A Happy Face on Foreclosure?

There’s an interesting article over on NPR–a lengthy discussion of the disheartening climb in foreclosure rates, and some “progressive” ways of dealing with these situations. The springboard for the column is the reporting of companies who seemingly are encouraging hard-hit borrowers to just walk away from their commitments.

The Web site for You Walk Away is cheery and reassuring. There’s a photo of a happy family in a park, smiling. Another family, also smiling, is packing up boxes.

Sometimes, they say, walking away from your mortgage makes economic sense, especially for homeowners who find themselves “upside down” — that is, they owe more on their mortgage than their house is worth. In those cases, “voluntary foreclosures are not by themselves evidence of a newfound irresponsibility on Americans’ part,” says Nicole Gelinas, writing in The Wall Street Journal .

Separating the economics of foreclosure from the morality (and the stigma) is not easy, though.

“We need a culture of responsible consumers and homeowners,” says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, echoing a deep-seated American belief that one should always honor financial obligations.

I’m wondering how you feel about this. Except in extreme cases, I have a problem with people walking away from their debts. Even in those situations where it seems the only solution is for a person to file for bankruptcy, I’m of the opinion that honestly incurred debts should be paid. It might take many years, but doesn’t honesty and integrity demand that?

What say you?

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My devotional blog is here.

21 thoughts on “A Happy Face on Foreclosure?

  1. Here’s where I have a problem with all this. I’ve been a homeowner since 2000..was planing on staying in the home for 10 years and then moving on. My equity dropped over 100,000 because of conditions of the market and financial state of the country? so I pay for the sins of others? I’ve done nothing wrong, paid my debts and now lost value on my home.. I don’t think it’s fair

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  2. Kathy, well the situation has certainly worsened since I wrote this post back in February. I feel so badly for you.

    I would suggest this: Go to the bank, lay out your situation and ask for them to readjust your loan. I understand that many banks are now doing that, for they really don’t want back your property.

    I wish you well.

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  3. Kathy

    Well, I hope no one on this blog will ever be in my situation. I refinanced my home (which we built 20 yrs ago). Owned our own business for 30 yrs. CONSTRUCTION, which is pretty much dead in the state I live in for the past 3 years. If no money comes in, how can you pay. I asked at my closing whether or not it was one of those crazy Arm loans and they told me no. I was told that it would only go up 2 points total through the contract. Only to learn that it could go up 2 points every 6 months!!! I always paid my bills. Payments doubled!!!This is hurting us so much. So if some of you want us to ‘Hurt”, we hurt. I would never wish this on anyone. Anyone of you could be in my shoes, for some reason or another. Life happens. But with the wrong information at signing and no work it just snowballs. The banks get bailed out, but the consumer doesn’t??????? Ridiculous!!!!

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  4. kemote

    Nice attitude, David.

    Whether or not the face on foreclosure is happy or sad, it is still a human face. Many to most of the people facing this problem right now are good people, generous people, family people, and hard-working people. They are also likely financially responsible people, as indicated by the fact that they qualified for home ownership in the first place.

    Perhaps many people did not pay closer attention to the terms of their particular loan. Or maybe they weren’t as fortunate to be able to whip out a thousand dollars to hire a lawyer to help them translate their paperwork. Perhaps they believed their realtors when they were promised that home prices would continue to sky rocket. Maybe they had no reason to question their unmonitored and barely regulated brokers when they were told that the terms on their mortgage were better than they acutally were. Maybe they were sucked into inflated appraisals, very relaxed lending qualifications, etc….(and the financial institutions knew that they were gambling there – they knew they were making risky loans). Or perhaps they figured that their wages would keep up with the cost of living (significant increases in gas, healthcare, food, etc… in combination with job loss, wage cuts, etc…. may have put many Americans in a financial situation that they couldn’t have totally anticipated). And maybe they live in areas where home prices (and rent) are so outrageous that they never would have been able to get into a home under more conservative terms.

    Who knows? But I do know that as the government is helping to bail out Wall Street (ironic that Secretary Paulson has no trouble applying the “tough love” to individual homeowners, but quickly abandons the “no government intervention” plan when a large financial house is in peril because of irresponsible choices), many good middle-class families are entering a serious personal financial crisis that will take a long time to crawl back from. Fault them for not being better consumers if you must, or try to consider that there are circumstances there that you might not be aware of, but tell them that they “deserve to hurt?”

    Well, they will. I guess you can feel satisfied that justice will be served.

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  5. Liz

    When I purchased my co-op four years ago the bank told me what I could afford. When I crunched the numbers, I knew the actual amount I could afford. I work in the brokerage industry and can lose my job at anytime (I’ve seen it happen). I purchased a co-op where I could still afford the mortgage payments should I lose my job. People were telling me to go interest only or floating rate. I stayed with the most secure 30-year fixed. At least I know what I am paying every month and it will not change.

    I do not agree that the lenders are to blame. The borrowers should not have purchased property without learning about what types of mortgages are out there and the risks. They could have hired an attorney to assist them. It cost me $1,000 to have a lawyer assist me with paperwork and sit through the closing explaining all the details.

