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Tuesday, May 11, 2010

Walking away when you're under water

So let me make sure I understand this.  It's morally okay for a home owner to "walk away" from a mortgage they can afford to pay simply because the home is now worth considerably less than its value at the time of purchase?  That's just a smart business decision and nothing more? 
Whatever happened to the concept of "a deal's a deal?"  You're saying your word and your commitment is only as good as the day-to-day economic viability of the deal?  So if you sell me your vintage '60's muscle car on time and six months later the bottom falls out of the vintage car market, making my purchase a bad investment, you have no problem with me just bringing it back to you and no longer making the payments?  Why, that's mighty nice of you.  In fact, if you don't mind, I'm going to drive it for a few months for free while you go through the legal process of repossession, since you're in such a charitable mood.
Let's take this a step or two further because I really want to understand what's motivating your thoughts.  If five years after your purchase the value of the home has doubled, are you going to insist that the bank redo the mortgage and you'll gladly pay it?  No?  But the bank should renegotiate the mortgage if the value drops?
So can I fairly assume that since practically every home in this country is worth less now than it was two years ago, you have no problem with all of us walking away leaving the bank high and dry?  One last consideration:  What are you going to tell your neighbors when your local credit union, the one holding your life's savings and theirs, goes under when we all renig on the mortages they hold?


Deb said...

Hmm. This is an interesting one. I believe that banks have absolutely no ethics when it comes to business dealings. They have only the bottom line and the legal contract. They do things because it is either a) profitable or b) the legal case that would ensue would be damaging/unprofitable.

The subprime mortgage fiasco was absolutely the fault of the greedy financial institutions by KNOWINGLY lending to high risk people. They cared nothing about those people they lent to.

If you lose your job and can no longer put food on your family's table... what do you do? Continue to pay the bank for something you can't afford? Sell up, and still owe the bank a shitload of money because your house is now worth a lot less than your mortgage? Or walk away?

I know what the bank would do in the same situation!

I admire your sense of ethics in all this. I'm just not sure that I agree :)

Zebster said...

I think we do agree, Deb. I'm only talking about people who fall under the scenario that the only thing that changed was the value of the home. They still have their job and their ability to pay. They've just decided to stop paying, live their for free for many months and then pay rent until their credit is good again. Many of these folks were speculating to boot. So I don't think the banks (or us in the case of a CU holding the mortgage) should have to be their safety net for gambling or not living up to a commitment that they otherwise can.

Anonymous said...

I think people who have the ability to pay shouldn't get to walk away. They signed a contract in good faith and so did the bank. A deal's a deal. And if they don't pay, throw them out and sue them since they have the money.

That's what banks do with credit cards.

Rob said...

The mortgage fiasco of lending to those who cannot afford is arguably a result of deregulation. Anyhow it just goes to show how we reward failure in this country. You can't afford your mortgage - no problem. You're a CEO and the company tanks - no problem we'll bail you out. Too lazy to work? No problem here's a check. Illegal immigrant - no problem here's a check. Unable to do the schoolwork to pass - no child left behind!

Maybe I'm just cruel and lacking compassion but I think we need to start holding people responsible and not everyone can afford a mortgage, run a successful business, pass 10th grade, make the travel basketball team etc. And if you can do those things it might take some failing before you become successful.