
U.S. Families Slice Debt to Lowest In 6 Years - acangiano
http://online.wsj.com/article/SB10001424052748704823004576192602754071800.html?mod=rss_whats_news_us
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OstiaAntica
This headline is too positive by implying that Americans are choosing to save.
Rather, they are hitting the wall. The gains here are overwhelmingly from
defaulting on mortgages. Also the credit card companies have withdrawn $1
trillion in credit lines, so people can't pay cards with other cards any
longer.

~~~
yummyfajitas
Americans are choosing to pay off their debt. They have paid off $90B so far.
You are correct that $118B of the $208B drop is caused by lenders writing off
bad debt. Of course, the elephant in the room is that total debt went up by
$1.6 trillion - corporate debt increased 5.4%, govt debt increased 20%.

By the way, did anyone notice how crazy the financials of some of the people
being interviewed are? The saleswoman had debt payments of $6500/month.
Assuming she previously spent 50% of her take home pay on debt service, she
was taking home about $13k/month. Yet somehow, she accumulated $500k in debt,
and blew through her entire retirement savings in about 1.5 years.

I have no idea how it is even possible to be that irresponsible.

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richcollins
I'm so happy to hear that Mr. Shah and his wife were able to purchase a 350k
house after pushing their debts off on taxpayers and dollar holders.

~~~
_delirium
I don't see anything particularly wrong with people choosing to exit a
mortgage in a way that's legal under their mortgage contract. If it's a no-
recourse mortgage, then a debtor is perfectly within their rights to walk away
from the property and consider the debt settled by the return of the property
to the lender. That might cause the lender losses, but the lender is supposed
to be pricing the possibility of such losses into the contract in the first
place.

~~~
yummyfajitas
It is wrong because it is a violation of the agreement the borrower and lender
both signed.

A mortgage is a promissory note, it conveys obligations on the borrower and
the lender. There are penalties for violation, but that doesn't mean the
borrower has the right to violate the contract. That just means they have the
ability to do so.

(Also in many states, they do not even have the ability to. The lender can sue
them for the difference between the foreclosure sale price and the remaining
mortgage obligations.)

On the flip side, suppose house prices went up. Suppose also the bank could
foreclose on the home, even if the borrower was fully paid up, perhaps paying
a $10000 fine for wrongful foreclosure. Would there be something wrong with
this?

~~~
_delirium
But if your mortgage contract says that you're free of any further legal
obligation if you return the property (whether because you actually wrote that
into the contract, or because your jurisdiction adds such terms to all
contracts), then exiting the contract in that manner is just exercising the
termination clause. You are of course correct that if there aren't any such
terms, then you can't exit in that manner.

If mortgages included a clause (either negotiated or because state law
required it on all mortgages) saying that the lender may foreclose after
paying $100k and giving notice, then sure, the lender would be within their
rights to exercise that option as well.

I suppose you can argue for a category of "contractual obligations" separate
from legally enforceable obligations, but that doesn't make much sense to me.
I take a fairly instrumental view of contracts that they're definitionally
equivalent to "legally enforceable agreement".

~~~
yummyfajitas
That's my point - mortgages don't include a clause allowing the buyer to exit
the contract.

A call option has specific language in the contract: "Option holder has the
right (but not the obligation) to purchase $SECURITY at $STRIKE_PRICE on or
before $DATE. To exercise this option, holder must..."

A mortgage has very different language: "Borrower is obligated to make
payments of at least $XXX on or before the 1'st day of each month..."

If you want to take your instrumental view of contracts, then there is
similarly nothing wrong with anything you can legally get away with. It's
basically a "might makes right" viewpoint. So if "nothing wrong with X" means
"you can get away with X", you are correct.

I mistakenly interpreted the phrase "nothing wrong with" as having moral
content.

~~~
_delirium
Contracts incorporate all relevant contract law in the jurisdiction, though,
since you can't enter a contract contrary to a jurisdiction's law.

Say you sign an employment agreement in California that purports to include a
"non-employment" condition, which CA doesn't permit. I suppose you could say
that it was "agreed to but not enforceable", but it makes more sense imo to
say that non-compete agreements simply aren't possible in California (because
an unenforceable contract is not a contract in any meaningful sense).

Or, if you deal with mortgages in a state whose mortgage law says that all
mortgages can be exited with no further legal obligation by returning the
property to the lender, then all mortgages in that jurisdiction have such a
termination clause written into them, whether the contract purports to include
it or not. For clarity, it probably should be restated in the document as
well, but even if the document omits it, it's legally there.

The phrase "nothing wrong with" did have moral content. The morally required
activity when dealing with contracts is exactly equivalent to the legally
required activity. That's the whole _point_ of contracts, to impose legal
obligations on the parties. I could see an argument if someone was misled, and
didn't realize what legal obligations were being imposed. But I don't think
that was the case here; lenders in no-recourse states presumably were aware
that they were agreeing to a mortgage where the borrower had that option.

~~~
yummyfajitas
The activity legally required by a mortgage is to pay the debt. The existence
of a penalty doesn't change this - it simply makes the calculation of whether
or not it is profitable to violate the agreement a lot simpler.

By your logic it is morally right to deliberately violate the terms of any
contract as long as you accept whatever penalties the courts dish out.
Instrumentally speaking, all contracts have an embedded option to break them
and accept the legal judgement against you.

Personally I don't buy into this moral schema. But that's just a question of
values, I suppose.

------
potatolicious
> _"shouldered a smaller debt burden in 2010 than at any point in the previous
> six years, putting them in position to start spending more"_

This probably isn't the writer's intent, but it just sounds like "hey guys! We
got our debt down a bit! LETS GO SHOPPING"

