Topic: The Banksters
Are You Morally Obliged to Pay Your Mortgage?
With a quarter of American mortgages "underwater", many people are considering walking away from their mortgage. Are there any "moral" consequences?
by Gene DeNardo
(libertarian)
Wednesday, June 29, 2011
About twenty five percent of all home mortgages in Americaare presently underwater. The term underwater refers to the condition in which a homeowner {probably the wrong word to use here} owes more money to the bank than the house is worth. Until the mortgage is paid down to the point at which the mortgage debt equals the market value, the homeowner is guaranteed that every mortgage dollar is a dollar he will never see again, unless another round of housing value inflation begins.
With the outlook of housing inflation commencing being pushed further out into the future, many underwater mortgage holders wonder if they shouldnt just walk away from their mortgage contract before it takes them from their house to the poor house. Yet, many feel morally obliged to continue paying their hard earned money to the banks, regardless of the unwillingness of most all banks to adjust their mortgage value to real world values.
To explore whether there is truly any moral obligation, we must first understand the fundamentals of the home mortgage.
The most important consideration is the type of debt. The home mortgage is secured debt. The house itself is concrete security for the loan. In fact, the mortgage contract in essence states that the homebuyer will fulfill an extended period of payments, at the end of which he will then own the house.
For all practical purposes, other than any cost such as property taxes or maintenance, it is the bank that owns the house. This is reinforced by the ridiculous legalities that guarantee banks the right to automatically confiscate any equity that the homebuyer might have at the time of foreclosure.
The mortgage agreement is nothing but a sale agreement for a good {the house} that allows the purchaser use of the good during the payment period. If the payments stop for any reason, the bank keeps the proceeds of all payments and fees and gets the good back. The bank can then initiate a new agreement with another customer.
The down payment insures that the bank will never take a loss, even if the payments stop immediately. The bank can ask any ratio of down payment it wishes, deciding whether increased security is a priority or less security and more new customers is a better goal. No matter, the homebuyer has no say in the size of the down payment, they must be able to meet the requirements of the banks or go elsewhere.
Perhaps, the only necessary deciding factor in the moral question is the fundamental mechanics of the mortgage funding system itself. Although the bank collects interest that can double or triple the original cost of the house, the bank itself does little or nothing to produce the value in the first place.
Mortgages are funded in two ways: either by bank depositors, who are mortgage holders or renters themselves or by the legal fiction that allows banks to use a fraction of the depositor's money to create new money. This is based on the legalized deception that allows banks to promise that the depositor's money is in the bank while 90 percent of it is out making the banks interest, often funding a home mortgage.
Morality is a system of conduct or behavior based on the notion of good and bad or right and wrong. Contracts are based on a promise to perform some action in the future.
Even without basing our decision on the fraudulent and deceptive nature of the financial system, which certainly would be a valid basis for a decision, a contract that provides ample remedy for any breach of that same contract {down payment, confiscation of equity, guaranteed interest, return of security} cannot also enforce moral commitment.
The mortgage contract is a business transaction based on the purchase and use of a good through the future {which none of us can foresee}. There are no inherent moral obligations other than the actions and remedies outlined in the same contract. It is solely a business transaction.
As in any business agreement, all parties should act in their own interest. Banks, with the help of the government, certainly do so. There is no reason the mortgage holder shouldnt do likewise.
Reposted from HERE.
