When homeowners just walk away...

Commenter Take Five points out an ominous little item over at Calculated Risk today: Wachovia reports that some homeowners who can afford to pay their mortgages are now opting instead to walk away from their homes and their debts:

"From the Wachovia conference call: 'Part of one of the challenges is, and we've mentioned this before, a lot of this current losses have been coming out of California and it's -- they've been from 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, and so in a way, we may have -- it's hard to know right now, but we may have seen somewhat of an acceleration problem loans as people have reached that conclusion and we're just going to have to see how the patterns unfold here.' "

CR points out that this is a growing worry among lenders -- that it will become socially acceptable for homeowners to walk away from their mortgages.  Against that backdrop, the Bush administration's push for a rate freeze for some sub-prime homeowners takes on a slightly different tint: it's a subtle reminder from the government that home ownership is worth fighting for.

While we're on the topic: Today's DataQuick report on California foreclosures also contains an ominous  "below the headline"  observation: "Of the homeowners in default, an estimated 41% emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 71%."  If you do the math, that means homeowners going into default now are more than twice as likely to lose their homes as homeowners who went into default a year ago.

Hat tip: Take Five
Comments? Insights?

Comments

[RichW]

Just imagine if there was no such thing as declaring bankruptcy and the mortgage lender could ask a court to seize future income or assets.

Guess I'll keep dreaming. After all, who in their right mind would want our laws to encourage an honest and responsible society ?

[KosherKrab]

Don't people care about their credit scores anymore? Or are these the sub-prime folks who shouldn't have qualified for a loan in the first place?

[Fredke]

"Just imagine if there was no such thing as declaring bankruptcy and the mortgage lender could ask a court to seize future income or assets."

Interesting idea. Just don't limit it to homeowners. Let's make every shareholder in a corporation personally liable for all obligations (debt, pension promises, etc.) that the corporation undertook.

As RichW says, it would be nice to have an honest and responsible society where retired workers could seize assets and future earnings from every shareholder in Bethlehem Steel, United Airlines, and so forth, to meet the retirement benefits they were promised but lost when their former employers declared bankruptcy.

Sauce for the gander and whatnot...

[l.a.guy]

I kind of find it hard to believe this would become an epidemic. First of all why wouldn't the lenders go after these people if they still have assets? It's breech of contract plan and simple. If they have assets substantial enough that they could have continued to pay the loan how would they be eligible for bankruptcy protection? I must be missing something.

But, even if you were able to just walk away without the bank in hot pursuit, you're still going to screw your credit up for years to come. I don't think the consequences are as benign as it may sound at first.

[Condoblue]

I am one of these people. My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

Despite all this, I would be willing to stay if the bank would refi the loans to a 30 year fixed, but since I'm not a 'hardship' case they'd apparently rather foreclose. I guess the only way I could qualify for loan mitigation is to get my boss to fire me, stop making payments, and wreck my credit. In fact, my bank won't even talk to me until I miss a couple of payments.

I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.

I realize I agreed to the deal when I signed the mortgage papers, but I am within my rights to walk away from a bad deal and suffer the consequences, just as many corporations write down billions of dollars of debt, lose money for their shareholders, and lay off people as a result of their bad decisions.

I don't really understand why people view a business decision by a homeowner as a terrible moral lapse. However, when large lending institutions, with access to more sophisticated information than any consumer could imagine, make mistakes affecting thousands of people worldwide, they are not excoriated and vilified with the same righteous zeal.

[Bobc]

Many of these loans should never have been made, and many buyers were too uneducated to know what they were getting into..I've also read many didn't understand English, and didn't know what was going on!!!
By the way, if they walk away, where are they going?
How could they find a rental with a background check, to show they defaulted on their home loan?
Common sense better return to California, and our Country soon!

[rickety split]

Fredke,
I get your point, but corporate shareholders have imperfect control (next to none in all but the most extreme cases) over the actions of their corporation, while homeowners had direct control over the obligations they assumed.