    If most of these people took the time to sit and read all of their documents and ask questions, they might not be in this situation.

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  6. Chris

    Welcome all, I have enjoyed the arguments posted by everyone.

    Here is my stand on the issues..
    You have the consumers and you have the banks. Most accounts start off paying well until something happens like job loss. medical bills and etc that alter a consumers ability to repay their loans. This is where it is up to that customer to contact their lender and negotiate some type of arrangments to meet their needs. But instead of doing so, consumers tend to just walk away for their mortgages as if they never existed, this is a problem. Perhaps the lender is at fault, but most of the times they are not because they make their decisons based on the customers income and credit scores. a deal can look great on paper but how the account performs is up in the air. many consumenrs lie on their creit apps stating that they make more than what they actaully earn. I can’t get mad at people for wanting nice things in life but i can get mad at those who know they can’t afford it but still sign their name on the dotted line. This is one of the reasons why finance companies, auto dearships and other businesses ate laying off workers, and this has a direct affect of the mortgage crisis. when a company lays off 200 employees, there is a chance tha 200 new foreclosures claims will be filed. my advice to America, let’s make conscience decisions and stop taking on more than we can bare.

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  7. David helforad

    The foreclosure problems were brought on by the greedy lenders not the borrowers. Most people believe they can get something for nothing and are duped. What was it that P.T. Barnum once said? There is a sucker born every minute. I hope the lending industry suffers its biggest loss. They are to blame. I don’t feel sorry for the borrowers though, If they were stupid enough to fall for loans they couldn’t afford they deserve to hurt. Everyone will gain from this blunder. Things will get better. Good deals will be had at the expense of the stupid. Now’s the time to buy, buy, buy.

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  8. kemote

    Reluctant to pay? Or unable to pay? I don’t know too many homeowners who want to lose their most valuable asset, endure the miserable process of foreclosure, and destroy their credit for the next decade simply because they don’t appreciate the importance of paying what you promise.

    There are a number of factors that can bring on this situation….medical bills (half of all bankruptcies are related to medical expenses), job loss (the highest last month it has been in five years), divorce, etc… Certainly, some people who are now facing foreclosure bought houses that were more than they could afford, but I feel uncomfortable making broad and blanket observations or statements that suggest this is all about how some people don’t understand the value of honoring agreements.

    I don’t have a problem with using this current housing crisis to warn all people about the importance of responsible spending. But it seems a little silly to me to demand that people simply don’t “walk away from their debt.” If they don’t have the money, what are they supposed to do? Write checks to their old mortgage companies from the inside of a cardboard box? You can’t get blood from a stone.

    And as far as selling the house for less than it is worth, it is called “short sale.” The difference used to be considered earned income that the IRS would tax you on, but as of last year, the government did away with that.

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  9. Interesting dialog here.
    My husband and I have no experience with foreclosure, but…

    “Even in those situations where it seems the only solution is for a person to file for bankruptcy, I’m of the opinion that honestly incurred debts should be paid. It might take many years, but doesn’t honesty and integrity demand that?”

    About seven years ago, we had a very intelligent employee embezzle from our company. By the time we realized what was happening, he had stolen several hundreds of thousands of dollars from us. Over the course of about four years we owed many, many people and companies money that we had not incurred.

    The word, bankrupt, would come up often and every time it did we would push it aside. As it got worse and worse, there came a point where we were on the very verge of filing. But, still would could not. It felt so wrong. In our souls and hearts, we just felt that it was a sin to just not pay these people back. How could we just say, I will not pay you, when we owed the money (even if it wasn’t our fault). We prayed and fasted and stressed and nearly had break downs.

    But, then, God came through, just in time. Three years ago, God began to give us miracles and today we are blessed over and above what we had at the beginning of our trial. And, we were able to pay everyone back. 🙂

    On a side note, which would be a great subject for your blog, we continued to give our tithes and offerings and missions during our trial. God always took care of us. Now, He is blessing us financial so we can give substantially to His Kingdom. To God be the glory!

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  10. Shirley,
    I agree with you also. I know of one person who had loans on 14 properties (all were bought to “flip”). Last I heard all but one had been reclaimed by the banks. Now that is downright wrong. Unfortunately we have those types out there to, and I don’t enjoy the thoughts of having to pay for their greed.

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  11. Good afternoon, Karen

    There is no question there are greedy people who take advantage of those less sophisticated or knowledgeable, and it is disgraceful. And certainly, there are those who through no fault of their own, lose their jobs, and cannot meet their mortgage payments.

    But I am afraid there are others–actually know it to be the case–who despite advise to the contrary take on debt they just cannot afford. Then when the least little thing goes wrong, they are in serious trouble.

    And of course we should not make blanket judgments without having the understanding of all the problem.

