Your word should be good.
If it isn’t people don’t have confidence in you. They won’t trust you.
Someone should tell that to Uncle Sam.
There are various movements afoot in Washington, D.C., to let people renege on their word.
• The Obama administration is pushing to have the Housing and Home Finance Agency forgive portions of mortgages on housing bought with government backed loans that are now underwater. The head of that agency is opposed to the move noting it would cost taxpayers at least $100 billion.
• Some folks in Congress want to liberalize bankruptcy laws so more former college students can drop their student loan debt. The federal government has outstanding guaranteed loans of more than $709 million. That’s up from $79 billion a decade ago. Roughly $177 billion of those loans have borrowers who are behind on their payments.
Yes, people are struggling. But does that make it OK to change the rules midstream?
For whatever reason say 15 percent of the people with mortgages have difficulty handling them. It could be they bought more home than they could afford, they used their home as an ATM, or they have had a drop in their income. What about the other 85 percent? They are meeting their commitment. Yet, no one is talking about reducing their principal even if their home is underwater.
As for student loans, it is a choice the borrowers made. They could have tried to go through school on a pay-as-you-go basis or pursued a career that they may not particularly have liked but had a more promising future for job prospects. You might argue for low-interest loans for education but to simply forgive the principal is just opening the door for all sorts of shenanigans.
What is to stop a clever graduate from finding a way to manipulate a liberalized bankruptcy law in the short term so they can dump the debt in the long term? Remember how everyone in power in Washington, D.C., said no one would take advantage of the situation if the decision to forgive taxes on the difference between what was owed on a home loan and what a bank got in a short sale? There were dozens - if not more - people in Manteca who were more than capable of making mortgage payments who let their homes go into foreclosure because the value had dropped so much. They were then able to buy a new home that was often newer and larger and pay even less. They made the move because they didn’t have to pay taxes on the “income” they earned because they got out of paying the bank a part of what they were owed. The loophole has since been closed but not before the damage was done.
Like most people, I drive a car that I could not pay cash for upfront. I also live in a house that I could not pay for in cash all at one time.
I had to borrow the money to do so.
The bank made a commitment to me. I made a commitment to the bank.
If we keep undermining that commitment, it won’t be long until faith in the entire loan system that has enabled tens of millions of people to borrow money to secure housing and transportation will change drastically. And when it does, less and less people will be able to borrow money because the standards for loans will be harder to meet.
The real problem isn’t the economy as much as it is a sense of entitlement and a total disregard of the concepts known as delayed gratification and honoring one’s word.
There needs to be standards for a civilized society to work.
Bankruptcy is one thing. But to allow people to renege on their word and essentially keep what they could not afford whether it is more home or more education than they could pay for will eventually undermine the foundation of borrowing in the free market place.
This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA. He can be contacted at firstname.lastname@example.org or 209-249-3519.