The right way up
SIR – You suggested allowing bankruptcy judges and special trustees to write down balances of loans for homeowners in America who are upside down in their mortgages (“Are we there yet”, September 18th). This ignores the fact that a loan balance represents dollars belonging to someone, either an investor or bank depositor, used to support the purchase of collateral property. Who would absorb the shortfall if this was allowed?
As a banker, I’m sympathetic to those borrowers who are in this upside-down situation. We try to help our customers through these troubled times. But there is a great difference in our attempts to assist these borrowers and any situation which would give them an entitlement to have their loan obligation reduced. There has always been a moral, as well as a financial, obligation to repay loans. If we begin to take steps to set aside that moral obligation, the troubles we see today will pale in significance.
Joe F. FergusonLet's restrain ourselves from a full-panoply discussion of what banks (heh!) know about the "moral, as well as financial, obligation to repay loans." Let's cut to the fact that Stephens Federal Bank itself as of June 2010 was carrying a troubled-asset ratio of 77.10--this against a national average of--this against a national median of 15, so exceeding the median by a factor of five (see the analysis from the American University School of Communication Investigative Reporting Workshop). I can't imagine how any bank can lend itself into that big a hole other than intentionally--that is, well knowing that it wouldn't be able to collect a lot of the money it was putting out and budgeting (or relying on government guarantees) accordingly. So if Stephens never expects to collect more than (notionally) 80 percent of its loans--and if by some mischance it actually collects 100 percent, then aren't they being overpaid by a (notional) factor of 25 percent? And where, exactly, is the morality in that?
Stephens Federal Bank