Personal Finance and Money Management

Professor Brent T. White, of University of Arizona, a law school professor has titled his work as “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.”

He argues that at the time of trouble strong financial reasoning escapes thinking. Propping up these emotions is an entire system that White dubs as “the social control of the housing crisis.” These comprise of continuous messages and pressures being placed before the consumers by the “social control agents” – the government, the banks and their stooges the media. These agents take the help of a repetitive mantra that goes all the way up to the President of USA. It is pounded into the heads of hapless victims that “voluntary defaulting on a mortgage is immoral.”

The naked truth is that interwoven in the relationship between the borrower and the lender is an imbalance. This talk about immorality is totally unfair on the borrower. At the time of the housing boom the bankers introduced the rules doling out house loans sans down payments or income checks. The appraisals too were inflated. Today the values have fallen by 20% and in some places by as much as 50%. But the banks are reluctant to either modify mortgages or lower the principal loan. Only when the borrowers will be able to slice through this emotional smog and start to default strategically en masse will this imbalance be adjusted.

Needless to say this manifesto of White that runs into 52 pages does not go down well with the lenders. Representatives of Fannie Mae and Freddie Mac, did not think White was correct in saying that the borrowers can get a new loan even after walking away from a foreclosure.

Brian Faith of Fannie Mae said, “Borrowers who walk away from their mortgage obligations face serious consequences.” He also added, “There’s a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community.”

Lewis Ranieri is the CEO of many important firms dealing with mortgages and one of the first ones to take the initiative in mortgage securities matter, referred to the entire presentation of White as “incredibly irresponsible and misinformed.” He not only questioned the logic of the professor asking consumers by the drove to snap legal contracts but argued that if they did do so it would cause mortgage rates to soar and “tear apart the very basis” on which the lending industry rests. The understanding is founded on the fact that the borrowers would be faithful and honour their promises and return the money they have borrowed.

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Tags: Underwater, Underwater Borrowers