I worked for an airline…my first (and last) day at work at American Airlines was 9/11.

After those devastating attacks, the airlines pleaded for help. But people forget that the internet bubble had popped and business travel had dried up. The airlines were in bad financial shape before the attacks and it was getting worse.

The attacks were a perfect excuse for them to plead for a bailout.

I knew that my job depended on this, but I was adamantly opposed to bailing out the airlines. Why should we the people pay for the bad business practices of the airlines? We bailed them out anyway…and look where it got them. They’re still losing money.

What about the automakers? Bloated union contracts and poor products that couldn’t compete in the market. Let them fail? Nope, US to the rescue.

But God forbid you make a mistake or fall on bad times. They’ll come down on you like a ton of bricks. Time for us to do simply what’s been done to us forever.

Wall Street banks from Goldman Sachs to the one down the street were bailed out by the U.S. taxpayer when they made bad bets. And guess what? They made record profits with our money, borrowed money. Any of you see any of that back yet? Nope. Just the opposite…you’re going to see your taxes go up while the bankers pay out bonuses more than our mortgages.

For those of you ‘noble’ folks on here, can you tell me what the difference between them walking away from their contractual obligations (AIG for example) and putting it on the government (us) and a homeowner walking away from their obligation and putting it back on the bank?

There is no difference. Actually there is one. We actually feel a tinge of remorse…banks on the other hand jump at the chance to dump their bad decisions on others.

I work in the financial sector and know this first hand and that’s why I will walk away from my home next month. It was a bad trade. They can have the keys back, I’ve paid rent for the past 4 years.

I warned anyone who would listen that bailing out the financial sector would create a “moral hazard” but the government did it anyway. There’s a famous saying on Wall Street that says “capitalism without bankruptcy is like Christianity without hell.” The government has made the decision that certain institutions are too big too fail.

Well guess what? I’ve made the decision that my family is too big to fail and I’m not going to throw my money out the window when I could deploy that capital elsewhere.

You people need to start thinking like a bank and shareholders and not like people. It’ll make your life a lot easier, along with many of your financial decisions.

Cheers,

Whiz

When I purchased my truck a few years ago I financed through the dealership. I then recieved an offer from one of my credit cards, for 2.99% for the life of the loan. I thought that was a great opportunity to save some money and still pay off the debt. What I did not realize is that the credit card companies are virtually free to change terms on you at their whim. I mistakenly thought that as long as I paid on time every month I would be okay. Wrong. The credit card company CHASE, decided they did not like me having such low interest anymore so instead they more than doubled my minimum payement from 2% to 5% (went from $280 a month to $700). Although I had been paying more than the minimum, I could not afford the new minimum. When I called the company they told me the only options I had was to pay off the 12K left, or to agree to new terms. Since I could not pay it off, I was basically forced to a new rate of 8.5%. So much for the morals of banks…

I had to relocate about a year ago for work. We tried to sell our home but did not even have anyone look at it. We have it rented but are losing about $800 a month. I am going to try one more time to sell it this spring. If that fails I have no qualms about walking away. In this situation you have to think about yourself and your family and what is the best decision for you. It is a business deal, and I learned the hard way that banks don’t care their contracts, if they can break their deals they can and do. If this was about morals, then the banks would have to have morals too. They don’t.

Choosing to strategically foreclose is about doing what is best for the owner and their family. In my book taking care of your family is the higher moral ground than throwing money in a hole. But this is business and you know the saying don’t take it personal, its only business.

Check out this video: http://immoralhazard.housingstorm.com/2010/02/08/more-reasons-to-walk-away-indymacs-slap-in-our-face/

PS: Get a life. This is not a moral decision it’s a business decision. End of story!

