:::: MENU ::::

Walking Away from a Mortgage…

by

I’ve know I’ve told the story before, but here’s the Reader’s Digest version about our home. We purchased our home in 2007. Since that time, the value has dropped more than $125,000. After we both lost our jobs and I took a new one making far less money, we shaved our spending and are still able to make the payments and reduce debt.

When people hear how far upside-down we are on our home (a common topic in southern California), a good number of them ask… ‘Why don’t you walk away?’

Sunday night, 60 Minutes aired a segment called ‘Walking Away’ about homeowners who can pay their underwater mortgages but choose not to. Nine states forbid banks from chasing other assets, making this process nearly painless.

According to these homeowners, ‘it’s a logical business decision’, ‘it’s legal’, and ‘it’s the right thing to do’.

In fact, there are companies who help you through the process (for a fee of course). One of them is called Youwalkaway.com who says their greatest challenge is convincing people that this decision is not immoral, it’s a business transaction. Homeowners, who can pay their mortgage, live in their homes for free until foreclosure and store up cash for their next big purchase.

Maybe I’m in left field but…

First, I do believe this is a moral decision. I don’t care if I had a lame bank or made a bad deal, I made the decision to take the deal and as long as I am able, I will hold up my end of this nasty bargain.

Second, this is a selfish decision. Sure, these homeowners will save themselves an instant wad of cash… at the expense of their neighbors, their fellow homeowners, and in the end… themselves. One way or another, you and I have to pay for those losses.

Third, no one learns a lesson when there is no loss. The show talked about people storing up cash and buying more things. If you don’t suffer the loss, you simply can’t learn from the lesson and you will make the same stupid mistakes over and over again.

We’ve learned that when people ask about our underwater status, we smile and say ‘Eh, we’re not concerned. We’re staying for the long term and don’t keep track.’

We made a BAD, BAD decision and it’s a lesson we will pay for 125,000 times but I certainly don’t expect others to foot my bill.

Latest posts by Beks (see all)


39 Comments

  • Reply Nichole@40daysof |

    Good for you! I completely agree that this is a moral decision. And that should be the overriding factor. Furthermore, it is also a bad business decision. Each person that decides to walk away even though they can pay is ensuring that in the future mortgages will be harder to get because they will be riskier than ever to make.

    Obviously, mortgages will probably never have the same god like status they once did. But as the statistics come in and the lenders realize that people no longer feel any moral obligation to pay back something that has always been tantamount to sacred in the realm of personal finance – they will no longer feel able to lend the money in the manner we are accustomed to. It will get more and more difficult and expensive to get a mortgage. The standards certainly needed to tighten and they have. But these people clearly have no vision for what their decisions mean for themselves and everyone else in the future.

    It is the same short term mentality that caused a lot of this in the first place. What’s best for me? Without regard for anyone else, for the future or even my own personal well being. I’m sorry, but you can’t tell me that the potential for a warped moral compass for the rest of their life for a person who does this is not a very strong possibility.

    Let’s be clear, before anyone freaks out, and remember that we are speaking of people with the ability to pay their mortgage. But they choose to walk away because they are upside down in regards to the value of their home vs. mortgage amount.

  • Reply Jan |

    I don’t see how there’s any gray area here….you sign a contract that you will pay a mortgage. Then you do it. You and your husband are doing the right thing. I don’t know how some people can face themselves in the mirror, let alone lecture their children on right and wrong with a clear conscious.

  • Reply DCS |

    Not to mention the risk they are taking, which is never mentioned in these stories. I see some that manage to buy a new, cheaper house before defaulting on the old one. However, most seem to say “well, we’ll default, live in it for free, save up some money, then rent for a few years.”

    However, what happens if prices rebound, like the stock market did (trapping many with locked-in losses)?

    If a house that lost 30% of its value appreciates by 10% per year, the one they defaulted on will be worth more in 4 years than it was when they bought it. However, the down payment requirement will probably be higher (especially for defaulters), and the interest rate will probably be higher (especially for defaulters).