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  12. Unfortunately many good people have been deceived by the greed of others. It is so sad. Most of us have more than our parents did. Each generation desires and tries to obtain more and more. No, we should not live beyond our means and should restrain ourselves; however, I have not been caught in this circumstances and don’t know what deceitfulness was presented to them. I just can’t believe all those being foreclosed on were greedy, etc., to own a home that was more than they could afford. They were told that they had the means to do so. Then they lose their jobs (not their fault), and there is not an abundance of job openings to get another. It is a crime and a shame what has happened – and until I have walked in their shoes I must reserve judgment.

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  13. Good afternoon, Jay.

    Welcome to my site. Hope you are here often.

    I appreciate your remarks and congratulate you on being one of the rare young (?) ones who take a conservative approach to money matters–especially to the purchase of a home.

    Regarding your last paragraph, I believe that is often true, but sometimes bankers do agree on a lesser amount to settle the debt. I am far from an expert on this, but think I have heard of such cases.

    The lesson to be learned here is: We should not live beyond our means. We should restrain ourselves, and squash our appetite for “always more.”

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  14. Jay Burns

    When my wife and I purchased our first home 3 years ago we were well pleased to see that we were pre-approved for a hefty sum.

    When we finally chose our new home to be it was an older home, built in 41, that was less than half of what had been approved for us.

    Our banker made several attempts at talking us into purchasing a much newer, much more expensive home.

    We chose not to spend up to the limit of what we were capable, knowing that all times might not be as good.

    The banks knew the risks they were taking when they pushed folks to the limits of their financial capabilities. Therefore, in my opinion they will be forced to endure the foreclosures they helped create.

    Bail outs would only encourage more of this behavior from banks in the future. They enjoyed the high risk investments when they were paying huge dividends, but there are reasons they are called high risk.

    Now on to the poor folks endureing this hardship. Lets remember that we are only talking about 6 percent of mortgages. 94 percent of home buyers are paying their mortgages on time. I feel bad for the 6 percent, but they need to be responsible for the debt they incurred.

    Also, I might be corrected by banker on this but I believe even if they do voluntarily foreclose on their property they will still be responsible for the difference between loan value and the sale price at foreclosure. At which point they will still be without housing. Unless of course they declare bankruptcy. So, this would not alleviate the problem for those folks upside down in a mortgage.

    Respectfully,

    Jay Burns

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  15. Pingback: Futility of Riches « God Things

  16. Hello, Tracie

    I agree with you and see this as quite a problem in churches. Houses here in most parts of the West Coast are extraordinarily expensive, and it boggles the mind to see the debt that many of our young couples take on.

    The result is that nearly every mother is a working mother, so that bigger houses and finer cars can be bought. It truly troubles me.

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  17. I have a problem when people carelessly over extend themselves. As a pastor’s wife I have watched families purchase a home, car or etc that was obviously out of budget. Then in time the debit controls their relationships, moods, walk with God, and etc. Many times these same persons too easily walk away from their commitment. A man’s word or name doesn’t mean very much to some people. I do realize some honestly buy things and totally unforeseen things occur (sickness, death, loss of job). I’m not referring to this things but rather the immaturity or lack of honesty that some possess.

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  18. Hello, Helen

    There is nothing dishonest about a person deciding he can’t afford a particular house. Nothing at all. Indeed, it is a wise one who will clearly face this dilemma, who will “swallow his pride,” and extricate himself from the situation.

    The only issue I have raised is that some persons are reluctant to pay what they have pledged, what they fairly owe…instead, they “walk away from their debt.”

    Edit: Banks often are willing to settle for a lesser amount than is owed, and I certainly have no problem with that option. It just seemed to me that the referenced article was attempting to make the option of foreclosure appear to be a joyous, happy development, and that is certainly not the case. It takes many years to overcome the stigma of foreclosure on one’s credit history.

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  19. Shirley, The question isn’t about “walking away from debts” but about “where will this family live”? The owner/ bank/ whoever still has the house. Duh. But everyone needs a home. And while some people have two or three, some people don’t have any. And I don’t mean only the homeless. I mean people who pour money down the rental drain. What’s dishonest about saying, “I made a mistake. I can’t afford this house, so I’m giving it back.”?

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  20. R Guy, you have hit on the core problem which is the sorry state of American values. Lending institutions are greedy, and little do we Americans value thrifty and prudence.

    We value possessions…want more things, bigger houses, and faster cars. We live for the moment, with small regard for the future.

    I agree that both bank and consumer are responsible for this mess. Furthermore, I don’t believe I am to blame for persons who bought houses they could not afford and I’m not eager to have my taxes increased to “bail them out.”

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  21. renaissanceguy

    This problem runs very deep. The question of what to do about the mortgage crisis is about much more than whether poor families should just walk away from their debt.

    The question goes to the heart of our economic and social system–to what our core values are. Do we value thrift, prudence, honesty, and justice? If we did, then these loans should not have been offered or accepted in the first place.

    To get out of the mess, the banks who made these idiotic loans should have to eat some of the loss, and they should help the families involved to find more affordable housing. The families who took out the loans should commit to living under a tighter budget and should gradually pay back whatever they can of the money that they owe.

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