Looks Like YOU Just Bought Your Neighbors House

Posted: Oct 19, 2011 12:01 AM

“New Mortgage Plan Floated” was a recent headline in the Wall Street Journal and is certainly a topic which raises some very important questions. 

How do we save all the people who bought houses at peak prices?  For those who can’t afford it, how do we keep them in the homes they currently own?  How do we sustain the Barney Frank model of “anyone who breathes” realizing the American dream of home ownership? 

Politicians are currently struggling with these economic issues, not only Democrats, but Republicans as well.  In addition, these issues present a moral quandary of “should we” to each of the preceding questions. 

With that in mind, I have a story that I’d like to share.  About a year ago, I was on a flight seated next to an American Express executive who explained to me that her son had just executed a short sale on his house. 

She was very excited because he was moving closer to her, she would be able to see the grandchildren much more frequently, and the school system was apparently better. 

All around, it seemed like a good decision, at least for some. 

I asked “Why the short sale, was there a loss of a job, could he no longer afford the mortgage payments?” 

She said “No, in fact, he could easily afford the payments.  It was a strategic default decision.” 

“So,” I said, “the bank eats the loss.” 

“Absolutely,” she responded. 

“You see no problem with that,” I said. 

“Not at all,” she shot back. 

“That’s great,” I muttered, “so, you’ll have no problem with what I just did.”

“What’s that,” she asked?

I went on to explain that I had recently been to Paris with my wife and bought a painting that was a unique one-of-a-kind that I just couldn’t resist. 

I paid $1,000 and charged it to my American Express credit card. 

However, when I arrived home and visited a local yard sale, I saw the same velvet Elvis for just $5. 

I made an investment and apparently lost big, not very smart on my part. 

However, “I decided to act just like your son”, I told my friend on the plane. 

I chose to let American Express eat the loss, and not pay my bill, assuming no responsibility for my actions. 

Of course, please keep in mind this part of the story of not paying my credit card obligation is purely fictitious.  I am strongly opposed to house short sales, and therefore, I had to think very quickly in the spur of the moment in order to prove my point. 

I then asked “Could I have your name since you seem to be in agreement with me.”  Needless to say, she pulled out a book, immediately started to read, and our conversation came to an abrupt end.

Selective morality can sometimes create a very slippery slope.  When it comes to new mortgage plans, let’s hope the politicians keep that in mind.