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    Moral Virtue and the Real Estate Meltdown

    October 6, 2008 by Brandy Vencel

    Sallie posted a link to Life in Foreclosure Alley on Saturday. I had already been thinking about writing a post on this topic, and when I tried to write a comment on Sallie’s post, so many thoughts came at once that I knew there was no way I could comment without it being ridiculously long. And I try not to hijack other bloggers’ comments sections if I can possibly avoid it.

    There are a lot of good thinkers out there blogging about the real estate crisis. But there is one perspective on this subject that I think is being sorely neglected, and that is what I plan to tackle today.

    As most of you know, we purchased a foreclosure in an auction this summer. Talk about plummeting property values! During the purchase our house not only appraised for over ten thousand dollars more than we were paying, but we also discovered that our purchase price was approximately one hundred fifty-seven thousand dollars less than the original owner had paid for it. And the bank that owned the home lost more than that because they had to pay the utilities while it was on the market, plus a number of fees to have an auction company sell it {it went to auction more than once} and an escrow company process it.

    Is it not surprising that these banks are going under if they are losing that kind of money on every single foreclosure? Just to give you an idea, in my city alone, there were over a thousand foreclosures last month. In fact, the last three months have been record-setting, first in the eight-hundreds, then the nine-hundred, and then the new record I just mentioned. And it isn’t over! As we see the other foreclosures in our neighborhood snatched up by buyers {a lot of young families like us who were completely priced out of the market during the boom are now able to afford homes again}, we also see new houses foreclosed on. It seems that when one “For Sale” sign is removed, another goes up right next door.

    Such is life not only in the Inland Empire, but also in the Central Valley of California.

    Now, the folks that lost our house were obviously in real, true distress. I know this because we have been receiving their bankruptcy papers in our mailbox. Foreclosure was designed for real financial distress. It was a method of mercy, so-to-speak. Foreclosure is a measure of protection because the bank can take the house back from you, but they can’t take anything else.

    And foreclosure is being taken advantage of every single day.

    The first time I heard of this, I was floored. Our realtor explained how one of the other agents at her office had been asked by an acquaintance to list their home as a short sale. Apparently, this couple only had the house in the husband’s name. The wife was not on the loan, nor was she on the title. This is where the scamming starts. What this couple requested was that the agent not only list their home, but help them shop for a house at the new, lower prices. Once they purchased a new, cheaper home {in the wife’s name} then, if the house hadn’t sold, they would just let it slip into foreclosure.

    The agent, admirably, shut this potential client down, explaining that she was basically being asked to help lie, cheat, and steal and that it was simply immoral.

    Very few realtors in this town would do that.

    Last week, I heard of a similar situation during a local AM-radio show. The caller to the show explained that he and his wife had bought their dream home at just about the peak of the market. They had worried about getting priced out, so they took the plunge, even though it meant getting an 80/20 loan {meaning they financed the house at 100%, 80% being a first mortgage and 20% being a second mortgage}. They wanted to have a nice house with nice schools for their children and so on. Now their property was worth about half of what they had paid. They were completely upside down on the house in terms of equity.

    This caller wanted to know if he should let the house go even though he had no trouble whatsoever with paying his bills.

    I’ll just let you think about that for a minute.

    Thankfully, the host of the talk show talked the man out of it, but the entire conversation revolved around this being a financial decision, not a moral one. No one mentioned that this man was morally obligated to pay for the house because he had promised to do so. No one reminded him that he would be stealing from the bank if he did such a thing.

    Renters in this town are also finding themselves homeless, even though they are paying their rent. As landlords decide that they don’t want to deal with the falling property values, they pocket the rent as long as they can, leaving their tenants to be evicted by the bank once the foreclosure process is over.

    This just happened to a woman we know. And it is happening all over our town.

    I am realizing that there are a lot of people in this town that were more than willing to go along with the ride when everything was going up. If their neighbor’s house sold for an extra twenty thousand, these folks wanted to gather that gain in equity for themselves. And many of them did, usually in the form of a cash-out refinance.

    That is what it means to live in community. When one benefits, we often all benefit.

    But it seems that folks only want one part of community, and that’s the good part. When things go badly and a neighbor sells their house for twenty thousand less, no one wants any part of that. In fact, they want someone else to eat that loss.

    Someone else being the bank.

    And the banks have no recourse. There is no way for them to stop these people and say that they really can pay their bills and are just choosing not to because it suits their budget to do so.

    And here we have the government paying off the banks? How is this really dealing with a problem that runs deep in the moral fiber of our community?

    If the banks need more regulation, and I don’t really know if they do or not, fine. But we shouldn’t leave it at that. We need complete reform of the foreclosure process. Folks that have the means to pay their bills shouldn’t be allowed to walk away from a house without shame. If someone signs a legally binding loan document which obligates them to pay, they should be truly obligated to pay. The abuse of the foreclosure process is making loan docs into a joke. They are meaningless if they only obligate us to pay if we feel like it.

    And this will jeopardize housing prices as long as it continues.

    We live in a community. And if my a third of my neighbors are capable of paying their mortgage but choose not to, my equity begins to disappear. And if this happens on a large enough scale, we have a situation in which individual selfish acts are adding up to a huge financial crisis.

    And that is what is really going on in this country. This is a crisis of selfishness, a crisis of morality, a crisis caused by sin. Allowing sin into the camp can destroy the camp. And we all know it. But we looked the other way, or didn’t see it for what it was.

    Like all sinful situations, throwing money at it isn’t going to help {though allowing natural consequences would at the very least be instructive}. Repentance is the only logical solution.

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  • Reply Jennifer October 10, 2008 at 8:50 pm

    I am going to have my husband read your entry. He has been fuming about the same thing for months. He was an opponent of the bailout plan because it simply encourages more of a breakdown in the morality and ethics of this country. You bought a house (boat, RV, dog) you can’t afford? No problem, we’ll bail you out! Again. and Again…
    Great post!

  • Reply Anonymous October 9, 2008 at 4:31 am

    Interestingly, this all boils down to two words. Two words that can be applied to every stage of the transaction in both the marriage and in the property ownership.

    Personal responsibility.

    In my day they meant something but no longer have any meaning to far too many people in our society. I could expound at greater length but will resist the temptation.

  • Reply Brandy October 7, 2008 at 4:08 pm

    Momma B.,

    I hadn’t made that mental connection between what is happening in real estate and no-fault divorce, but I think you are completely right! It is just another sign that we (as a collective culture) are not taking seriously commitments made, from legal documents, to promises and oaths made in the sight of God. It is a weakening of the “my word is my bond” mentality that characterized the great men of old.

  • Reply Momma B. October 6, 2008 at 11:31 pm

    Couldn’t agree with you more! It’s funny though that we live in a nation that encourages “no fault” divorces….another breach of contract but more of covenant…it’s no big deal. RIght? It’s always someone elses problem…I mean we are chasing the American dream….and my dream might be different for me…and what’s right for me is ok…

    Well, it’s all rubbish…of course our nation is in trouble. We have created a nation of people who excel at watching out for ONLY ourselves.

    Repentance is the key….I need to do a little myself.

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