Item — HN Reader

"But there is a difference: Big property companies can keep doing business after they default and are even considered savvy for jettisoning distressed buildings. But homeowners who stopped paying their mortgages suffered a huge hit to their credit ratings and had to find somewhere else to live."

ELI5: Why?

6 comments

It's worse than than that. Mere homeowners were publicly chided as being "immoral" for not paying their underwater mortgage.

The owners of capital look out for themselves. Seriously, there is more class consciousness among the obscenely wealthy, than there is among the plebes.

And if you put 6 of your companies through bankruptcy proceedings, you can be elected president.

And it's always been this way. Just look at how the legal system is handling the current politicians who have court cases. Me and you, we'd be in jail.

Financial bail outs are one thing, but corporate lawbreaking is treated different by the courts, however, I think things are starting to change. Elon is going to cause a shift change and corporate America is a little worried.

Because we gave up on holding them accountable.

Suppose there was death penalty for this type of behaviour. If you default of $100M of debt you are executed, no limited liability shroud, no bankruptcy, no backsies, no do-overs -- just cold steel. Your head in a bucket, and your family destitute in the streets.

This type of behaviour would cease to exist almost immediately.

> ELI5: Why?

A bit of this is like things being described in unlike manner, a bit is fundamentally different situations (needs and relative scale.) A person needs at least one home, and rarely has more than one. If they shed one because they can't afford the mortgage—whether or not that is a good financial decision—they still need a new one.

A commercial landlord that sheds their Nth property still has N-1, and can continue working as a commercial landlord without a problem.

Also, a homeowner that does a deed in lieu, short sale, been foreclosed on, etc., on a home loan has probably had forgiven or defaulted on a lot greater share of either their income/revenue or total debt than a commercial landlord that sheds the Nth property for similar reasons.

But generally, not dragging out an unmanageable loan and cutting the bleeding via short sale or deed in lieu where practical is considered prudent for individual borrowers with home loans.

Does it hurt your credit? Sure. But that's a temporary thing, and wirth shedding the drag on your finances for in many cases.

Corporations are people... until they're not. Also money.

If you own 100 houses and you lose one you still have 99 houses. If you sold it at a loss because it was costing you too much to keep then you made a smart decision.

You're not selling it at a loss though, you're defaulting on a loan obligation.

Sadly it's gotten to the point where these guys are too big for the bank to be concerned with whether they do something unethical like default.

The bank takes the knock,carries on as if it's business as usual in an effort to prop up their own revenue.

Too big to fail I guess.

That has its own cost. If that’s less than keeping it then it was a good decision.

Commercial loans are priced higher than residential. The higher risk of default is built into the economics.

The bank also has rights on the property after it goes into default. They don't lose all their money.

Big property companies might have access to cash (e.g. via social connections), so there is still potential utility from doing business with them.

Homeowners who stop paying mortgages do not have access to cash, so there is no utility in doing business with them.