Walk Away From Your Mortgage?
From my quiet desert town of Tucson, Arizona – what a storm!
Earlier this week, a professor of law at the University of Arizona just minutes down the road from me wrote an academic paper about the shame of the upside-down loan circumstances in which many American homeowners are drowning. Shame on the nation’s banks was his point.
Professor Brent White says these over-extended homeowners (estimated to be about 15 million Americans) would be better off financially if they walked away from their upside down mortgages. He says they don’t because their moral compass won’t allow it; that it makes them ashamed to do it.
Professor White respects that moral value but says many people are ashamed to walk away from their mortgage because they/we live a double standard. A double standard that expects moral norms for Main Street and accepts market norms for Wall Street. Banks operate to maximize profits. Banks think about their interest(s) and look out for themselves. Banks do this often at Main Street’s expense. Professor White believes this double standard is what scares American homeowners into meeting to the market norm mentality that puts them in this upside-down home, negative equity situation.
I think he’s got a point. And to me, the point is: think about what’s in your best interest.
Professor White isn’t advocating anyone walk away from their mortgage unless they feel its right for them. White is saying American homeowners must act on economic self interest and determine what financial decision given their circumstances – is right for them. And, he concludes, since shame doesn’t work for banks, it shouldn’t work for homeowners who are considering walking away from their homes.
This is a mind over money matters decision. This is one of those situations where your mind over your money – matters. If you choose to do this, know that there will be consequences. Mortgage lenders are outraged and say it’s unethical. They remind you – correctly – that this decision to walk away from your mortgage will stay on your credit report for 5 to 7 years.
But advocates of this option say – your credit is already battered, you’ll have to take the steps to rebuild it anyway. What you pay, the bank will solely benefit because you can’t keep up with the growing debt. And to get in front of it now – is impossible. Why throw money at a market mentality that is morally irreverent?
It’s your money – take it personally. Everyone’s situation is different. There are 15 million Americans facing this right now. It might be ok for you (or any one of them) to walk away from an upside down mortgage if it’s in your (their) best interest.
Here’s to your health and wealth.
TAGS: default or walk away from homes, Upside down mortgages
Thank you for writing this! It is rather crazy how good Americans have been taught to pay off their debt no matter what and if the don’t , they are bad people. Wrong! I agree that to pay $400,000 which, with interest, can be more than twice that much , for a house that is now worth $150,000 is just plain ridiculous. All banks should be offering homeowners the same deals they are offering buyers of short sales! Instead, homeowners are either forced out and their homes taken back for they do a ‘short sale’ and someone else benefits from a reduced price on their home that they already invested lots of dollars to buy and keep. We must all write to legislators to change practices and help homeowners who were bamboozled by appraisers, mortgage companies and banks!
Comment by Linda Carpenter — December 3, 2009 @ 4:51 pm
Coming from the other side of the street on this one. I am in the banking industry.
This post has valid points. If you walk away, your credit is screwed for a period of time. If you don’t walk away, it is likely still screwed.
However, the banks and mortgage lenders did not force anyone to buy a home they could not afford. I get annoyed when our local TV news stations compete to see who can be the most tabloid by interviewing people who are in foreclosure as innocent victims. I still have the picture of the obviously uneducated woman on the TV news shouting, “that bank knowed I couldn’t make dem payments but they gave me this here loan and knowed I couldn’t do it.”
Really?
This root of the mortgage meltdown are the mortgage holders. OK, yes, there is an argument here – the lenders enticed them, mislead them, sold them on buying home they couldn’t afford.
I see ads everyday for sexual enhancement pills, get rich from home job offers, “free” vacations and such. But I know better and I don’t grasp for things that don’t make sense.
I don’t believe the lenders, bankers and appraisers are completely innocent, but the mortgage holders are the root of the problem. They walked into a facility and applied for a loan on a house they could not afford. That is where the problem started. The rest is fallout.
Comment by Donlyn Jones — December 4, 2009 @ 3:32 pm
Donlyn and Linda – Thank you both for your perspectives and comments. I see validity in both opinions. The reason that I am committed to a “mind over money matters” approach to my women and money blogs – is to encourage everyone to become more responsible. Uninformed consumers of all cultures and ethnicities buy homes and other products without the understanding and/or acceptance that there are consequences for every financial decision. Predatory environments tend to snare a lot of decent people. That’s why we cannot allow another generation of women (and/or men) to be financially illiterate. Valerie
Comment by Valerie Coleman Morris — December 4, 2009 @ 3:48 pm