Are you morally obligated to repay a loan that you take?[W:461]

Papa bull said:

Then I have to call bull rap on claims that you would be admonished if default rates weren't high enough.

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there was no admonishment. there was course correction, such that those loans we were on the fence about would be given a 'yes' instead of a 'no'; that was because our low default rate indicated we had historically been too conservative in our creditworthiness evauations

Loan defaults were the fuel for the economic crisis and people that think like you made it all possible.

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no. loan defaults were the RESULT of poor financial management
it was the mismanagement by the financial sector and weak governmental oversight that LED to the defaults

You gamble on a home purchase figuring it will always go up in value.

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not the approach of an astute person
there is always the chance for market corrections, even to the point that values may deflate instead of increase
but one must be alert to look for signs of them
as a real property appraiser prior to entering government service, i was better positioned than many, such as yourself, to gauge the economic winds

You find out you're wrong.

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no. i correctly anticipated the recession and took steps to secure my portfolio and that of my employer

You screwed up and make everyone else eat your mistake.

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no. i did not screw up. when the financial game of musical chairs ended, i was sitting down
it was those financial neophytes such as yourself who were left to eat the accrued losses

That's why we ended up with the economic crisis.

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we ended up in economic crisis because of limited financial understanding and weak governmental oversight of the financial industry

Thanks to all the people that think like you.

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i didn't get hurt. in fact, i got well. but it was people like you who were so afraid they were going to miss the rising financial tide that their greed caused them to select bad investments

You must be proud.

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i am
that i was able to forecast what was coming and adequately secured myself and my family. i also attempted to better secure my employer, one i had only recently turned around after an episode of embezzlement. the new CEO ignored my admonitions because, like others of you, he was afraid he was going to miss out on profits if we significantly adjusted our portfolio. i wrote a memo explaining the basis of my concerns, encouraging him to discuss my assessments with the board before i departed. he opted not to, and was soon without a job after the crash, the board having learned that he chose to keep them in the dark about his decision

iliveonramen said:

Okay...the fact you're frightened is interesting.

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One only has to use thinking skills to understand.

It's like saying cancer is no different than a pimple because they are both treated with medicine.

He has minimized the seriousness of defaulting on mortgages, and some idiots will read it and say "Eh, no big deal....it's just like me not picking up Sally at preschool at 3:00 instead of 4:30". Unreal.

tres borrachos said:

Paying fees required when you break a lease is not the same thing as defaulting on a mortgage. You paid your obligation.

I don't subscribe to the idea that there is morality in lending, but technically this statement isn't quite accurate:

If you entered into the contract in good faith, honestly answered the questions, told the truth about your earnings, etc. then you've fulfilled your moral obligation.


If you default on your loan because you made bad business decisions or were not a good steward of your own money or you made bad personal decisions, then you haven't fulfilled your "moral obligation" (whatever exactly that may be by definition) just because you were honest in the application process.

I think if I was going to attempt to apply any morality to lending it would be to remind people that provisions for bad loans, and charge offs, and repossessions, and foreclosures, etc. end up costing everyone. Those moneys don't just get written off with a shrug of the shoulders. We all end up paying.

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That's the thing. When someone decides that they aren't going to accept the loss in value of the home they purchased and walk out to leave the bank to try to collect, what happens is that the bank typically will only get some of the money back. There is a loss involved and this is a loss INCURRED by the borrower which he then THRUSTS upon the lender. Instead of losing his own money, the homeowner transfers his loss to the owner of the mortgage. He makes OTHERS pay for HIS mistake or carelessness. The whole country paid for these mortgage defaults. People complaining that they haven't had any raises because of the recession... people who lost their jobs because of the recession.... people who's families suffered because of the recession.... 401K's that went into the crapper.... Lots of people ended up paying because these people were deadbeats and being a deadbeat and sticking other people with your bills certainly deserves to be called "immoral".

JasperL said:

I signed a promise to pay AND that promise (the loan document) contemplates default and provides the lender with legally enforceable remedies in case of default. What I agreed to was those terms. Nothing more.

I'm not sure what's hard about this - the lender has an obligation to shareholders to "do whatever suits it best" in that transaction. Why should I be bound by a higher "moral" standard? Answer is I'm not.

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The fact that there are enforceable remedies if you default does not make the promissory note anything BUT a promise to pay. The fact that the police will go after you if you rob a liquor store isn't an unspoken agreement that it's OK to rob the liquor store. The fact that collectors come after you if you don't pay a loan isn't an unspoken agreement that it's OK not to pay back the money you borrow.

The lender is obliged to do precisely what it says it will do in the contract. And the lender actually DOES. If the lender makes good on it's contractual obligation but you do not, the lender is more moral than you are and pretending that there's any other way to look at it is blatant selfing.

