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What has happened to our character?
I am responding to Dave Casper's letter in Saturday's Times, "Why not sell foreclosed homes back to their former owners?"
As he says, "I'm sure lenders and their attorneys could put forth many reasons why this approach would not work." Well, I am a banker and he obviously doesn't understand a bigger picture here.
First, any time a lender agrees to make a loan to its client, there is a contract executed, an agreement, a promise to pay. For many borrowers today, loan contracts have become an "optional" repayment agreement. An attitude of "I will repay my bank if my circumstances permit, but I am not going to sacrifice to see that the lender is repaid."
A guiding principal for lenders in credit decisions is the character of the borrower. Let's assume for a moment that the financial world operated like Mr. Casper thinks it should. What incentive does anyone have in keeping their promise to repay any debt? Someone could just simply say, "oh well, I will just stop paying on my home mortgage (or any debt) and buy it back at a discount." Many borrowers today (homeowners with mortgages) already have this mentality, and for them, a contract, an agreement to pay, has become meaningless.
Secondly, think of the further risk to the taxpayers if this mindset were to be encouraged in the marketplace. Our government has already spent billions in support for financially distressed individuals and companies. Who does Mr. Casper think is going to pay for these discounted mortgages throughout the marketplace?
By adopting such an approach, banks' capital positions are more at risk and thus, placing more stress on the FDIC insurance fund.
Now, I am not insensitive to those persons whose lives have been adversely impacted by this economic climate. However, if it were your money you loaned to someone, wouldn't you expect to be repaid in full?