3 ms·

> There is no moral dimension, and it's naive to inject one. I disagree. Obviously, this is just my own personal opinion, and I cannot cite authority because t

by mcherm 12y ago

> There is no moral dimension, and it's naive to inject one. I disagree. Obviously, this is just my own personal opinion, and I cannot cite authority because that is how ALL moral questions work. But my moral premisses include keeping commitments I made that others rely on. The stockholders of the bank relied on my promise to pay my mortgage, as far as I am concerned, there is a moral dimension to my making those payments.

logfromblammo 12y ago
The lender for a secured loan is also obligated to not damage or devalue the collateral. It is clear to me, if not clear to the courts, that in aggregate, mortgage lenders caused the collapse in real property values in 2007, the same properties that were the security for their own loans. If you pawned a guitar, and as you watched, the pawnbroker snipped each string with wire cutters, then used a gouge to carve an obscene doodle on the body, would you still feel a moral obligation to pay back the full value of the loan as promised? If you got an auto title loan, and one night you discover that the lender was in your driveway, smashing up your car with a sledgehammer, would you still feel a moral obligation to live up to your promise to repay? Why then would you feel a moral obligation to honor the terms of your note for the very people that cut the value of your home in half? The moral thing to do would be to deduct the damages to the collateral by the lender from the principal on the loans. So far, the courts have not been considering this angle. Lenders drag their heels on modifications, fighting every step of the way and seizing upon any possible excuse to avoid reducing the principal. The moral issue here is moral hazard. If you know the government will always take your side, you have significant incentive to always act like a total prick. And that is what the mortgage lenders have been doing.
- harryh 12y ago
  How do you think that lenders caused the collapse in 2007? EDIT: I could convincingly argue that lenders (as a group and with the help of a lot of other people) caused an artificial inflation of property values preceding the collapse but at that point the collapse was inevitable and not really the fault of anyone.
  - logfromblammo 12y ago
    It's complicated. Fannie Mae and Freddie Mac (secondary market) were ordered to buy more loans in economically depressed areas. Independent mortgage lenders and banks (primary market) expanded their lending in response, bringing in borrowers that had progressively higher risk profiles. They started falsifying documentation to meet the already-lowered standards of the major players in the secondary market. Those, in turn, fudged their accounting to make re-sales to the tertiary market more palatable. The tertiary market just leveraged the hell out of those repackaged mortgages, and sometimes just made up numbers to fill in the blanks. Then that first guy that got a mortgage loan with no actual income missed a payment. That increasing leverage all the way up turned that little blip into an explosion. Mortgage businesses hit the ground or hit the brakes, and now fewer new buyers could afford homes without loans. That lowered property values across the board. Those trying to sell their homes to pay off their mortgage loans could no longer do so. The foreclosures started. Financial businesses like to own liquid currency, not ugly real property. So they auction foreclosed homes at fire sale prices, often because pissed-off former homeowners commit waste prior to losing possession, and the new owner does not bother to even look at their new asset even once before selling it. This lowers values further. Renovation businesses that can afford to pay cash lowball the bank, because they know there might be concrete in the toilet drains now. If they can easily get as many foreclosures as they want, they don't buy regular, non-distressed properties. That's the summary. There's a lot more to the story than that. For a good time, read this: http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae.pdf http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae....
    - harryh 12y ago
      OK ya, I agree with that. Though as I said I think that saying they caused a collapse is really only telling half the story. Before they caused that they also caused an unreasonable run-up in property values.

by mcherm 12y ago

logfromblammo 12y ago

The lender for a secured loan is also obligated to not damage or devalue the collateral. It is clear to me, if not clear to the courts, that in aggregate, mortgage lenders caused the collapse in real property values in 2007, the same properties that were the security for their own loans. If you pawned a guitar, and as you watched, the pawnbroker snipped each string with wire cutters, then used a gouge to carve an obscene doodle on the body, would you still feel a moral obligation to pay back the full value of the loan as promised? If you got an auto title loan, and one night you discover that the lender was in your driveway, smashing up your car with a sledgehammer, would you still feel a moral obligation to live up to your promise to repay? Why then would you feel a moral obligation to honor the terms of your note for the very people that cut the value of your home in half? The moral thing to do would be to deduct the damages to the collateral by the lender from the principal on the loans. So far, the courts have not been considering this angle. Lenders drag their heels on modifications, fighting every step of the way and seizing upon any possible excuse to avoid reducing the principal. The moral issue here is moral hazard. If you know the government will always take your side, you have significant incentive to always act like a total prick. And that is what the mortgage lenders have been doing.

harryh 12y ago
How do you think that lenders caused the collapse in 2007? EDIT: I could convincingly argue that lenders (as a group and with the help of a lot of other people) caused an artificial inflation of property values preceding the collapse but at that point the collapse was inevitable and not really the fault of anyone.
- logfromblammo 12y ago
  It's complicated. Fannie Mae and Freddie Mac (secondary market) were ordered to buy more loans in economically depressed areas. Independent mortgage lenders and banks (primary market) expanded their lending in response, bringing in borrowers that had progressively higher risk profiles. They started falsifying documentation to meet the already-lowered standards of the major players in the secondary market. Those, in turn, fudged their accounting to make re-sales to the tertiary market more palatable. The tertiary market just leveraged the hell out of those repackaged mortgages, and sometimes just made up numbers to fill in the blanks. Then that first guy that got a mortgage loan with no actual income missed a payment. That increasing leverage all the way up turned that little blip into an explosion. Mortgage businesses hit the ground or hit the brakes, and now fewer new buyers could afford homes without loans. That lowered property values across the board. Those trying to sell their homes to pay off their mortgage loans could no longer do so. The foreclosures started. Financial businesses like to own liquid currency, not ugly real property. So they auction foreclosed homes at fire sale prices, often because pissed-off former homeowners commit waste prior to losing possession, and the new owner does not bother to even look at their new asset even once before selling it. This lowers values further. Renovation businesses that can afford to pay cash lowball the bank, because they know there might be concrete in the toilet drains now. If they can easily get as many foreclosures as they want, they don't buy regular, non-distressed properties. That's the summary. There's a lot more to the story than that. For a good time, read this: http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae.pdf http://www.sec.gov/news/press/2011/npa-pr2011-267-fanniemae....
  - harryh 12y ago
    OK ya, I agree with that. Though as I said I think that saying they caused a collapse is really only telling half the story. Before they caused that they also caused an unreasonable run-up in property values.