Papa bull said:

That's the thing. When someone decides that they aren't going to accept the loss in value of the home they purchased and walk out to leave the bank to try to collect, what happens is that the bank typically will only get some of the money back. There is a loss involved and this is a loss INCURRED by the borrower which he then THRUSTS upon the lender. Instead of losing his own money, the homeowner transfers his loss to the owner of the mortgage. He makes OTHERS pay for HIS mistake or carelessness. The whole country paid for these mortgage defaults. People complaining that they haven't had any raises because of the recession... people who lost their jobs because of the recession.... people who's families suffered because of the recession.... 401K's that went into the crapper.... Lots of people ended up paying because these people were deadbeats and being a deadbeat and sticking other people with your bills certainly deserves to be called "immoral".

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You are correct. People think that money charged off by their credit card company seems to disappear into the atmosphere. It doesn't. It gets passed on to the rest of the cardholders. Same thing with the mortgage defaults, and commercial loan defaults, and personal unsecured loan defaults, and so on.

Defaulting on a loan is a bad thing for everyone. It surprises me how many people in this thread seem to think it's no big deal. It is.

What people also don't realize is that it is very hard to get credit anymore as a consumer unless you have very good credit. People run into hardships - job losses, medical, kids issues, etc. that cause them to have a bump in their lives. That stays with you, no matter what the reasons. And because of the irresponsible borrowers, the standards that the lenders are expected to maintain have become much higher.

tres borrachos said:

You are correct. People think that money charged off by their credit card company seems to disappear into the atmosphere. It doesn't. It gets passed on to the rest of the cardholders. Same thing with the mortgage defaults, and commercial loan defaults, and personal unsecured loan defaults, and so on.

Defaulting on a loan is a bad thing for everyone. It surprises me how many people in this thread seem to think it's no big deal. It is.

What people also don't realize is that it is very hard to get credit anymore as a consumer unless you have very good credit. People run into hardships - job losses, medical, kids issues, etc. that cause them to have a bump in their lives. That stays with you, no matter what the reasons. And because of the irresponsible borrowers, the standards that the lenders are expected to maintain have become much higher.

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And the bitching about that has already started with Obama having already calling for relaxing lending standards. It's like he didn't learn a damned thing. Judging from this thread, about half the country didn't learn a damned thing.

tres borrachos said:

I don't subscribe to the idea that there is morality in lending, but technically this statement isn't quite accurate:

If you entered into the contract in good faith, honestly answered the questions, told the truth about your earnings, etc. then you've fulfilled your moral obligation.


If you default on your loan because you made bad business decisions or were not a good steward of your own money or you made bad personal decisions, then you haven't fulfilled your "moral obligation" (whatever exactly that may be by definition) just because you were honest in the application process.

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But what is "immoral" about bad business decisions? If your business fails, you're immoral, not a good person? Surely you don't believe that.

And the "good steward" obligation applies as well to the banks, which made a loan secured by the residence. If the borrower defaults (and they should expect some will, for all kinds of reasons) they've failed as good stewards if the security doesn't cover the loan losses.

I think if I was going to attempt to apply any morality to lending it would be to remind people that provisions for bad loans, and charge offs, and repossessions, and foreclosures, etc. end up costing everyone. Those moneys don't just get written off with a shrug of the shoulders. We all end up paying.

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I do agree with this to a point. If we all tomorrow decided that we'd strategically default, lenders would demand additional security, higher credit scores, whatever. But that's a group decision - if we all paid back loans, as a group, then perhaps our loans would be cheaper. Still not a moral decision - it's a decision grounded in self interest.

Papa bull said:

And the bitching about that has already started with Obama having already calling for relaxing lending standards. It's like he didn't learn a damned thing. Judging from this thread, about half the country didn't learn a damned thing.

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actually, no
the federal bank examiners are being too conservative in many instances
a bank with which i am well acquainted had a sterling loan portfolio when the great recession hit
did not want or need a dime of bailout money
yet the fed now looks at that bank's loans and disqualifies many from being disbursed, despite the bank's excellent history of loan origination

banks like citicorp need such hand holding/ass kicking by the fed
but all federally insured banks are being subjected to such unnecessary oversight
in many instances, and to the dismay of working capital needy small businesses, the fed has over-regulated the regional lenders when it should instead be working with the too-big-to-fail banks and their loan origination/portfolio management policies

JasperL said:

But what is "immoral" about bad business decisions? If your business fails, you're immoral, not a good person? Surely you don't believe that.

And the "good steward" obligation applies as well to the banks, which made a loan secured by the residence. If the borrower defaults (and they should expect some will, for all kinds of reasons) they've failed as good stewards if the security doesn't cover the loan losses.