    Will the money they saved be enough to overcome all those barriers? Will anyone give obvious strategic defaulters a mortgage? If a lender sees a default but no bankruptcy, chances are you might defaulted by choice, at least in no recourse states. NOT having a bankruptcy could, ironically, be a flag that keeps you from getting a mortgage.

    There’s nothing wrong with renting, but it’s nice to have a choice. These folks may have left theirs behind in the house they walked away from.

  • Reply jaye |

    The idea that walking away is “okay” is ludicrous but, in our culture, many people feel that instant gratification is their right. (It’s funny, it reminds me of the miracle diets that are constantly coming out. I mean really, does anyone think that there’s a diet “secret” out there?) Walking away from a mortgage hurts everyone involved. That’s got to have an effect on peoples’ self-respect, credit history, relationships, etc.

    Good for you and your husband. Doing the right thing when it’s hard is something to be proud of!

  • Reply NYGIRL |

    I agree with you Beks, and all the others who commented. To these same folks who made the “business decision” to stop paying…. it hurts ALL of us. Property values are determined in large part by current sales.. if people continue to walk away and the Bank forecloses, market values will continue to drop. Ironically, these same people who made the “business decision” to stop paying, are the first ones to complain about closing costs. I know, I was a mortgage banker for a lot of years.

  • Reply chacha |

    I saw that segment and I was really mad at that one guy in AZ with the 260K house. Wah! What a whiner. Keeping the house, for him, didn’t sound like a financial nightmare. Just not ideal until the values come back (they will eventually).

    I’m sitting here with my husband laid off since last april (’09), we owe 440K, paid 530K in ’07 and it’s worth about 420K (up from 360k – so we were 100K underwater at one point). And I’m toughing it out (and it’s a pain in the butt). Everyone’s circumstances are different, of course, but that guy did not sound like he was really hurting or would be excessively burdened by keeping the house. Hopefully the foreclosure stick for 7 years and make it harder to get a good loan in a few years. Some price has to be paid.

  • Reply Jen |

    Good post!! It’s sad that many people don’t value their word, and think contracts are optional. Ugh. Also, if you live in your home long enough it doesn’t matter if you’re upside down!

    Thank you for being responsible!

  • Reply emmi |

    I will hold up my end of this nasty bargain.

    In an environment of heavily uneven information (the banks have ALL the information and you have a little tiny bit) you signed a contract that said, I’ll pay this much a month and live in the house OR I’ll stop paying and the bank owns the house. That’s the contract. If the bank were not perfectly happy to take the house in exchange for you stopping payment, they should not have written the mortgage in the first place. Period.

    Internal documents from the banks show they abused their end of the deal in part because they believed people would have the exact cultural of continuing to pay even when it was far outside their best interest.

    Third, no one learns a lesson when there is no loss.

    This is doubly true for the banks too. Or quintuply true. Or 100x true.

    and you will make the same stupid mistakes over and over again.

    It is FAR easier to fix this system, not by beating a painful lesson into millions of homeowners and suffering the social generational fallout at the end of it. It’s WAY easier and more appropriate given the unequal power relationship to teach the lesson to the banks that abused their positions. If we don’t want this to happen again, that’s where the lesson needs to be learned. 1/3 of the stupid people in the country that will never learn this lesson, that will believe the experts screaming buy now! buy now! can still bubble and crash the system again. It’s fail to hope you can fix those millions of people with this kind of lesson.

    All that said, if it makes you feel like a better member of society to keep at it, then by all means do so. But others are reading their contracts and realizing that households are just a small business. It’s capitalism. It’s a system of money, not morals. That’s why there IS a contract.

  • Reply emmi |

    Each person that decides to walk away even though they can pay is ensuring that in the future mortgages will be harder to get because they will be riskier than ever to make.

