Break chains of mortgage morality, lawyer says
I think that for many people their home is much more than an investment. I know it is for us. Allowing a house to go into foreclosure just because one is upside down in the mortgage doesn’t sound like a great strategy to me. What goes down, will eventually go up. If the mortgage is affordable I see no reason to walk away.
Is it morally wrong to walk away from an upside down mortgage? I’m not going to make that judgment value, but I do know that whenever a house is foreclosed on the property values in the neighborhood are hurt. I think this lawyer is representing the investor class values that have helped to put us into the financial problems we face now.
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don’t feel guilty about it. Don’t think you’re doing something morally wrong.
White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike.
Doing so, he suggests, could save some of them hundreds of thousands of dollars that they “have no reasonable prospect of recouping” in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume.
“Homeowners should be walking away in droves,” according to White. “But they aren’t. And it’s not because the financial costs of foreclosure outweigh the benefits.” Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, “one can have a good credit rating again – meaning above 660 – within two years after a foreclosure.”
[snip]
The main point, he says, is that too often people’s “emotions” get in the way of clear financial thinking about mortgages, turning them into what he calls “woodheads” – “individuals who choose not to act in their own self-interest.” Most owners are too worried about feelings of shame and embarrassment following a foreclosure, and ignore the powerful financial reasons for doing so.
November 29th, 2009 at 3:10 pm
For those that cannot afford the mortgage it makes sense. Reasons for that could be loss of employment or rates that adjusted way up. Both of those make it almost impossible to refinance or modify when more is owed than what it is worth. The thing is, if they walk, the banks are left holding the bag. They will take a loss when they have to sell in a short sale. Not to mention upkeep etc.
I read somewhere that Obama is putting pressure on lenders to modify loans. A simple revision of the terms to a lower interest fixed rate would do wonders. But alas, the lenders and investors insist on holding onto the false dream of ungodly profits promised
back during the subprime era. Perhaps if the expectation of more bailouts goes away, they will be more condusive to modifying.
Sage Reply:
November 29th, 2009 at 3:35 pm
I think this article is addressing just those who owe more than their house is worth right now. I’m not sure defaulting on a mortgage just because at the time your house is not worth what is owed on it is a good idea.
I agree that it makes sense if you can’t afford the mortgage.
Wizcon Reply:
November 29th, 2009 at 10:27 pm
No it is not a good idea if its only for that reason. I have been watching house prices rise and fall for almost 40 yrs. They go up and down, as does interest rates. They will recover in value eventually. It just won’t happen as quickly as it did in the last 10 yrs. That was all artificial inflations based on the investment bundling. The foundation was all crumbly.