[pugtv]

Just curious ... when people walked away from their home loan obligations, did the bank go after the former homeowner's assets (besides repossessing the house)? eg. Roth accounts, savings / investment accounts etc ...

[RGB]

I ask again - how many of these people are "walking away" from 2nd, 3rd, etc homes that they using for rentals? Take a deep look at these to see if the real problem is that mortgage companies gave loans with residency requirements to people who had no intention of living in them. My old landlord had 72 homes in Riverside and Orange county - 5 in my subdivision alone. And she lied about living in them to get the loans!

[Mike Barker]

Not the shareholders. The officers and board should be held personally responsible for their actions on behalf of the shareholders. Companies incorporate for just what Fredke states. They want personal protection from their actions toward their customers.

[Bill]

I'm not surprised by this at all. According to housing tracker, houses in the 75th percentile have droppped from $1M to $720k. Who wouldn't just walk after losing (after you pay 6% to sell) over $330k.

Once the banks start to realize that no one care to hold onto their house unless it makes them money, we'll be back to at least 10% down to 20% down payments. Plus home equity rates will skyrocket.

Just part of the brave new world!

[anon1137]

This has been known for awhile. One of the Fed banks back east did a study that found that the amount of equity was the primary factor in foreclosures, not ability to pay. I think that some of these borrowers are making a wise financial decision to let the house go.

For a homeowner in the central valley who bought at the top of the market, say for $500K, and their house is now valued at $350K and dropping by the month, it could take 10 years or more before that house is worth $500K again. Why not walk now, rent until the market recovers, save your money for a downpayment, and then buy again when the market bottoms in 5 years or so?

Some economists think there will be some accomodation, vis-a-vis credit reports and scores, for borrowers who get foreclosed during this crisis, simply because it would otherwise delay the housing recovery for too long.

[blimp66]

I've been following the situation very closely for a while now, and was inspired to write a song:

http://www.youtube.com/watch?v=Ivp4YqGCI-s

[tealeaf]

There seems to be a recognition that, in the future, foreclosures from this time period are going to be so common that they won't be viewed with so much disdain.

It's the perfect corollary to homeownership: it used to be a prized state of one's financials and place in this world. Now, due to the "fog a mirror" test one needed to pass to get a loan, it is almost shameful to admit that you bought during this boom.

The banks wanted tighter BK laws, and they got 'em. Not they have to pay the piper with higher foreclosures, and I don't think the consumer will be damaged like they once were.

[Aaron Kramer]

This process was made easier by the passing of the Mortgage Relief Act of 2007. Now homeowners don't have to pay taxes on the shortfall between the homes current value or price and the loan amount. Remember the road to hell was paved with good intentions.

[Maggie Knowles]

RichW - it would be good if we had honest and responsible lenders to begin with. This situation proves we need regulation because buyers, sellers, lenders, politicians, we have no control or self discipline. Our society, we as a group, we are not wise, mature enough to make the responsible choices. EVERYONE plays a part in this.

[Hula Girl]

This changes a home loan from a secured to unsecured asset which must be making lenders very insecure. My question: How will loans be structured in the future to prevent this very problem? If we think credit's tight now, look out.

By now, everyone involved now realizes that a "contract" is worth only as much the people signing it. Good luck collecting on those "secured" debts.

[J]

I know several people who recently walked away and gave the keys back to the bank. From what I understand, these people were not subprime borrowers, nor were they first time homeowners. They got caught up in the equity cycle, cashed out, increased their mortgage, wasted money thinking the equity would never end. In the cycle of refinancing for cash, they would do exotic mortgages straying from their 30 year fixed because they would either sell in a couple years, or just be refinancing once again to take out more money. Most of these people could afford their original mortgage, but they simply got caught up in the trend of refinancing to buy cars, pools and trips and pay off credit cards. When they did they ended up with a loan amount they could not afford without the exotic mortgage, and continued increase in equity. The people I know in this situation are not there because of the lenders, brokers, or even the decrease in equity. They are there because of their own stupidity.

