Why Are Homeowners Idiots?

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Summary	Why Are Homeowners Idiots?
Category	Financial Statements
New Business Economy Idea	" ... The mortgage crisis is a case in point. For many of the underwater homeowners in today's market, paying down their mortgage isn't really in their best financial interest. Particularly in states like Arizona -- where mortgages are nonrecourse, meaning the lender can't go after any of the homeowner's assets other than the property itself -- it makes little sense to continue paying a large mortgage on a devalued house when comparable rental rates are far below the monthly mortgage payment. Among the conclusions White reached is that borrowers are suffering from "norm asymmetry." That's a jargony term for sure, but it basically means that homeowners are being convinced that the "right thing to do" is to keep paying their mortgage -- even if it's not in their best interest. That stands in stark contrast to the financial giants that make these mortgages, which are free to do whatever they need to in order to maximize profits -- and bonuses. And who's doing this convincing? For a large part it's the financial companies themselves, folks like Bank of America (NYSE: BAC), Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC). But they're not alone. They've had plenty of help from government officials like Hank Paulson. Back in 2008, Paulson launched a sharp jab against those who would consider walking away from their homes, saying: And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator -- and one who is not honoring his obligations. Which makes perfect sense, since I imagine Paulson never speculated on anything when he was at the helm of trading king Goldman Sachs (NYSE: GS). And, of course, with de facto ownership of the ill-fated Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government doesn't stand to gain anything at all from persuading homeowners to act against their own best interest. ... "
Webpage	More info
Author	Editor
Date	1/30/2010