    NO it’s not. Banks should not issue mortgages on value estimates they are GAMING to be BOGUS. That’s what they were doing. Without the valuations fraud at the banks, house prices would not have gone sky freaking high. Without the fraud at the banks, the banks would not have issued mortgages that are hurting them to have foreclosed on. They hurt themselves because wall street was paying them for the mortgage paper. There was fraud all the way up the chain from the loan brokers to wall street and the ratings agencies. The mortgages holders were the rubes in this system, nothing more. Some have decided they don’t want to remain the rubes and they are immoral for that? Seriously?

    The economy will not return to healthy growth unless house prices fall to a sustainable level. There is no getting out of that. Foreclosures and short sales will end this pain far faster. Jim the Realtor is adamant about this too.

  • Reply Jim |

    I don’t see how its a good moral decision to stay in a bad contract. Contracts as well as local, state and federal law have explicit language on the costs of breaking a contract. If the cost of breaking a contract is less than staying in a contract than the correct decision should be to leave. To use a different example, say you signed a work contract for 4 years but after a year you are making less than a quarter of your market value (lets say 100,000 for this example) and the penalty for breaking the contract is say 10,000 dollars would it be immoral here to walk away and break the contract? This is not a case of finding a loop hole in the law either as some states explicitly wrote legislation that prevents lenders from going after you for the “loss” while other states allow lenders to do this. Never mind that lenders are aware of these laws and write mortgages and charge interests knowing that this is a possibility. Part of what you are paying for with that interests is your right to walk away.

  • Reply Michelle H. |

    Good for you Beks! God will honor your integrity and He will be your strength…
    Blessings!

  • Reply christy |

    We live in NJ, and the prices are plummeting here too. A house up the street (the exact same model as our home), is selling for $60,000 less than we bought our house for in 2006. Makes me sick to my stomach, but I would never walk away from our house. We’ll stay here until the market recovers or until we pay off the house in (gulp) 26 years.

  • Reply NYGIRL |

    Replying to Emmi…. The banks did not do all the damage here. True, there were some lenders with looser lending criteria which didn’t help. However, there is a LOT of blame to go around here. The BANKS did not put a value on homes. Sales were based on appraisals done by (at least in THIS state) Licensed real estate appraisers which were also based on what the market woule dear in terms of sale price and inventory. If anything, banks were a little more conservative as far as VALUE of property was conceened. Speculative buyers, flippers and new home builders fueled this runaway train. Everyone got greedy. Look at the mess southeast Florida is in. Builders couldn’t keep up and were in some case taking deposits for homes/condos that were going to take 2 years to deliver. I don’t see anyone whose home APPRECIATED in value running to the banks to give money back.

  • Reply NYGIRL |

    Correction…. on previous post…. line 5 should read “…on what the market would bear…”

  • Reply beth |

    Thank You! I for one applaud you. I tried to watch that segment of 60 minutes with compassion but I kept coming back to the feeling these people were just looking for the easy way out once again. People need to stop viewing their homes as investments and start seeing them for what they are- places to live. Home values go up and down. I also think the banks need to require more money down to buy a home. If these people had more invested in these properties they wouldnt be walking away, subsequently hurting neighbors, communities and the rest of us by defaulting. However I have no issue with people who CANT pay, walking away.

  • Reply swoosie |

    It’s not a lesson to be learned. It’s a contract to be honored. Plain and simple. The contract states, pay or give back the house. Most of these defaulters are consciously choosing the later for good reason. If the banks could stop them by building in stronger default penalties, they would, but when they were doing the lousy loans to just anybody, they screwed themselves. Now they are paying the price by having to absorb lots and lots of defaults. Others that choose to make this a moral issue are delusional. They are probably the ones that have held the overpriced homes for a long, long time and more invested or to take a loss on if they were to walk away, maybe they put a huge down payment down and that’s the bigger incentive to stay, they have a low, fixed mortgage rate that they cannot get if they walkaway, they have no job, but can affort low monthly payments afforded by paying interest only–sort of like renting. I think that those on this blog who say different..that they are just hanging on to a ghastly overpriced mortgage are doing so for reasons they are not being specific about. If they are doing it for moral code reasons, then reread your contract. There is nothing in there about moral codes and mortgages. It is a business transaction that is protected by specific text that satisfies the bank should you default. Plain and simple.

