Lost Money You’ll Never Make Back? Walk Away From Your Mortgage!

House UnderwaterROGER LOWENSTEIN writes in the New York Times

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told the Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.

Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

Read More in the New York Times

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  • honu

    I have a friend who owes on a mortgage that is 3 times the value of his home at this point. He made the decision to default on it about a year ago. When I asked him about why he said basically what this article says, that he bought his home at a point when the mortgage and the home value was commensurate. Now he considers his home as simply a business arrangement that went poorly and has no intention of paying it off, will let the banks take it, trash his credit rating and then he’ll start over. Hearing that at that time, about a year ago, my socialized brain couldn’t process this thinking but I get it now. It’s simply a business decision nothing more. I have a lot of respect for the people who’ve crunched the numbers and realize it’s better to default.

  • honu

    I have a friend who owes on a mortgage that is 3 times the value of his home at this point. He made the decision to default on it about a year ago. When I asked him about why he said basically what this article says, that he bought his home at a point when the mortgage and the home value was commensurate. Now he considers his home as simply a business arrangement that went poorly and has no intention of paying it off, will let the banks take it, trash his credit rating and then he'll start over. Hearing that at that time, about a year ago, my socialized brain couldn't process this thinking but I get it now. It's simply a business decision nothing more. I have a lot of respect for the people who've crunched the numbers and realize it's better to default.

  • Earbudcontender

    Who the heck trusts banks these days anyway? They screwed us over now its time for payback. Honor depts to close friends, not jackals who prey on the people.

  • Earbudcontender

    Who the heck trusts banks these days anyway? They screwed us over now its time for payback. Honor depts to close friends, not jackals who prey on the people.