Underwater Mortgages

If someone takes out a mortgage and the price of the home drops below the value of the outstanding mortgage and he loses his job, he can’t just hand the front door keys to the bank and walk away. He is personally on the hook for the entire amount he borrowed. As I see it, the bank is partly to blame for this situation and should take some of the consequences. They were better able to predict the price drop. They were better able to predict the likelihood of a layoff. They were better able to predict how expensive a home it is safe for a given person to buy. They have computers full of statistics. The home buyer has only his own overly optimistic estimate driven by insistent female nesting instinct. Without a sufficient penalty, the bank is tempted to trick home buyers into getting into this situation.

Corporations have no inherent morality. If you want them to behave ethically, you either have to arrange that they make more money when they behave ethically, or you fine them with a sufficiently large penalty when they don’t . The morality of corporations is the function of the regulators. It is utterly naïve to expect them to behave ethically all by themselves.

~ Roedy (1948-02-04 age:69)