[Maggie Knowles]

Kosher Krab - It's not the sub-prime folks the Wachovia folks were speaking of:

"...a lot of this current losses have been coming out of California and it's -- they've been from people that have otherwise had the capacity to pay..."

It's the folks who can afford to pay who are walking away because they don't want to pay top dollar for a property that has decreased in value.

[Tombstone Realty]

Well, if the banks can just write off their 'bad loans' and walk away, why can't the consumer. People consider houses 'investments', not 'obligations'. So if the investment isn't making money, oops, let it go, and put your cash elsewhere.

I'm getting that feeling from the street, and I'm not even involved in the industry. Sure, their score takes a hit, but for the longest time credit card companies were desperate for clientele - even a bankruptcy, you'd get offers.

Once there's a big enough backlog, sometime in 2011, it won't matter if people had bankruptcies, because the banks will be desperate to get rid of the houses. Just like you see with car dealerships. I guarantee you 40% of the people who are losing their houses now will be in another in a few years - especially the "above-water walkaways" mentioned above.

The only sad thing is that people like me, who carry no debt, and save money - are the ones getting shafted right now. Well, that and our future generations, but that's another blog...

[mike]

if you have good credit you will probably become golden

[JonM]

why pay a premium every month for something that's worth nothing to the owner. That's like paying rent at twice the cost. I too would walk, no brainer. Credit can be rebuilt.

[tew]

This supports the assertion that we should avoid applying the term "home owner" to each person who has a mortgage on a residence. Somebody that puts zero down and then pays IO is NOT A HOMEOWNER for the residence any more than someone walking on the sidewalk in front of it is. Yes, they have LEGAL rights to live there if they make payments and they can fight foreclosure, but conceptually these people are no different from those who rent.

Now we are seeing this play out - some of these people don't consider themselves true owners. Some were speculators that know they have a "put" and that the banks relied on old fashioned cultural norms that no longer apply to an increasing number of Americans.

[sheila]

RichW, i couldn't agree more. let's start with the government. bush and cheney, who lied on at least 935 public occasions to trick the US into going to war, should have to pay the entire cost of the war out of their own slush funds (KBR, Chevron, Blackwater and others will contribute no doubt), then pay back the entire budget deficit (and dollar devaluation) of the past 7 years derived from appointing corrupt, incompetent cronies to key positions then bloating the government beyond recognition and giving corporate welfare out to Their Base.

once they balance THEIR budget and pay for their grotesquely irresponsible and corrupt behavior, we can hold individuals to the same standards. i think it would be GREAT!! i'd love to get all my wasted taxes (including the huge looming burden these jerks have been deferring by not making anyone pay for the war in real time, and by lying about it "paying for itself") back so i could pay my own bills that much easier.

hurrah for personal responsibility!

[Roger Moore]

"This changes a home loan from a secured to unsecured asset which must be making lenders very insecure." --Hula Girl

Not at all. A secured loan is one in which the borrower puts up assets to act as collateral. A mortgage is still secured because the house is still used as collateral. It's just that housing as now lost enough value that the lenders can't make themselves whole by foreclosing and selling the house. That's their tough luck; if they had required a reasonable down payment, they wouldn't be in this mess.

[alvin]

tombstone,

the mortgage is an asset to the bank, and a liability to the borrower.
the home is an asset to the homeowner, and collateral to the bank.

when a bank writes off a loan, it isn't walking away from it, it is simply recognizing the loss. it can't walk away from it's liabilities (it's depositors and other financing obligations) although it can become insolvent and declare bankruptcy.

the house is an asset - but the mortgage isn't - it's an OBLIGATION, secured by the property. some states have more liberal laws than other's regarding which assets beyond the property itself the mortgage lender can pursue. i would advise anyone, including those in a non-recourse state like california, to speak with attorney before just walking away...

[mbob]

"Salsi puedes" y'all.

California folklore is rife with this wonderful bit of Spanglish. "Leave while you can" is one translation. Another is "vote with your feet." The literal meaning is "hot feet." Sometimes it's used as an insult, other times as a sage observation. It's a pretty all-purpose phrase.