I do agree with this to a point. If we all tomorrow decided that we'd strategically default, lenders would demand additional security, higher credit scores, whatever. But that's a group decision - if we all paid back loans, as a group, then perhaps our loans would be cheaper. Still not a moral decision - it's a decision grounded in self interest.

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What's immoral about bad business decisions? You'd have to know what the decision is to answer that. Yes, I know people whose businesses failed because of stupid, irresponsible business decisions they made. They were under obligation to their creditors.

Banks by law have to rotate appraisers so that they can't "rig" the appraisal amounts. Banks can't help it if the market value of a home declines. Banks always have provisions for loan losses and there is an expectation that some loans they make will default. That's always been part of lending. Risk management is a gigantic role in banking these days. Banks aren't stewards of collateral that's being pledged for loans though, no matter how you slice it. They are stewards of the deposit assets which are used for lending purposes.

Self interest doesn't just motivates businesses. I do things for self interest (or familial interest) too. You don't?

justabubba said:

actually, no
the federal bank examiners are being too conservative in many instances
a bank with which i am well acquainted had a sterling loan portfolio when the great recession hit
did not want or need a dime of bailout money
yet the fed now looks at that bank's loans and disqualifies many from being disbursed, despite the bank's excellent history of loan origination

banks like citicorp need such hand holding/ass kicking by the fed
but all federally insured banks are being subjected to such unnecessary oversight
in many instances, and to the dismay of working capital needy small businesses, the fed has over-regulated the regional lenders when it should instead be working with the too-big-to-fail banks and their loan origination/portfolio management policies

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Not in "many" instances. In almost all instances. That is an argument I have made repeatedly on this board that nobody ever seems to understand. I have said exactly that when debating about Elizabeth Warren and the CFPB, and Dodd-Frank. Community banks are subjected to the majority of the regulations that have been imposed on the top 5 lenders, and the community banks were not the ones who caused the crisis in the first place. As a result of that, the community banks - which exist to support the community, especially the small businesses in the community - are so heavily regulated that their credit requirements are close to being out of the reach of most of those same businesses that they supported for year. This also can easily be seen in the consumer side as well.

Re: Are you morally obligated to repay a loan that you take?

Declan said:

Not everyone will accept $1 at a time (and your late fees usually would put you so far in the hole doing that, you are better off being sent to collections anyways).

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I'm thinking borrowing from a person you know not, a financial institution.

Papa bull said:

I think we have a civic duty to help the poor and sick. Moral duties are to eschew wrong or "bad" acts. Immorality is "doing wrong". Apathy is "doing nothing". But I've said before and personally that I believe welfare is a necessary evil because letting people starve in the streets when we have the means to provide food would be immoral as a society.

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So, immorality is doing wrong, but morality isn't doing good? That is a kind of odd view conservatives often have. Not doing wrong is really only like 10% of the battle in my view. Like, I don't really think anybody can be patting themselves on the back just for not doing anything evil. Very few people really do much anything major wrong. The vast majority of suffering in the world isn't really caused by people doing something wrong so much as a lack of people doing good things.

tres borrachos said:

Paying fees required when you break a lease is not the same thing as defaulting on a mortgage. You paid your obligation.

I don't subscribe to the idea that there is morality in lending, but technically this statement isn't quite accurate:

If you entered into the contract in good faith, honestly answered the questions, told the truth about your earnings, etc. then you've fulfilled your moral obligation.


If you default on your loan because you made bad business decisions or were not a good steward of your own money or you made bad personal decisions, then you haven't fulfilled your "moral obligation" (whatever exactly that may be by definition) just because you were honest in the application process.

I think if I was going to attempt to apply any morality to lending it would be to remind people that provisions for bad loans, and charge offs, and repossessions, and foreclosures, etc. end up costing everyone. Those moneys don't just get written off with a shrug of the shoulders. We all end up paying.

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What if you default on your loan because the banks made a "bad business decision" by writing you a mortgage with payments you could never make? This was the case with most of the loans that defaulted during the bubble. Most States have laws prohibiting these loans that are called "predatory". The idea that the borrower is always at fault is preposterous. The banks were not honest in writing the loan and when a borrower questioned the ridiculously high payments that would "balloon" in 2 years, the brokers simply told them that you would refinance before that happened and get a even better rate because you would have equity. The truth is that in many cases the banks expected you to default and even made bets that paid off when you did.

iguanaman said:

What if you default on your loan because the banks made a "bad business decision" to lend you money with a loan with payments you could never make? This was the case with most of the loans that defaulted during the bubble. Most States have laws prohibiting these loans that are called "predatory". The idea that the borrower is always at fault is preposterous.

