If I were in the same position as Figg and Koellmann, I would stop making mortgage payments, default on the loan, and walk away from the home. The element I would consider is closely similar to the one considered by Figg. Fluctuating home rates would imply that I am paying for a mortgage that is somewhat less valuable than the original rate. In such a case, the mortgages would be too costly for me to pay in the long term. For instance when Figg paid for his home he paid $340,000 but two years down the line the value of the same house was $230,000 a huge fall in worth(Shaw, Barry, & Panagiotou, 2010). At this moment he still owed the bank a sum of $318,000 meaning that had he continued to pay he would have been paying for a home more than its market value which made it expensive.
2. Do people have a moral obligation to repay money that they borrow, as Professor Brenkert thinks, or is this simply a business decision based on self- interest alone, as Professor White thinks?
I agree with Professor White that defaulting payment is purely a business decision. Defaulting payment is unethical which brings about consequences such as low credit rating for the defaulters, but it is not immoral (Shaw, Barry, & Panagiotou, 2010). The borrower has other moral obligations such as providing for his or her family that outweigh his ethical responsibility of continuing the payments. The defaulter is simply doing what is best for his family given the financial circumstances at hand.
3. "It is morally permissible for homeowners whose homes are underwater to default on their mortgages even if they could continue to pay them." What arguments do you see in favor of this proposition? What arguments do you see against it?
For argument's sake, it's permissible for homeowners whose homes are underwater to default on their mortgages even though they could continue payment. As Professor White puts it, borrowers have other several moral obligations that may be competing with paying the bank. The money to be spent to pay for the bloated house payment could be used to save up for the kid's college education, or it can be used to reduce the retirement pensions which is a burden for the taxpayers (Bridgeman, 2011). To be sure, even borrowers such as Mr. Figg who can afford to finance other moral obligations and make the payments on his mortgage could still find a better use for the money he would through defaulting. His children, for example, could go to a much better college, or even he could save for a more comfortable retirement relieving other the burden of caring for him in his old age.
However, if allowed to be socially acceptable strategic default could have a snowball effect on the depressed housing market which would further cause more homeowners to go underwater further and thus default even more (Bridgeman, 2011). Such a situation would not only be bad for mortgage holders, but also for the banks as well as having a negative impact on the overall economy due to the worsening housing market. Also, strategic default would hold contract law in contempt which would negative affect commercial dealing since people will feel free to move away from contractual arrangements whenever they feel threatened.
4. When it comes to paying your debts, does it matter whether you borrow money from a bank or from an individual person? Explain why or why not.
No, it does not matter whether you borrow from a bank or a person when it comes to paying up debts. Both the bank and the person are lenders, and I am the borrower. Morally and ethically I am required to pay my debt if and when it becomes due. The only difference between these lenders is that the person may be banking purely on my trust as opposed to the bank which would require a collateral of a sort which liable for being surrendered to the bank should I default.
5. Suppose your moral principles imply that you should keep on paying your mortgage, but financial self- interest counsels you to walk away. How are you to decide what to do?
Morality has to do with considering how my default in the payment of the mortgage will affect other stakeholders. Financial self-interest is also guided by moral requirements only this time the moral requirements are tied my personal life – my family. Defaulting to pay up mortgage payment is linked to consequences which include the bank taking possession of the house. When the bank repossesses the house, then all is not lost for the bank, and it could go ahead and set up the house for sale but at a smaller fee. It’s a lose-lose scenario; I lose the money I had already paid, and the bank loses some of its investment. However, if I continue to pay the mortgage and I end up in debt I will have jeopardized the future of my family and still lose the house. Therefore the decision would be to take the financial self-interest counsel and walk away.
6. Repaying a loan is a legal obligation. Is it also a moral obligation? Explain why or why not.
Yes, repaying a loan is both a legal obligation and a moral obligation. It is a legal obligation in that when applying for the loan the lender and the borrower enter into a contractual arrangement in which each of the parties is expected to deliver. The lender offers the loan, and the borrower is expected to pay up when the loan is due. There being a consideration from both parties makes it a legal obligation for the borrower to repay the loan. Repaying a loan is also a moral obligation. A loan agreement is a contractual agreement, and if the borrower fails to pay the loan, then he or she is dishonest which is unethical and can be equated to stealing ("The Ethics and Morality of Borrowing and Lending During the Great Housing Bubble | Irvine Housing Blog," 2017).
7. Are the banks responsible for the housing boom that enticed people to buy homes at inflated prices? If so, does this affect whether you have an obligation to repay your loan? What about Professor White's contention that the banks themselves care only about maximizing profit?
Yes, the banks were responsible for the housing boom that led to the enticement of people to purchase homes at inflated prices. The banks were lending money to almost anybody and at low-interest rates which encouraged many people to jump into the housing market (Shaw, Barry, & Panagiotou, 2010). No, the fact that the banks may be responsible for the housing boom does not affect whether I have an obligation to repay the loan. As a borrower is should honor the contract between myself and the bank. I entered into the contract as an adult and made a promise to pay up the loan even if doing inconveniences me; therefore I should be accountable. I agree and support Professor's White contention that banks only care about maximizing profit, but the question is why not? The banks are commercial institutions and not charity organizations, and their sole reason for existence is to make profits and maximize their owners’ wealth. It is, therefore, right to say that the banks see an opportunity and seize it.
References
Bridgeman, C. (2011). The Morality of Jingle Mail: Moral Myths about Strategic Default (1st ed., pp. 1-31). Retrieved from http://wakeforestlawreview.com/wp-content/uploads/…/Bridgeman_LawReview_2.12.pdf
Shaw, W., Barry, V., & Panagiotou, S. (2010). Moral issues in business (1st ed.). Toronto: Nelson Education.
The Ethics and Morality of Borrowing and Lending During the Great Housing Bubble | Irvine Housing Blog. (2017). Irvinehousingblog.com. Retrieved 13 January 2017, from http://www.irvinehousingblog.com/2010/04/23/the-ethics-and-morality-of-borrowing-and-lending-during-the-housing-bu/