Then there's the old bon mot of how a rat manages to look casual while scampering down the mooring line of a sinking ship.

Today's photos of Gazans pouring over into Egypt to get food and water is a variation on the same theme: after a certain, never fixed point, people generally figure they have had enough and simply take a hike.

[Bubblewatcher]

Hey, CondoBlue -- has it occured to you that the other owners in your condo are going to have to pick up the slack when it comes to your unpaid HOA dues? Or that you just might have an obligation to pay back that loan as you promised? Or, like millions of other financially ignorant Americans, are you just insisting that you have the right to "have it all", despite the consequences?

Uh, the fact that you were stupid enough to buy another place right away (any guesses as to what that's going to be worth in a few years, and if my guess is correct, will you walk away from it, too?) -- it would appear that you still haven't figured out even the most basic rules of personal finance.

[Chris]

Another interesting look at Real Estate's future as impacted by National Elections....
http://www.realtytrac.com/news/Press/
newsletter-articles.asp?a=b&ItemId=3784&accnt=167383

[Chris]

When poor folks (incomes under 500K) start acting like rich folks look for Rome to start burning

[Laker]

Bobc: "By the way, if they walk away, where are they going?"
I personally have this case in my family. My uncle simply walked away and lost the house to foreclosure. He got his credit trashed for the next 7 years. However, within 1 month, he bought a better house, larger, newer in better neighborhood for less money and is now extremely happy. You ask how? He simply bought the new house using his son's name....
Now, I know similar case too, where the husband had the loan on his name only, he was loosing the house to foreclosure. Then he managed to unload the house as a short sell from 1.2M to 650K. Do you know who bought the house from him (for 650K), ...his wife...
SO the smart a$$ never moved out yet got to stay in the same house with a payment of about half !
The bank lost 500K... almost half the mortgage. Now don't be surprised that stocks are down a lot. The Dow can crash to half of the peak 14000 down to 7000 and that will not surprise me a bit.

[TakeFive]

If I were in this situation, I think it would be fairly easy to rationalize that walking away is not being irresponsible, particularly if the debt service is crushing, or the neighborhood is significantly degrading. Know why? Because ultimately you (and your kids) are going to pay for this – just like last time.

The banks will unload as many of these turkeys on Fannie Mae as they can, either by lobbying to get the loan limits raised, or by failure and takeover by the FDIC. Remember the RTC in the 1990’s? Who do you think paid for that little operation.

Here in California, we pay excessively high sales tax and income tax, coupled with property tax, fuel tax, and all kinds of ridiculous fees – like a $30 “Adventure Pass” to use our local mountains. Meanwhile, our legislators cannot control their masturbatory spending urges and we’re $14B short on the budget. If you think this is going to get fixed with spending cuts, you’re out of your mind. Arnold will wimp out (again) and float another bond issue.

So go ahead, walk away. Think of it as your own personal Bush “Tax Rebate” stimulus plan. You’re paying for it.

[Tombstone Realty]

Ah, but have the banks not gone and repackaged alot of these loans as securities?

I'm not saying that the banks don't consider mortgages "obligations" of the buyers.

I'm saying the *perception* is that since banks are foisting these loans in SIVs, that banks are "writing off" debt, getting funding from outside sources (and trying desperately to get Fannie and Freddie to take bad loans on) - that the *perception* is that the banking/mortgage industry isn't behaving above board, and so the consumer feels they don't have to either.

That's my point, and that's *exactly* why we are seeing these walkaways. I bet it's even higher than these banks are letting on, just because they don't want to spook any future investment.

I guess walking away is preferable to someone setting a fire and killing some innocent person.

For me, a house was going to be the place I could live the way I wanted to, have a doggie, and raise a couple kids. Unfortunately people like me weren't wanted by the mortgage/real estate industry. They played it up as "a great investment, flip flip flip!!!"

They have noone to blame but themselves for the attitude consumers have towards houses now.

