Losing a home thrusts one either out into the street or onto the mercy of families because the financial ruination may make it somewhere between difficult to impossible to rent even if one has the money. It ruins your credit, breaks up families, ruins relationships, hurts ones job prospects even.
The idea that people faced ruin because they didn't have the character to live up to their obligations is more than offensive.
When I lost mine after weathering a number of crisis the bank wasn't interested in anything less than all back money due immediately or nothing so catching up was impossible. Hell there was even a government program to help people stay in their homes that would have lent every bit of the money required to catch up and the bank wasn't interested.
In brief shove your crisis of responsibility because you have no earthly idea what peoples lives are like or the shit they have had to slog through.
This is a gross sociological question involving millions of people. Nothing anyone can say about a question like this can possibly cover every case.
Maybe Bahnsen is wrong, but he's not uninformed. He works in the financial industry and makes an interesting argument.
Banks are supposed to be experts in assessing risk and financial products. If an expert sells a bunch of bad loans knowing he is going to fraudulently sell them on to others anyway its the experts fault for tanking the economy.
At worst the buyers are stupid. There certainly was no crisis of faith and values.
That narrative should be licensed to Disney as a fairy tale.
> 70 percent of defaulted loans had blatant misrepresentations on their mortgage applications. The FBI estimates that mortgage fraud (by borrowers) increased 1,000 percent from 2001 to 2007.
And they defaulted strategically to make money:
> They also discovered these sorts of events—the abandonment of a mortgage obligation to pay when people were perfectly able to pay—represented fully 20 to 30 percent of the delinquencies that took place in 2007 and 2008
In the mid 2000s, mortgage lenders were working with the customers, agents at countrywide for example, were helping their customers fill out documents fraudulently. (Years later a few would go to prison for this.) This was not a failure at the bottom, the system allowed those who would attempt to commit fraud, commit said fraud because they profited from it.
Or are you completely unwilling to believe that complex, and opaque systems need any kind of regulation to prevent abuse by people at all levels. And that people at the bottom of the system are the most likely to be abused by said system.
How is the normal not finance expert person supposed to navigate this? On the one hand you are supposed to believe investment advice but on the other hand you are not supposed to believe the financing advice you get when buying a house.
The financial industry wants it both ways. We have to trust them as experts when it suits them but when things go wrong it's the customer's fault.
It is pointless to say "they should have known better" because lots of people simply did not, and this had bad consequences for many who did, including people who did act responsibly, but lost their homes anyway as a consequence of this recklessness.
It is more to the point to say that the institutions and regulators should have known better.
One reason this part of the story is being overlooked is that none of the executives responsible for encouraging and facilitating irresponsible and even fraudulent lending were sanctioned in any way (maybe they had a reduced bonus one year, and had the effrontery to claim that was unfair.)
Ironically, those who walked away from mortgages they could have paid were acting as rational economic agents.
The illusion that the American business community deserves moral consideration has been used to fleece the general public for years.
Amusingly, such morality fables often get pushed by business leaders who understand the concept of strategic default perfectly well in their own dealings. You don't see former Lehmann executives working night shifts at McDonalds to make THEIR creditors whole.
I think a lot of people have learned that you should do whatever you can get away with because otherwise you are a sucker.
The reason people decided to start defaulting on their debts is similar to the reason people sell stocks at the bottom of the market. They wanted to get rich quick and saw the chance disappear, so they ditched the mortgage they could barely pay. They took out a huge loan they could barely afford in the hopes of selling in two years when they could do it capital gains free and seeing a big profit. The price to rent ratio was very high. These people were trying to ride a wave and got caught out by the tide. I mean, if you have a mortgage it doesn't matter at all if the price of the house you are living in falls. The only reason to cut and run is because you want to cut your losses on a failed investment and your dreams of getting rich quick.
The fix has been pretty simple- lending standards have been greatly tightened, making it harder for people to buy houses they can't afford or for those with bad credit to get mortgages. It notably didn't take any major changes to derivatives marketing (because the sophisticated buyers of those products had already learned the lesson). The only change needed to normalize the market was to prevent the retail buyer from taking on too much debt. This seems indicative as to what was a fundamental cause of the problem. It runs counter to some of the incentive programs intended to increase home ownership.
I don't have that much insight in the technical details of mortgages in the US but at least in Sweden, if the price of your house falls too much, the bank will send you a (huge) bill for you to cover their risk. E.g. if you buy a house for $300000 and borrow $225000, then if the expected market price of your house would fall to $200000, the bank will simply send you a $25000 bill.
At one time it was considered an iron clad rule that Americans would always pay their mortgage. But something changed in the American character and suddenly millions of Americans were fine with defaulting on their debts.
There's plenty of blame to go around, but this recent turn to populism in the wake of the financial crisis is particularly ugly for its rank hypocrisy.