Moral Responsibility

When stories about people simply walking away from mortgages when their house went "underwater", i.e. they owed more than the house was worth, there was a collective gasp and a lot of tut-tutting about "moral responsibility". Well... it ends up the rich are the ones who feel the lease "moral responsibility" while poorer folks keep trying to soldier on with their responsibilities. The following is from an article in the NY Times by David Streitfeld:

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

The joke is that the poor always left holding the short end of the stick. The argument about "moral responsibility" made no sense because:

• Businesses have a long history of defaulting when their debt is bigger than the asset value. They leave it to the creditor to absorb the loss and nobody talks about the "moral backruptcy" of businessmen. This is "just business" and it has nothing to do with "morality".


• In most cases, the poor got stuck with houses they couldn't afford because they were given the "nudge, nudge, wink, wink" treatment by realtors and brokers telling them to no worry about the rules, go for the NINJA loan, don't worry because prices always go up.


• The rich are rich because they have no morals. They are always looking out for #1. But they like to claim morality and they certainly want to handcuff everybody else into a game of morality so that it will be easier to pick their pockets.


• The whole point of US states having "non-recourse" loans is the recognition that people who are underwater need to get out from under their debts by simply walking away scott free, i.e. the law is set up to recognize the right to "walk away".

Here is the reality:

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

The rich have spoken: you have no moral obligation, you live in a world of dog-eat-dog, and if you don't stick it to your neighbor before he sticks it to you, you are the sucker. Welcome to the brave new world of "high class" America!