[mike]

hey condoblue...if i wrote what i really thought about you, viles would need to use his authority to moderate all comments. i hope someone worthy picks up the scraps of your bad credit at a discount and i hope your new home lender sues you for breech and you lose both homes.

[JohnnyB]

Why not have an army of appraisers march through CA, AZ, NV and FL and adjust home values down 60% and be done with it... it's about as arbitrary as the initial "valuations" were, but at least it's more time-efficient.

This is facetious, but the reality of the need to adjust home values down is not. Any remedy that does not address the over-valuations will miss the mark and prolong the correction and exacerbate the agony for individuals and the economy.

Personally, I decided not to purchase in LA (2004) when I was finally ready (with down payment and seeking 30 year fixed) and postponed my dream... or rather - and in retrospect - had my dream squashed by greedy bankers, RE agents, appraisers, lenders and a shameful, complicit government. A system devised to provide incentives for the highest loan values possible without any regard for long term consequences. The wall street derivative based CDO/SIV Ponzi scheme is well documented as is the rampant fraud and criminality in the mortgage and banking industry over the last 7 years... with more still to be revealed.

We’ve got these cheating scum bag CEO’s walking away from their devastated investment banks, mortgage lenders and related industry financial institutions with tens (& hundreds) of millions in personal gains and with huge cuts going to industry “insiders” and to the tune of hundreds of billions (TRILLIONS) in total dollars. That’s a mass distribution of wealth to the upper 1% the likes of which we have not experienced and are still coming to grips with. And, we’re selling off core assets to the Saudi’s and Chinese (among other so called “sovereign” wealth and “private” equity funds). It literally goes on and on… and it’s all really bad for America and the homeownership dream, and devastating to our middle class.

Let folks walk away… seriously, why should I care about the continued flow of “over-valued” loan payments to corrupt bankers? I consider any process or system that props up these over priced homes as bad… for me personally and for our economy. The sooner the bottom falls out, the better for those of us waiting to buy at a reasonable price and not wanting to become debt slaves for half their adult lives. The industry needs regulation and transparency, not housing price controls.

Now the Bush/Paulson/Bernanke triumvirate want to send out a small “pittance” check to individuals. It comes across like they view the middle class as a collective group of cheap “whores”… who now realize that they have just taken it up the collective a$$, are turning around to see who screwed them, and there’s the smirking, weasel triumvirate handing them a few Jacksons for taking it like a good whore.

[TakeFive]

Tombstone Realty wrote:

"Ah, but have the banks not gone and repackaged alot of these loans as securities?"

You raise an interesting point TR. We feel an obligation to the bank, but what is the bank's obligation to the securities holder? Do they get to say "well, investing in stocks is risky, so losses are inevitable. Have a nice day"

Did they slap on a phony rating and a little fictitious insurance and say they’ve met their obligations? Bet we’ll see plenty of walk-aways by the banks.

[Vidal]

I am thoroughly enjoying watching this entire process unfold as I predicted it over 4 years ago. What can I say? Not only are 98% of people morons but they also have very short memories. I'm only 37 and I REMEMBER THE S and L SCANDAL... I also remember when everything DROPPED 40% back in 89! The only people dumber than all the people who bought homes they couldn't afford is the BUSH ADMINISTRATION... And whatever you do, don't believe a word any SLIME REALTOR or MORTGAGE LENDER tells you about it now being a "BUYERS MARKET!". Yeah right... I'll bet anyone $5K anything you buy today will be worth LESS this time NEXT YEAR! Were not even out of the 3rd inning of this... add in the falling dollar and this never ending war and you are in for a world of hurt. Be smart... walk now.. not later after you've made $35K in payments on a house that worth less than you owe. Like pissing on a forest fire. I've got homes on my street that were going for $700K and now they can't even get and off on the table at $425K. I love renting now! In fact, I just rented a $700K home for $2500 a month and one other guy pays me $1300 for 2 bedrooms with all utilities! You know what? I'm living in a $700K home for $1500 net! You couldn't give me this home free and clear and have me live here that cheap! It's got a pool, spa 3 car garage and 3300 square feet. Oh the beauty of renting in norcal! I got off the roller coaster at the right time, but will you?

