Slate: Go Ahead, Walk Away (There is nothing immoral about ditching your mortgage)

[marmar]

Go Ahead, Walk Away
There is nothing immoral about ditching your mortgage.

By Mark Gimein
Posted Thursday, October 8, 2009 - 6:18am


A solid two years into the housing bust, the national foreclosure wave doesn't show the least signs of abating. Banks that had called a foreclosure moratorium are now back to the business of taking back properties, and the foreclosure numbers are again at record highs. As the foreclosures rise, so too does the criticism of “walkaways” who hand the keys to their drastically devalued houses back to the bank.

Last month a study from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that close to a fifth of troubled mortgages involved borrowers who were “strategically” defaulting—walking away from mortgages they could pay but decided not to because they owed more than their houses were worth. Self-assigned guardians of financial ethics see the willingness of borrowers to abandon their mortgage debts as a sign of the “erosion of social and moral standards.” The aim of these critics is to shame debtors into sticking with their mortgages. That's something debtors should take with a grain of salt. There are many good reasons to keep paying your mortgage and avoid the black mark of foreclosure, but the immorality of sticking the bank with a loss isn't one of them.

Some observers, like Zubin Jelveh of the New Republic, have taken issue with the Experian-Wyman study's methods, arguing that it was too broad in defining “strategic” default. But unlike some other reports that play up the number of deadbeat debtors, this study uses a fairly narrow and defensible definition to arrive at its conclusion that 18 percent of mortgage defaults are “strategic.” (Experian showed the report to The Big Money, but asked that it not be posted.) The study focuses on borrowers who, once they hit 60 days late, roll straight through to foreclosure without ever making another payment and manage to stay current on all their credit cards.

These are pretty good signs that someone could try harder to pay the mortgage—an idea supported by the fact that the borrowers who fit the model often had higher credit scores (and so probably more financial knowledge) and tend to live in states such as California, in which banks can't keep pursuing them for more money after taking their houses. ...........(more)

The complete piece is at: http://www.thebigmoney.com/articles/money-trail/2009/10/08/go-ahead-walk-away?page=0,0

[sendero]

1. In making such a decision....

.... all I'd have to do is ask myself "what would a bankster do?".

A person would have to be insane to pay off a house that is way underwater because of the outright fraud of the banking system.

[Arctic Dave]

4. I agree. A bank would not think twice about stabbing you in the back.

I say, return the favor.

[marmar]

6. Yep.

To hell with the banksters.

[ThomCat]

9. Exactly. If bankers can walk away from debt, then why can't their customers.

Double standards suck!

If they want to lock their customers into those debts, then lock the banks into regulations too!

[Deja Q]

12. Agreed! If corporate personhood means corporations are people...

:yourock:

[yodoobo]

2. of course its not immoral

A mortgage is simply a contract between you and the lender

Walking away is part of the contract and is well defined as one of the ways the contract is fulfilled.

Just as the responsibilities are actions defined when making payments, so to are the responbilities and actions defined when payments are not made.

If you make all the payments, the contract is fulfilled by the lender releasing all claims.
If you fail to make all the payments, the contract is fulfilled by the foreclosure process.

Both are equal in terms of morality.

[dysfunctional press]

16. exactly- it's just business.

there's no morality involved.

[bullimiami]

3. “erosion of social and moral standards." what a scam.

big business does it all the time by declaring bankruptcy.

but the population is supposed to bear all the burden while the businessmen skate with their cash and move on?

its a system that has been rigged over many years in favor of the corporate elite and away from the average person.

[Odin2005]

5. The right-wing uses morality and religion to make oppression seem "good" and "godly"

[imdjh]

10. Do not be fooled on that. Years ago, some churches were teaching strategic default.

[Deja Q]

13. +1

:yourock:

[SoCalDem]

7. In the course of our stay in this house since 1981

we have been "upside-down" more than a few times. Most of these times have been due to things beyond our control...like the closing of our air base, when property values fell like a rock, and again when the boom in our town went bust after they overbuilt, but as OUR house was affected, so was every other house in our area, so "walking away" would not have been of benefit to us.

What's different this time, is that so many people "bought" just as the bubble was about to burst, and then also had their personal finances affected through job-loss or cut backs.

Most people who have been "in" houses for a long time, know that real estate does fluctuate, even when the overall trend is up up up. Buying a house USED to be for a place to raise your kids, and then retire in when it's been paid off, but after the 80's housing became a "money-making" scheme...a way to get rich, to always be trading UP, and of course to often never pay it off...just an endless game of musical houses, while you prayed that the value would hold on long enough for YOU to "make a killing"....not to pay off a family home where your grandchildren could sleep in their Dad's old room he had as a kid..

[Snarkoleptic]

8. Keep in mind that you can't get a mortgage backed by

Fannie/Freddie for four years after a foreclosure.
Even if you approach you local bank, you'll likely be subject to Fan/Fred underwriting.
Some banks will retain/portfolio their loans, but they like to keep only the A++ paper (which won't be a borrower with a FLC <4yrs).

[dixiegrrrrl]

15. Also keep in mind if you have a 2nd mortgage, or a re-fi

the banks CAN come after you for everything.
Re-fi's tend to be recourse loans, even in places where first mortgages are non-recourse.
That is one of the reasons I have never been tempted to re-finance into lower interest rates.

[busybl]

11. if it has to be, then walk

what is the point of throwing money down a sinkhole if you can't see any way to recover?
In the first recession we had to go through, a lawyer told us Pay the rent/mortgage, pay the electric buy food. everything can
go. It isn't necessary to life. Your family won't love you less.

[earth mom]

14. My problem with this is what about values go back up? Assuming they will that is.

Plus, once you walk away you are faced with little choice but having to rent which totally sucks.

I would probably decide to wait for the market to go back up if I were in this situation.

[dysfunctional press]

17. that may not happen for awhile- if ever, depending on the property.

and that whole time that you're waiting- you're also making the monthly payments- which may ultimately be throwing good money after bad.

[SmileyRose]

18. The mortgage was not based on someone's moral standing.

It was based on economics - sure and simple. The bank made a bet your house would increase in value and/or you would have such an emotional attachment to your home that you would pay 100's of 1000's more for your home in interest than it would ever be worth. They loan you $100,000 (or more) and over the span of 30 years you will pay them $200,000 or more for a house that will never be worth what you paid for it again in your lifetime.

Walking away from a house who's value has plummeted it the right choice. No matter how much extra rent, car insurance etc one pays because of that one negative mark for 7 years it won't ever add up to the lost spending power sunk into a home that is financing nothing more than some bank big shot's next trip to Bora Bora.

Fuck the banks. They made a bad economic bet. It's bad enough the homeowner will pay for it for 7 years but a hell of a lot better than paying for it the rest of their lives - ending up in destitute in their oldest years.

[exboyfil]

19. Trump filed for bankruptcy twice

I don't have a problem with anyone walking away from money they owe so long as fraud is not involved (misstatement of income on a loan application for example). In that case fraud laws should be employed (note this goes both ways).

If you do walk away from debts just be prepared for the consequences (like never receiving a loan again for example).

If you do walk away I would strongly advice staying in the property until the sheriff comes to remove you (just in case the foreclosure is not completed and you remain the owner of record). Also be careful of recourse loans in which other assets can be pursued.