The FT laments about mortgage defaulters:
One possible explanation is that it has become culturally more acceptable this decade for people to abandon houses or stop paying in the hope of renegotiating their home loans. The shame that used to be associated with losing a house may, in other words, be ebbing away – particularly among homeowners who took out subprime loans in recent years, as underwriting standards were loosened.
Culturally more acceptable? Shame? Why does the FT writer wonders about such at all?
Did anyone involved in this expected shame?
Mr. X bet that sales prices would keep soaring and cheap and easy debt would remain available. But when the credit markets froze in the wake of the subprime crisis, he was trapped without a way of paying off the … debt.
The banks made loans to Mr. X for over 100% of the real estate value and the down payment was less than one percent.
Even if the markets had held up a bit longer the deal would never have survived as it was irresponsible in the first place.
That difference would have made it tricky for Mr. X to refinance his short-term … debt even if the sales and credit markets had held up. But since conditions changed, the only deals getting done have been those with high levels of equity — something that’s out of reach for the cash-strapped Xs.
When an estate is worth less than the mortgage owned and unlikely to
gain value, it is simply rational to walk away from it.
Did the banks expected Mr. X to have shame? Is Mr. X’s behavior is not culturally acceptable?
Mr. X’s real name is Harry Macklowe who last year bought seven Manhattan office buildings for $7 billion and now has a big loss.
What is the difference of Mr. Macklowe defaulting and the little guy who bought an overpriced condo in Florida and now sends the keys to the bank?
The FT would never involve shame or culturally acceptable in a story about Macklowe’s deals.
To wonder at all when little guys behave the same way as the big scammers is highly hypocritical.