  • Reply Diane E |

    What great posts by everyone! I think that the whole culture or banking/mortgage/Wall Street/real estate has gotten so out of whack. Look at the culture of Countrywide for example. It seems that those industries really took the movie “Wall Street” to heart or as the main character, Gordon Gekko (played by Michael Douglas) said, “greed is good”!

  • Reply Gwen |

    The way I see it, it is a moral issue as long as you have a choice…even when the choice to do what is right isn’t necessarily convenient or comfortable. I applaud you for your integrity!

    If job loss or some other major financial catastrophe means one cannot make payments, then it’s no longer a choice to walk away. I have compassion for those who face that situation.

  • Reply Edwin | Finantage |

    A lot of you are placing the blame on the home purchaser. As others have already commented, the homeowner was just a small piece of the irresponsibility that went on.

    Lets take for example the most irresponsible type of homeowner. This person knew they had little money, barely got a new job that doesn’t even pay well and then decided it’s time to move into a new house. They see all of the marketing about how you can get into a house no matter your situation and go for it. They meet up with a lender who does nowhere near the due diligence required to see if their investment pays off. They get the house on an ARM and a few months down the line can’t afford it.

    The average homeowner fell for the marketing and just trusted the system to be stable and responsible. Well, it was from from those things. Lenders would lend irresponsibly because the risk of the mortgage didn’t matter since they would just package it and sell the mortgage as part of a financial product they didn’t have to deal with.

    The buyers of those financial products (mortgage backed securities) trusted the rating agencies and the due diligence of the issuers so assumed the products were all fairly risk-free. Oh how wrong was everyone.

    Just because you take issue with an individual represented in the program doesn’t make walking away from a home you got pushed into with slick marketing techniques some kind of moral dilemma. There is no reason regular homeowners should be moral brow beaten into taking the brunt of the losses that were caused by a horribly built system.

  • Reply Beks |

    Emmi – I knew what I was getting into. If I didn’t, I had no right to buy a home. I have the responsibility to educate myself before buying a home, it’s not the bank’s job. And, do you think the banks didn’t learn? Right now, they wouldn’t give a loan to their own mothers. And I would agree with you about it being about capitalism and ‘just a contract’ but walking away hurts more than just the banks. It hurts me and you too. And that’s simply not fair.

    Jim – I would agree… if walking away only effected the bank and the homeowner but it doesn’t. This hurts many, many, many people who had nothing to do with my stupid decision. The economy is falling and all we do is say, ‘it’s not my fault’.

    Christy – We’re in it together! ; )

    Swoosie – I believe, as delusional as I am, that hurting others through hurting the economy looking out only for myself is completely immoral.

    Gwen – I totally agree. If you can’t afford it, walk away. I feel awful for people in that position.

    Edwin – Really? We should blame marketing for our dumb decisions? Should I blame Ben and Jerry’s if I ever get fat? Or should I blame myself for being stupid enough to eat it?

  • Reply Edwin | Finantage |

    Beks – You can’t place full blame on marketing, and I’m not saying that. But marketing does have a huge role to play in people’s decision making and you can’t just outright ignore that. There is a reason companies are willing to spend so much money on marketing. It’s because people aren’t rational and there are ways to nudge them into making decisions they wouldn’t otherwise.

  • Reply Jen |

    Emmi – You make very good points, but not all banks gamed the system. For example, my mortgage is from a reputable brick and mortar local bank. Could I have gotten a lower rate? Sure, but it may have meant going with a lender that isn’t as honest.

    However, reading over the comments made me want to qualify my remark about contracts. A fairly written contract should be honored; a contract with ridiculous terms is another thing. But, I’m guessing most of the mortgages were written with reasonable terms.

  • Reply Bonniecello |

    Very good post and excellent responses. I agree with the
    “a contract has two sides’ argument. If you don’t pay, they get the house. Pretty simple — I don’t really see the moral argument — you aren’t ‘stealing’ the house — you are giving it up according to the terms of the contract.

