{"id":9173,"date":"2009-07-14T12:44:48","date_gmt":"2009-07-14T19:44:48","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=9173"},"modified":"2009-07-18T10:10:16","modified_gmt":"2009-07-18T17:10:16","slug":"on-mortgages-and-moral-compunction","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/9173\/on-mortgages-and-moral-compunction\/","title":{"rendered":"On Mortgages and Moral Compunction"},"content":{"rendered":"

What would it take for you to walk away from your mortgage?<\/p>\n

Kenneth Harney, in his column Nation’s Housing<\/a>, reports on an interesting study recently done by the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management<\/a>.\u00a0 This study took a look at homeowner’s attitudes toward mortgage defaults, specifically what’s come to be called “strategic” walkaways or decisions to bail on a mortgage due to purely economic reasons.\u00a0 The study found that “26%<\/strong> of the record number of home mortgage defaults across the country” were strategic<\/em> – the homeowner had the ability to pay the mortgage but chose not to because the debt was greater than the asset.\u00a0 In other words, one in four of the current foreclosures is not<\/em> due to hardship, but rather a lack of compunction<\/a>.<\/p>\n

My partner and mortgage rate expert, Brian Brady<\/a>, has for some time now railed against the disappearance of moral compunction with regard to mortgages.\u00a0 His contention, as I understand it, is that moral compunction was\u00a0 priced into the model by lenders.\u00a0 There has historically been a stigma attached to not paying one’s debts, especially one’s home mortgage debt.\u00a0 This may or may not be true; I am no expert on the history of mortgage defaults in our nation, but it is certainly compelling.\u00a0 If accurate, the obvious question then becomes: to what degree did moral compunction affect rates and if it is indeed gone, how much higher will rates go?<\/p>\n

There is no real mystery to how mortgage rates are priced.\u00a0 Mathematicians create models of mortgage “behavior” based on the 4 C’s: Capacity, Capital, Collateral and Credit.\u00a0 Of these four, Credit is really what we’re talking about here.\u00a0 Your income, your assets and the property’s value are theoretically objective but your credit… well, it’s not really credit that’s being measured here is it?\u00a0 It’s your Character; your likelihood to honor your debts, although lenders don’t like to say that because it has a snooty, superiority<\/em> quality.\u00a0 Make no mistake though, character is most definitely being evaluated during the loan process.\u00a0\u00a0 So the question seems to be: How do these Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

What would it take for you to walk away from your mortgage?<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[26,5],"tags":[79,381,237],"class_list":{"0":"post-9173","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-lending","7":"category-real-estate","8":"tag-foreclosure","9":"tag-moral-compunction","10":"tag-mortgage","12":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":12371,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/12371\/fnma-lends-a-helping-hand-to-our-moral-backside\/","url_meta":{"origin":9173,"position":0},"title":"FNMA Lends a Helping Hand (to Our Moral Backside)","author":"Sean Purcell","date":"June 25, 2010","format":false,"excerpt":"Two days ago, FNMA announced their new policy regarding strategic defaults; it's a mortgage death penalty: seven years before the offender is eligible for another FNMA loan.\u00a0 Finally, they got one right.\u00a0 Yes, you read that correctly; if you make your profession in the business of real estate,\u00a0Wednesday's announcement\u00a0is cause\u2026","rel":"","context":"In "Flourishing"","block_context":{"text":"Flourishing","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/flourishing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9405,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/9405\/reversing-a-trend-or-back-to-the-future\/","url_meta":{"origin":9173,"position":1},"title":"Reversing a Trend Or Back To The Future?","author":"Brian Brady","date":"August 1, 2009","format":false,"excerpt":"If you're considering a reverse mortgage, get it now. The reverse mortgage market is going to blow up as big as the sub-prime market did.\u00a0 This time, like last, it's those \"durned borrowers\" acting differently than the rockets scientists predicted they would.\u00a0 In the sub-prime market, it was assumed that\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1775,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1775\/the-national-association-of-realtors-is-simply-outrageous\/","url_meta":{"origin":9173,"position":2},"title":"The National Association of Realtors is Simply Outrageous","author":"Cooksquared","date":"August 8, 2007","format":false,"excerpt":"This title truly comes from the heart. Reading the Wall Street Journal today, I stumbled across the latest report from the lead economist at the National Association of Realtors. In the face of overwhelming negative information and despite their own lowered forecasts, Mr. Lawrence Yun states, Existing-home sales should be\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":12659,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/12659\/so-what-if-lenders-are-lousy-at-judging-character-who-cant-identify-fat-people-when-they-sitting-on-the-other-side-of-your-desk\/","url_meta":{"origin":9173,"position":3},"title":"So what if lenders are lousy at judging character? Who can’t identify fat people when they’re sitting on the other side of your desk?","author":"Greg Swann","date":"July 13, 2010","format":false,"excerpt":"Who says all academics are mindless time-wasters? A pair of brave scholars have demonstrated a correlation between obesity and mortgage defaults. A bad credit report is good evidence of insufficient thrift, but a good credit report is evidence of nothing dispositive. A bulging waistline, on the other hand...We show that\u2026","rel":"","context":"In "Big Mother"","block_context":{"text":"Big Mother","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/big-mother\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17256,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/17256\/the-real-estate-correction-of-2021\/","url_meta":{"origin":9173,"position":4},"title":"The Real Estate Correction of\u00a02021","author":"Brian Brady","date":"October 6, 2020","format":false,"excerpt":"Over 13 years ago, I tried to explain how mortgage securitization would cushion losses to investors and lessen the negative effects of mortgage defaults to real estate prices: Basically, the Titans of Wall Street never had to answer for the performance of these loans because the money managers wanted that\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/10\/tim-mossholder-DZcZ4Kskq6U-unsplash-1-480x320.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1534,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1534\/subprime-bookies-may-end-up-like-the-ending-of-the-last-sopranos-episode\/","url_meta":{"origin":9173,"position":5},"title":"Subprime “Bookies” May End Up Like The Ending of The Last Sopranos’ Episode","author":"Brian Brady","date":"June 13, 2007","format":false,"excerpt":"I wrote a tongue-in-cheek post about the subprime loans' collapse about three months ago. I wanted to show the history of securitization of home loans and explain that many of these defaults may actually be \"buried\" in mortgage pools. I pontificated that the expected debacle from the collapse may not\u2026","rel":"","context":"In "Real Estate"","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/9173","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=9173"}],"version-history":[{"count":10,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/9173\/revisions"}],"predecessor-version":[{"id":9178,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/9173\/revisions\/9178"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=9173"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=9173"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=9173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}