debt, abandoning pension liabilities (to a federal agency) and shifting production to factories and mills thousands of miles distant. If there is no shame in this then how can there be shame in “restructuring” one’s debts and walking away from a house? Why is a house different from a bank loan for a business, a pension obligation or the medical insurance benefits promised to retirees?
The loss of “shame” is a cancer across ALL of our economy. Adam Smith’s “invisible hand” has been amputated and the patient pronounced better for the procedure.
Another facilitator of a “no consequences” world…Just let everyone else suck up your failures and create even more “toxic assets” that hit the housing industry in the first place…
There USED to be a time where people on welfare felt ashamed and did what they could to get off the dole as quickly as possible…Now it’s relied on with no shame whatsoever…
There USED to be a time where people who got pregnant out of wedlock felt ashamed and a family letdown…Now they proudly display their kid(s) as a trophy with no shame whatsoever…
There USED to be a time where people felt ashamed of bankruptcy because it’s an admission that you’ve been irresponsible and exceeded what you could financially bear…Now it’s being looked at as YOU being the “victim” with no shame whatsoever…
This is the same “If it feels good, do it; consequences be damned” mentality that lies at the heart of the “Liberal vs. Conservative” argument…
cnredd
Political Wrinkles
http://politicalwrinkles.com
Apparently, it USED TO only take one to tango, as only one gender is getting mentioned here.
Being embarrassed to have participated in a premature sex act is one thing, but to be ashamed of the child is something else. Pregnancy is scary and takes courage even in the best of circumstances. Those who continue to partake of education while pregnant are doing the smart thing, whether they intend to keep the child or put the child up for adoption. Chasing them out puts more people in poverty and on welfare and provides talking points for Planned Parenthood. The structure of the punishment glorified by several posters here makes it a punishment for pregnancy, not for the indiscretion itself, and that is a very bad use of shame.
A most excellent website for pregnant women who need help:
http://www.feministsforlife.org/
These people have no personal responsibility. They have not been taught to be thrifty and responsible.
In fact, the other way around. I saw it as a public school teacher— they are taught intentional irresponsibility. This is bare thievery.