    Your family is ‘underwater’ by $125K…What if you were under by $200K? $300K? I think people’s decisions are greatly impacted by the ‘underwater number.’ Would you pay $300,000 more than your next door neighbor is paying? That is $300K (plus interest!) less for college, retirement, medical bills, having a larger family etc…

    I think the ‘underwater number’ matters a great deal when making the ‘do i walk away?’ decision.

  • Reply Kev |

    Just to play Devils Advocate… The question of morality only applies to this topic when speaking of individuals and I have a HUGE problem with that. Businesses (including banks, investment firms, etc.) strategically default on property and other investments all the time. It’s not considered immoral or wrong when they do it – it’s good business. They are expected to do everything they legally can to perform well financially. Why should this concept be any different for you or me? If you choose to stay in a home that is holding you down financially just b/c it makes you feel better about yourself then by all means… The moral consequences of that decision can be argued back and fourth all day long, the financial part of the equation is very clear though. Staying in an underwater mortgage is bad business – it doesn’t matter if you’re Big Company or Average Joe.

  • Reply Lizzie |

    My husband and I found ourselves in the awful situation of losing our home five years ago. We had decided to get into home building (he and his dad had previous experience in this) and after 9/11 we were left with several that were not selling. After greatly reducing the prices, the homes sold, and to cover the losses owed to the bank we refinanced our own home. All along we were taking what we thought to be the “moral high road”, not wanting to default on any of our own loans. For four years we tried to sell our own home when we could see our payments were more than we could handle. It did not sell, we eventually just couldn’t make the payments and foreclosed.
    After, many people told us we should have let the homes we built go back to the bank, then we would still have ours. However, we chose to build and hoped they would sell. We chose to take any loan the bank would give us to get the money we needed to stay afloat.
    If we could have scraped the money together to keep our home, we absolutely would have. Walking away “just because it’s legal” was not a good enough reason for us. Exhaust every resource first, walk away knowing you did everything in your power to stay and make it work. Learn from your mistakes, think long and hard before you take risks and realize the economy is not dependable, take responsibility for your decisions.
    I will not blame the banks or fancy marketing, we were young, but still should have researched what we were getting in to.

  • Reply TK |

    I’m going to come in on this from the other side of the coin. When prices were up and mortgages were easy to get we really felt pressure to buy. We did not give in to that pressure. We were not where we felt we should be financiallyt to take on such a huge debt/responsibility. We had goals in mind and were working toward them when the housing market started to take a dive.

    The bubble bursting was one of our fears and one reason we didn’t jump into the market at what we felt was unreasonable high. Unfortunately we had many friends who have lost homes or who are, at this moment, barely hanging on.

    The downside for us is that we feel we may never be able to get into a home now because loans are going to be harder than ever to get based on all the defaulting that is going on. Feels like we did the right thing and it still got us nowhere.

  • Reply Joseph |

    Well, if you own a house in Southern California, at least you can take comfort in the fact that at some point home prices will rebound and you will eventually be able to make money on your home if you decide to sell it for some reason. It may take several years, but it’s one perk of living in a really desirable place.

  • Reply John |

    I agree 100% with Beks… if you can afford it.

    The whole concept of being “underwater” only matters when you plan to sell. Just like any other asset… you only book the loss when you sell.

    Most of us on here could have walked away from our consumer debt, but didn’t… I think there is a reason for that.

    If you really can no longer afford it, I see no problem with taking the steps you need to take.

  • Reply Anon... |

    I will soon be “walking away” from my house. When I bought it I had a steady job, $60k a year. I had just finished working out of the country for a year and had socked away $25k for a down payment.

    The company I dealt with tried to get me to put just a few percent down but I said no, 20% – I didn’t work hard saving that money for no reason.