[Joseph...The Real Estate Guy]

Rome is burning...thanks to Irresponsible lending!

Giving loans with "NO-MONEY DOWN" to people with bad credit histories was a "STUPID" idea...

SUB-PRIME became PRIME...go figure!...this phenomenon started in the 90's.

California home prices will never be the same. What we see here is very similar to the Texas's bust of the 80's.

[Ace]

PugTV asked 'Just curious ... when people walked away from their home loan obligations, did the bank go after the former homeowner's assets (besides repossessing the house)? eg. Roth accounts, savings / investment accounts etc ...'

In CA, the bank can't go after you if you loan was a purchase money loan (a loan to buy a house). If you refinance and then get foreclosed upon, the bank can get a deficiency judgment recorded against the borrower. That judgement will be attached to every property in the future until it is paid.

[Patrice]

I understand why people walk away I sold my home of 15 years in 2003. House cost us $84,000 we sold for 250,000 cleared $141,000 after closing cost. My wive and I are high school educated with decent job we never want more than a decent home for our family. We lived in working class neighborhood and we where proud of it. But when the market took of we did get foolish. I think everyone want a really nice house but we knew everyone does not live on the top of the hill. However this was our chance for a better nice house we though in hindsight we did not do better. We had a nice fix FHA loan that was less than $1200 with PTI with 15 year to go. But we did sale I paid all of our debt off and we purchased this new home at the same time. Now where I screwed up is we put $86,000 down on our new home even though the lender told me no way just keep that and let me get you this 80/20 loan lol I wish I wish I had listen to him. Will we said no and we paid the $76.000 DP and 10,000 closing cost now we even more screwed everything in the area has drop by 60,000/100,000 in terms of what is actual being sold. There is also very little being sold only two home in last 9 month have sold with about 10 that neighbor had for sale signs up but withdrew after months of no activity.. Now I can afford my payment but at 55 I am still no better than a renter because there is no equity and will not be for years to come. I think the next pool of buyers has all ready dry up in this last housing bubble. Unless we think the raising immigrant pool is larger enough and able to get 300k/500k with real W2 verify income and 680 FICO score to qualify for these mortgage. I can't see how we sell all the baby boomer homes coming on market plus with the builder excess inventory of new homes. I mean how do you increase home values, if we can't maintain 2004 home values. If you look at historical value ie: income verse mortgage cost they where on track up until 1999. Now the median household income in California for a family of four is $74,800 which is not enough to purchase the median home price of $450,000 (2004). With the number of homes on the market at current pricing level there are not enough buyers to bring this market back in the near future maybe 4/8 years maybe. So yes it is wrong to not fulfill you obligation and yes we who play by the rules are getting screwed as well with declining equity. But if a young couple is facing exploding mortgage cost because they purchase way more home than they ought to. Maybe because they where stupid and or greed what would you have them do. Pay until they went bankrupt so that we can say they did the honorable thing and stuck it out. No if they have to walk away so be it. I knew what I was doing and still we will lose money on this house but it is just paper money. If we are not able to sell in 7 year and get what we put in when I plan on retiring I will walk away as well. People must do what best for them not for you morale amen.

[Long time listener . . .]

For those placing the blame squarely on CondoBlue for walking away, it should be remembered that these are collateralized loans. The bank agreed to loan CondoBlue money for the purchase of his home, and in order to secure that loan, his new home wasoffered as collateral to the bank. In other words, the value of the loan shouldn't be greater than the value of the collateral, and in fact, should be less. In non-recourse states like California, the bank is limited to the agreed upon collateral should the homeowner default (over simplification). The reason for this rule is to incentivize banks to properly value property before agreeing to the loan. While CondoBlue may have some fault in taking on more than he can handle, the banks are just as much at fault for over-valuing his home so that his mortgage would be more valuable on the secondary market. The loan originators wanted to make this loan just as bad as CondoBlue wanted a new home (maybe even more).

