Lowenstein: Walk Away From Your Mortgage!

The Sunday Times magazine has an interesting look at underwater home-owers by Roger Lowenstein.

He asks:

“Why should underwater homeowners behave any differently from banks?”

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 . . . 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…

That is a good question. Perhaps the better way to phrase it, is as follows:

The decision to walk away from an home worth considerably less than its mortgage should be made strictly as a business decision; It should be devoid of emotion, sentimentality, and other non-monetary factors. There should be a fair and honest assessments of the gains (lowered cost of living expenses, less stress) and the downside (damage to credit score, possible litigation).

It should be a calcualted business decision — just like the banks make.


Walk Away From Your Mortgage!
Why should underwater homeowners behave any differently from banks?
Roger Lowenstein
NYT Magazine January 7, 2010

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