    I’m not underwater at all. But I lost my job the year after I bought the house and haven’t found a comparable one since. When I bought the house, literally half the town I purchased in was for sale. Seven years later, all of those same houses are still for sale, or they’ve been foreclosed on. The lack of home sales in the small town I live in is scary. It’s a suburb of a big town, but people aren’t buying the older homes in my village – they are buying the McMansions that circle my village. So I’m getting socked with double taxes (township AND village) that are being used to finance the new schools, the new water systems (while I am stuck with a shallow, undersized well that’s not to code). They are being used to pave new roads throughout the township while my road, right thru the center of the village, gets abused every day by the school busses, the semi trucks, etc.

    My house has actually – ON PAPER – gone up in value. I think the village has artificially inflated home values because they want the tax revenue to continue funding all the new construction that is going on all around the township. Unfortunately, those of us in the turn-of-the-century homes within the village are the ones paying for it.

    I simply cannot afford to make the payments on my now-$150,000 house. Um, the floors are tilted, the basement is a Michigan cellar, and my windows have gaps 1/4″ in them because the 100-yr-old glass has actually flowed down the frame. My furnace is dated 1970.

    My fault for buying a money pit? Absolutely. But I didn’t know I was going to lose what I thought was a secure job. I didn’t know I wouldn’t be able to find anything near what I’d been paid when I found a new job. I used up my 401k making the payments for as long as I could.

    I have an interview in Kentucky next week. If I get the job, I pack what I haven’t sold (living off garage sale money while I’m currently making $9/hr) – there hasn’t been a job posting in my field within a 50 mile radius in over two years – along with my cat in the van my brother bought me to use (my paid-off car was totaled twice last year, so I literally have no assets for the bank to come after) and I am heading out of here. I will drop the keys in the mail to the bank that holds my mortgage on my way out of town.

    Do I feel bad or ashamed or feel like I”m doing something I shouldn’t? Occasionally. But I simply have no other choice.

    Don’t be too judgmental til you are in my shoes, folks.

  • Reply Jen |

    California is desirable? No way … the budget crisis in that state is making people flee. I’d think twice before accepting a job in CA.

    Underwater does only matter if you have to sell.

    While I personally wouldn’t default on a mortgage unless i absolutely had to, it is not a moral obligation in itself. It is a contract … with the terms spelled out very clearly. If everyone walked though, it would make mortgages nearly impossible to get.

  • Reply Jared |

    I admire your stance and the fact that you are willing to continue to give the bank that ripped you off your hard earned money. Good for you! Instead of harping on about how ‘morally wrong’ it is to walk away from a bubble house, how about thinking for a second about how you got in your predicament in the first place? You were sold a knowingly inflated house by a bank who knew exactly what ‘financial products’ it was foisting upon an unsuspecting public, driven by realtors who were making fat, fat commissions. The entire bubble was UNSUSTAINABLE and the banks, even while they were making those ridiculous Option ARM loans KNEW IT. Let them have the house back, let them deal with the losses they created, let the government fall on its arse and the country too. This is the ONLY way to reach some level of reform and the wet-behind-the-ears 20-something bullet-proof-education-entitled crowd who created this garbage in the first place to perhaps LEARN something real. Maybe the rest of us who love to spend OPM and live high on the hog on money we didn’t earn will learn something too because having hoards of stuff and walking around the mall spending OPM on overpriced crap certainly hasn’t made us happier as a country, as a culture or as a people. We are unhappier and I could go on and on about that too but I’m cutting it short. Personally, I think you’re a fool for buying into the ‘moral’ aspect. Save yourselves, your money, your family and put yourselves into a far, far better place financially. Walk away and let the bank have the house back because I really don’t admire you at all. Sorry, but I think you’re dumb. I bet the bozos behind the phone bank at your mortgage lender LOVE you though because you’re enabling them to justify that huge year end bonus to themselves because saps like you continue to pay, continue to justify those bonuses and, in so doing, justify the continuation of crooked behavior by our so called ‘lending institutions’. I don’t give a hoot about fronting for the neighbors either, most of whom have raised a bunch of spoilt brat kids with OPM. This country needs to get back to basics and self reliance. Screw the banks.

