A new type of property is adding to neighborhood blight: the bank walkaway.
Research to be released Thursday, the first of its kind locally, identifies 1,896 “red flag” homes in Chicago ”” most of them are in distressed African-American neighborhoods ”” that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.
Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can’t recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren’t completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.
So, let’s not hear anymore silly talk about how it’s immoral for mortgage holders to walk away from an upside down mortgage. It’s just a business decision of the same sort that the banks themselves make all the time. That is the ethics of finance in the banking world and we can see it on display in this article. Default risks are calculated into the interest rates charged and the borrowers pay that increased cost while they pay the lenders. The lenders also required PMI in addition to the higher interest rates to cover the risks. So, if banks can just walk away…EVERYBODY can just walk away. There is no “moral hazard” anymore, because we will just take taxpayer money and bail out those that routinely commit fraud.
Nothing to see here…move along.
Surely they could sell it for something? $1000? Salvage parts? Surely something is better than nothing.
Archer
In most of these cases the bank doesn’t want to foreclose because the costs will exceed any potential gain. Foreclosure and eviction processes are often long and expensive. Also once the bank takes over the property, it is on the hook for taxes and any expenses that may be mandated by the city for property upkeep.
Many of these houses are so dilapidated or in such bad neighborhoods that the bank could not give them away.
#1 could not agree with you more, I am tired of being lectured to about the responsibilities of a mortgage when banks and businesses walk away from theirs all the time.
When a borrower walks away from a mortgage, they owe money to the bank and are breaking their promise to pay that money back. There is a moral side to that decision, they are breaking their word. So it is legitimate to look critically on those who could make their payments but choose not to. (Of course many or most cannot make their payments, so wouldn’t be subject to that criticism.)
Here the bank isn’t “walking away from a mortgage” they are walking away from a house. The bank doesn’t owe anyone any money in this transaction. In fact, they are owed money by the home-owner. They are making a business decision of the form, “We can sell this house for $5000. But it will cost us $10,000 to bring it up to code, pay the back taxes and etc. Its not worth it.”
So I don’t see a basis for moral criticism of a bank making that kind of decision. When I got an estimate that my $1000 car would take $2500 to fix, I scrapped it and bought a new one. I wasn’t morally deficient for making that call.
No 5,
Yes, but I imagine you didn’t just haul your car to some poor neighborhood and dump it in someone’s front yard for them to have to clean up and deal with. Maybe it is not fair to expect the banks to do something with these houses because they ended up with a raw deal, but then again, banks are supported by the federal government and all banks have to operate for the common good.
Leaving a poor neighborhood even poorer is bad stewardship to say the least. Most bankers have the luxury of going home to a neighborhood that isn’t blighted or that run the risk of an abandoned house next door being taken over as a crack house or who knows what.
All this is aside from the fact that the bank involved might be morally implications in floating loans to people they know couldn’t afford them to begin with, particularly if they were involved in the exotic loan schemes that caused the whole housing meltdown to occur to begin with. That’s called usury, and that is morally wrong.
Say now…didn’t the banks require these properties to be appraised? Didn’t these appraisals establish the value of the properties and the amounts the bank would lend? And didn’t the banks sell these mortgages almost INSTANTLY to third parties who then sold them to someone else who bundeled them and sold them to someone else that bundled them with even more….etc. And weren’t many if not all of these banks actions done fraudulently by robo-signers? And weren’t the banks the ones that were offering these loans without proof of income? And didn’t they risk their investor’s and depositor’s money without doing due dilligence? And didn’t they refuse to renegotiate the terms of the loans when desperate people asked them? And didn’t they raise their credit card rates without cause, squeezing the turnips even harder? And didn’t these banks lobby to be exempt from state usury laws by having at least one office in another state…allowing them to go from a maximum interest rate of 10% to 23.99%?
You know #5, I might just barely possibly agree with you if the banks in question were not guilty of usury, had not committed any fraud in the paperwork for these houses, had done due dilligence on behalf of their investor’s and depositor’s, and actually still have the paper on these properties (they didn’t sell the mortgages). If all of that is true, the yes you are right. It would be wrong to steal from them by willfully not paying a mortgage. But if these banks were practicing usury, committing fraud, and were guilty of malfeasance in performing due diligence…they are merely criminal enterprises and I believe that they are owed NOTHING.
BTW, if the properties are NOW worth nothing or not enough to bother to foreclose on…how could the mortgages on these properties possibly have been properly vetted? You can’t have on the one hand a mortgage for a property for say $100K, and turn around and decide it isn’t worth it to foreclose because they would never recoup the $100K by re-sale. If the property was intrinsically worthless…why did they loan money on it? How could they collect all those fees and send appraisers to value the property so high if it wasn’t worth the cost of the taxes? Somebody was lying to the purchasers about the value of that property, eh? Somebody was willing to soak the purchasers of that property for the next 30 years and have them pay 3 times that fraudulently established “value” for what is worthless or even a liability.
The robo-signers, the folks that hired and managed them, and everyone up the chain in the bank that was aware should be sitting behind bars…right now. Those that fraudulently appraised these properties at fantasticly high values should be in jail…right now. Those that bundled these mortgages that had no supporting documentation of the ability to pay and sold them, should be in jail…right now. Those that rated those bundled bad mortgages as AAA should be in jail…right now. And all those folks that should be in jail right now should fall on their hands and knees before a compasisionate God and thank Him that they do not live in China; because if they lived in China, they would have already been shot for defrauding the people and the state of Billions of dollars.
Raising taxes in ILL 66% is the obvious answer…right….
Why, yes, we simply need more tax revenues. Just ask Harry Reid, Nancy Pelosi, and Barry. He believes that they “earn enough” on Wall Street. I am sure Barry will want to donate his book earnings to charity, Christian charity.
Home values were not fraudulently established. On any given day a home value can be high or low. The lender is in the business of earning money. This will all get worse before it gets better, 2011 is predicted to be the worst year yet.
[blockquote]The lender is in the business of earning money. [/blockquote] Fraud and usurey aren’t business, they are crimes and sins.
Spoo! I am prone to typos when I am angry.
“usury”