Monday, November 30, 2009
South Bay-Beach Cities: Who pays when homeowners walk away....
Yesterday there was a rather interesting article in the LA Times written by Brent T Wright, a law school professor at the University of Arizona. Professor Wright is advocating that homeowners should just walk away from their homes if they owe more then the current value of the home. He is not talking about people who have lost their jobs or had major financial problems. He is suggesting that consumers defaulting on a loan they can pay is not wrong but simply acting in your own self interest. Phooey!
Not only is the professor advocating that folks walk away, he also thinks they should buy big ticket items like a new car or even another home prior to defaulting. He finds this to be prudent money management. I think he is just one more jerk who thinks it's OK to stick it to the taxpayer. That's right folks it isn't the banks who pay the price when this happens... it is you and me... the taxpayer who ultimately takes the hit.
I'm guessing it has escaped the good professor's attention that banks rarely pay for their mistakes. Rather it is the consumer who gets hit every time someone defaults on loan. We are the ones ultimately paying the costs for TARP and to keep Fannie and Freddie solvent. It is the consumer who pays the price when banks lose money.
I know of a couple of homes in the Beach Cities where the former owners did as the professor has suggested. They borrowed as much as they could, bought new toys and new homes out of the area and then stopped making payments to the bank. The lenders " lost" hundred of thousands of dollars on these properties but most of the loss will be made up by the bank charging higher fees on everything from accessing an ATM machine to rates for new loans .. oh and paying very low interest rates for folks who are trying to put a little aside for a rainy day.
There are banks that go under, but they usually get picked up at bargain price by a new company and are often financed by the Federal government... otherwise known as you and me. So while I don't begrudge Professor Wright his opinion.... I would feel far more comfortable if he was picking up the tab with his own money rather then mine when he tells folks it is OK skip out on their obligations.