These people either must become familiar with a basic rule of finance called the sunk cost, or they will truly fail where it matters, by being bled white and saddled with a house that was and will always be worth less than what was paid. In continuing to pay with hopes of recouping lost equity all you do is rob yourself and your family of the money that could otherwise go to buy a better life, that is, will your kids go to community college and a second rate state university rather than a first rate education because you had to sacrifice their future to keep paying for a house that is not ever going to be anything but an albatross around your neck? Good luck because you are now gambling that the worst is over when in fact the worst is yet to come, in my opinion, and those kids might not get to go to college at all.

Even if like me you do not have kids, what about the pure lowering of the stress level in your life? That is a real quality of life issue. Longevity depends upon it.

Sunk costs are unrecoverable past expenditures. These should not normally be taken into account when determining whether to continue a project or abandon it, because they cannot be recovered either way. It is a common instinct to count them, however.

Most people will say to themselves that with luck they will see price appreciate to the value they paid within ten or so years thus making their investment good, but for most who bought in the top of the bubble their houses will never appreciate to that level in their lifetime. And when you make a $2,300 a month payment or whatever it is, while your new neighbors pay 500, which is happening in my neighborhood today, you also have to count the opportunity cost of the difference and multiply by a time and interest factor which is what we call compounding. Time value of money is so poorly understood in America today it is no wonder some people simply dispose of all income the moment they get it.

I am paying $1,000 per month to live in a house that is identical to the one next door, the lady that bought that place got it for $40,000 less and 2 points lower in interest, she bought only 7 months after I did. Her payments are half mine, and I know people who bought here in 2006 paying well over two grand a month. That particular family has two little girls and their college fund has now been spent and the family is still going to lose the house in foreclosure, if you ask me that is the immoral position to take, to rob those kids of their future in order to grease the palms of some greedy bankers who depend on your gullibility.

My decision as of June is to walk away, I have a degree in finance (retired now) and so it is hard for me to admit that I made a mistake, I thought I was buying at the right time, that prices once halved could go little or no lower, I was wrong. At least my decision making process is based in thought and knowledge, not emotion and fear, if I can be wrong then anyone can be and so you should let it go and not be so hard on yourself, regrets are counter productive in this discussion, they prevent you from facing the real decisions. But this is way too important to leave to financially illiterate guesswork and plain old luck because housing is a huge expense.

For the foreseeable future housing is not a way to “make money,” or even a way to save, but more like a gigantic tax, you pay it voluntarily or you walk away and try again later when the markets stabilize at a much lower price level.

How much lower? Nobody knows for sure, but I had waited many years to buy in part because given an average household income in the USA of about $43,000 per year, even if you almost double that for a couple with two such incomes, this means the average house payment should be around $1,200. At 5% for 30 years we are talking about at most a $140,000 house, yet America in most major metro areas had gotten to the point where people with that kind of income were spending between half a million and a million bucks for their houses, and that all has to be unwound, it will take a long time. I waited because either incomes had to radically go up to justify such prices, or prices had to radically drop. There was no in between. Still is not.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1494467

Good luck all.

“Sixteen tons, and whaddya get, another day older and deeper in debt. Saint Peter dontcha call me because I can’t go, I owe my soul to the company store”–Tennessee Ernie Ford

Certainly agents, mortgage brokers, homebuilders, and all of their associations will be in favor of anything to boost transactions, regardless of whether or not the idea is economically or morally sound. (tax credits anyone?)

“…money you won’t repay” is a bit harsh.

I doubt that a pool of these borrowers would be more likely to default on a new loan than the rest of the public. Especially FHA borrowers.

The real issue isn’t whether they should be punished: they should. The question is how. Blacklisting? Charge them higher rates? Throw rocks at them?

If we had a functioning market, some lender would step in and find ways to work with the “better” defaulters. Because we only have one lender – Uncle Sam – they make all the rules.

Borrowers who default face consequences: they can’t borrow money again at attractive rates for a long time.

Banks get billions of taxpayer-dollars handed to them by our Government.

If we are going to be upset about ignoring moral hazard, let’s focus our anger towards the banks. The borrowers get punished enough.