[RichW]

Fredke, Maggie, Sheila, I couldn't agree more. Industry and government should bear responsibility just as individuals should. It appears we are a minority though. If the majority agreed with us, then people like Bush or Clinton would never had been president, majority shareholders would be booting corrupt CEO's and board members out of corporations, and we would have elected better members of Congress so they could pass sensible laws.

[Maggie Knowles]

JohnnyB wrote:

"We’ve got these cheating scum bag CEO’s walking away from their devastated investment banks, mortgage lenders and related industry financial institutions with tens (& hundreds) of millions in personal gains and with huge cuts going to industry “insiders” and to the tune of hundreds of billions (TRILLIONS) in total dollars. That’s a mass distribution of wealth to the upper 1% the likes of which we have not experienced and are still coming to grips with. And, we’re selling off core assets to the Saudi’s and Chinese (among other so called “sovereign” wealth and “private” equity funds). It literally goes on and on… and it’s all really bad for America and the homeownership dream, and devastating to our middle class."

All I can think is "MISSION ACCOMPLISHED"...

[Joseph...The Real Estate Guy]

In 100% agreement with RichW!

I think you hit the nail on the head!

Well done!

[Maggie Knowles]

It seems we will continue to support an economic system that allows some to take advantage of others, to profit at the expense of others, with no negative consequences. As the following article demonstrates:

http://www.latimes.com/business/la-fi-scotus
23jan23,1,5100297.story?coll=la-headlines-business

High court rejects investors' suit against Enron bankers
By David G. Savage, Los Angeles Times Staff Writer
January 23, 2008
WASHINGTON -- The Supreme Court on Tuesday rejected a lawsuit from Enron Corp. investors who sought to recover more than $30 billion from Wall Street investment bankers who they alleged had schemed with the failed Houston energy trading firm.

Without comment, the justices dismissed an appeal from pension and investment funds, including the University of California. The funds had argued that all the key players in the Enron debacle should be held liable for their losses.

In a separate action Tuesday, the justices overturned a ruling that would have allowed the California State Teachers' Retirement System to sue major companies, including Avis and AOL, on allegations that they schemed with Homestore Inc. to inflate its financial results.

The pair of decisions follows last week's major ruling that sharply limited who can be held liable for a massive stock fraud. In that 5-3 decision, the high court said lawsuits for securities fraud could extend only to the company that allegedly fooled its investors, not to bankers and vendors alleged to have participated in the scheme.

(click the link above for the entire article.)

[Tommy]

Debt obligation is for fools, which is why W. Bush Americans are so keen to enforce it. The banks loaned money for homes not worth the selling price. The banks did this knowingly because they made great profits on the fees charged and knew they were going to securitize the bad loan and sell it to another sucker. People upside down on their mortgage debt should become just like the bankers who sold them the loans, and let their collateralized home go back to the lender instead of overpaying for a place to live. They will save a lot of money.

[Hula Girl]

Stupid Question: Is there any difference between walking away and being foreclosed? Which is more damaging to credit?

Seems like it's all one big race to the door.

[alvin]

take five,

a legal obligation is not based upon how you "feel" - it is predicated on abiding by the terms of a contract and how the courts can and will enforce it.

i really don't have an opinion one way or the other as to what is the "right" thing for underwater homeowners to do. There are way too many variables to even begin to suggest some kind of one-size-fits-all solution, and for many walking away very well might be the best option. but i would definitely encourage anyone who is thinking about it to double check with an attorney as to what the legal ramifications for their specific situation might be, regardless of who else down the food chain may or may not be living up to their end of the bargain - legal or otherwise.

[Responsible Adult]

>My wive and I are high school educated with decent job ...

Doesn't that just say it all?

Nor did the rest of the post get any better, grammatically speaking.

The truly irritating thing is that the people who behaved responsibly are once again getting [messed with]. My better half and I earn roughly $150,000 annually between us, but can't begin to afford anything where we can both feel safe coming home late at night and also have a small backyard for our dog. Since giving away the dog is not an option, we continue to rent and save our pennies... and watch the ethically-challenged next-door neighbor walk away with the moon. I'm not surprised, really; it's just a microcosm of national politics. But let's not go there...

