I heard this story on Morning Edition the other morning. Basically, the guy has a $300,000 mortgage loan on a house that’s only worth $125,000. He worked with the government to get a mortgage modification and his payments were cut in half. But, while the bank reduced his interest rate on the load, he still has a balloon payment at the end to payoff the remaining balance.
Now, I understand that he doesn’t feel that he should have to relay the loan on the house since it’s worth so much less, but I would hardly call it “extortion”. He signed a legal document that he would repay the amount of money that he borrowed to buy the house with interest. I don’t see that the bank is doing anything illegal to try to have him repay the loan. Besides, the guy felt that the house was worth that much if he was willing to borrow so much money to make an offer on the house. Please, because you make a bad decision doesn’t mean that you are not responsible for the repercussions. Which goes for the bank too buy the way. What is this crap that you have “a moral obligation to repay”? Give me a break. Legally the bank can take his house if he walks away, which he can do. Of course, that means that the bank is now stuck with it’s bad decision – a house that’s not worth nearly as much as the money that they paid out.