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c'mon damn it
the name of the game we are playing is 'blame the victim'
now, get with it

Re: Are you morally obligated to repay a loan that you take?

WCH said:

I'm thinking borrowing from a person you know not, a financial institution.

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Good luck getting them to accept your $1 a month payment and not do anything about it.

justabubba said:

c'mon damn it
the name of the game we are playing is 'blame the victim'
now, get with it

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Bingo. When you default. The bank is the victim. And that's who you want to blame. The victim.

iguanaman said:

What if you default on your loan because the banks made a "bad business decision" by writing you a mortgage with payments you could never make? This was the case with most of the loans that defaulted during the bubble. Most States have laws prohibiting these loans that are called "predatory". The idea that the borrower is always at fault is preposterous. The banks were not honest in writing the loan and when a borrower questioned the ridiculously high payments that would "balloon" in 2 years, the brokers simply told them that you would refinance before that happened and get a even better rate because you would have equity. The truth is that in many cases the banks expected you to default and even made bets that paid off when you did.

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I already addressed how the borrowers who took loans they couldn't repay and bought houses that they didn't belong in. Just because someone enables you to be stupid doesn't mean you should do it. Most people in this country did not do what those people did. Most of us knew not to use our houses as piggybanks. Predatory sounds great and it makes people feel better. And sorry, but anyone who signs a contract without reading and understanding is has made a very unwise decision.

By the way, mortgage brokers and bankers are not the same thing. Most brokers didn't sell their loans to banks. Countrywide wasn't a bank.

Re: Are you morally obligated to repay a loan that you take?

I would say yes.

Although I think in some cases it is immoral how high interest rates can be, and how money can be collected.

Personally I have avoided those extremes, but I have heard stories.


Perhaps I should say more accurately that "you are morally obligated to repay a loan you take if you took said loan fully or even mostly aware of how much you would have to pay back, including interest/fees."

Papa bull said:

Bingo. When you default. The bank is the victim. And that's who you want to blame. The victim.

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Any bank that lends money it doesn't have is sure as hell not the victim.

DifferentDrummr said:

Any bank that lends money it doesn't have is sure as hell not the victim.

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Your ignorance about the banking system might make it appear that a bank isn't on the hook for the money it lends...... But if that's how it appears to you, you should educate yourself.

tres borrachos said:

What's immoral about bad business decisions? You'd have to know what the decision is to answer that. Yes, I know people whose businesses failed because of stupid, irresponsible business decisions they made. They were under obligation to their creditors.

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Well, sure, business failure generally involves decisions in hindsight that are stupid and/or irresponsible, and my guess is almost every successful business owner has made many stupid and/or irresponsible decisions. It's part of the deal. I still don't see a moral element to that - they presumably didn't intend to make decisions that caused the business to fail.

Banks by law have to rotate appraisers so that they can't "rig" the appraisal amounts. Banks can't help it if the market value of a home declines. Banks always have provisions for loan losses and there is an expectation that some loans they make will default. That's always been part of lending. Risk management is a gigantic role in banking these days. Banks aren't stewards of collateral that's being pledged for loans though, no matter how you slice it. They are stewards of the deposit assets which are used for lending purposes.

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They're not stewards of collateral, but their role as lender makes them responsible for evaluating whether collateral is sufficient.

Self interest doesn't just motivates businesses. I do things for self interest (or familial interest) too. You don't?

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Of course - I was just drawing a distinction between a decision made for self interest, versus a moral choice.

Re: Are you morally obligated to repay a loan that you take?

Declan said:

Good luck getting them to accept your $1 a month payment and not do anything about it.

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It doesn't have to be a dollar but, I guarantee you the effort will be appreciated.

Papa bull said:

Your ignorance about the banking system might make it appear that a bank isn't on the hook for the money it lends...... But if that's how it appears to you, you should educate yourself.

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Your attempt to deflect the point I made is pathetic. Banks need to be treated like any other private, for-profit business.

DifferentDrummr said:

Your attempt to deflect the point I made is pathetic. Banks need to be treated like any other private, for-profit business.

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There's no deflection. Banks are on the hook for any loan they give you. If you don't repay the money, it comes out of their ass, so idiotic arguments that "it's not the bank's money" are the real pathetic diversions. It's simply not true and you sound like you're smart enough to know that, which makes it more likely an issue of honesty than ignorance.

Papa bull said:

And the bitching about that has already started with Obama having already calling for relaxing lending standards. It's like he didn't learn a damned thing. Judging from this thread, about half the country didn't learn a damned thing.

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It's no different than the idiotic health care system we have. There is little more irresponsible, dangerous, and bad for the economy than not carrying health insurance, yet the most conservative state in the country - Texas (I don't know if it's actually the most conservative state) - has the highest rate uninsured.