[TakeFive]

Alvin wrote:

“take five,
a legal obligation is not based upon how you "feel" - it is predicated on abiding by the terms of a contract and how the courts can and will enforce it.”

Where did I say anything about “feelings”?

But consider this: in business, contracts are broken all the time. Sometimes there’s no cost, sometimes the cost is great. A prepayment penalty is an example of such a cost for early contract termination. Or see what it costs you to cancel your cell phone contract.

The point is that you look at the cost of abiding by the terms of the contract vs. the cost to get out of it and make a rational decision. If you’re struggling as a debt slave, fighting with your spouse over money and wrecking your family’s home life, it may be better to get out and live with the consequences.

Many here would argue that the borrower has a moral obligation to repay the loan in full. Fair enough. But do you believe lenders ponder on the moral implications before foreclosing on a borrower? Not likely. It’s a strait-up business calculation.

[patice]

My wive and I are high school educated with decent job ...

Doesn't that just say it all?

Nor did the rest of the post get any better, grammatically speaking.

The truly irritating thing is that the people who behaved responsibly are once again getting [messed with]. My better half and I earn roughly $150,000 annually between us, but can't begin to afford anything where we can both feel safe coming home late at night and also have a small backyard for our dog. Since giving away the dog is not an option, we continue to rent and save our pennies... and watch the ethically-challenged next-door neighbor walk away with the moon. I'm not surprised, really; it's just a microcosm of national politics. But let's not go there...

OK so what is the rub you make these statements as if they are code words for we are uneducated and low wage earner or minority? Will we both have decent job I'm conductor for larger railroad. My wife is a Sargent for the state of California Dept of Corrections if you look that salary up you will see we both make nearly 6 figure every year, for pretty much the last 29 years. I am proud of what we done with our pitiful high school education. Four kid out of the house two with degrees the other two with good job one with the railroad with me. Yes we made a mistake with the loan but we are not crying or giving up. Our house is a custom built 3100 sq.ft home setting on a half acre of land (my dog can run until he gets tried) in Apple Valley. The minority couple next door have a custom built home which is even larger and cost twice as much ours. They purchase the land 15 years ago and built the home 9 years ago and really wonderful dark skin people to boot. We can easily make our payment and we will still retire with a very larger pension and 401k. And you no what since you are so afraid to live among the savages your stuck renting a small apartment with you 150k income wow, Pardon my grammar if there any mistakes in the post....Oh yes do you like Menduo

[Robert]

It's just this simple: home prices have FAR exceeded the typical benchmark of 3x income.

Average home price in Santa Monica is something like $1.2M. I laugh every time I write that figure. It's insane!

Go to the City of Santa Monica and get the statistics. Is the average household income there $400K? NO! NOT EVEN CLOSE. Something like $180K I believe.

So in general, these little crackerbox homes (1000 sq ft, 2 BDR, 2 BATH) should be more like $550K. They will hit that price, maybe late 2009, early 2010. This insane run-up is about to come crashing down.

I've been responsible, sitting on the sidelines, renting, waiting patiently to buy. My time will come. The irresponsible "victims" will suffer. I don't relish in that fact, but I in no way feel compassion either. They're the ones who drove up house prices and made it impossible for me to buy.

When a dog makes a mistake, you roll up a newspaper and whack it. BAD DOG! Guess what? The dog doesn't poop on the carpet after that. Well, subprime borrowers in a house you don't deserve & can't afford, watch out, the newspaper is being rolled up as we speak.

[Thunder]

@patice

I find it very difficult to take anyone seriously who can't spell "know" or capitalize "California" correctly. It puts the lie to the idea that your high school education and wonderful grammar and spelling is netting you a great six figure income and everything in your life is just as peachy as you say it is.

Everybody thinks they are better than everyone else, and that they have to prove it on the internet, with paragraphs of bullshit.