  • Reply Anon... |

    Hindsight being 20/20, I should have socked away that $25k downpayment and added to it for a couple of years before purchasing anything…

    The cost of my living situation at the time was reasonable, I had no credit card debt, I had thousands in my 401k – then, when I lost my job a year later I’d have been able to weather the storm.

    A mortgage is a contract. Contracts are broken every day. When you see a business open one day and gone the next, they’ve likely broken a contract (their lease, at least). I am breaking mine but I will work for the next few years to pay back what I owe and get myself back to the surface – then if I ever want to buy a home again, I will save up 100% of the purchase price (it can be done) so that I have some sort of stability to my life.

    Until you’ve lived a year looking over your shoulder, afraid to go home because you don’t know just exactly when someone may come knocking on your door, telling you to leave, or that you may come home some night to find a big padlock on your door…well, you really don’t know what those people have gone through, now do you?

    Ask yourself this – are you living paycheck to paycheck or could you weather a year’s job loss and still make all of your financial commitments?

    My guess is at least 80% out there couldn’t if they found themselves in that situation.

  • Reply Beks |

    Once again, think blog is focused on those who CAN afford their house but walk away. To anon – you clearly can’t afford your house and should have walked away. By the way, my husband and I have both suffered job losses over the last year and a half but by doing everything from pushing grocery carts to pulling weeds, we made it by. Not everyone can do that, but we did all we could. So please don’t pretend for a moment that I haven’t been there before.

  • Reply Matt |

    Wow–this is quite a good discussion! I’m going to be a Devil’s Advocate here.

    Beks, when this whole mess first started, I was pretty much in agreement with you. I thought paying one’s debt (especially a mortgage) was a matter of honor. As I’ve had time to think about it though, I wonder if perhaps my viewpoint was a bit idealistic.

    As others have pointed out, when one gets a loan from a commercial bank, it is a business relationship with a detailed contract. In the case of a mortgage, if you don’t pay, the bank gets your house back. Those are the terms of the contract. The bank isn’t making you a loan for the sake of kindness; they are making you a loan in the expectation of making a significant amount of money the loan interest. They knowingly take some degree of risk as part of this arrangement.

    I remember back in the 2003 time-frame when I would get bombarded by Countrywide with offers to refi into an “interest only” loan with no income verification required (I never took them up on their offer 🙂 ). Were these sorts of business practices ‘immoral’? One could certainly say they were reckless at the very least.

    I’m fortunate enough to live in a part of the country where home prices haven’t taken a huge nose dive. Personally, if I were moderately ‘underwater’, I’d probably give it my best shot to stick it out (assuming I could afford the payments). If I were $100k+ underwater though, I think I might have to step back and look at the bigger picture. If I weren’t confident that my property would regain a good chunk of its value over the next 10-20 years, walking away might make sense. That underwater amount (plus interest) could instead be going to fund retirement accounts, college educations for my children, etc. Yes, I’d have made a bad business decision by buying an overvalued home during the boom. However, is it better to voluntarily pay out the nose for a massively depreciated asset or to surrender the house back to the bank–as per the contract (I’m sure the bank would say that the former is the better option, but that’s not necessarily the best option for the homeowner)? This is capitalism at work–I think it’s intellectually dishonest to try and throw morality into something like this.

    Incidentally, I wouldn’t apply this same argument to loans from friends or family. I think paying back those such loans is absolutely a matter of honor.

    Hope I don’t offend anyone. I certainly admire those who are thinking of the moral aspects of this. An interesting topic for sure…

  • Reply Anon... |

    Beks, my comment was meant for everyone who has replied to this discussion with the attitude that it can’t happen to them.

    This CAN happen to anyone. Of all my friends and acquaintances, I know of only one couple that keeps a $10,000 “emergency” fund. And, truth be told, that would last them less than 6 months if they were the average family with a $1,000 house payment, a couple of car payments, kids, etc.

    Unemployment insurance in my state is a max of $360 a week. If I qualified for it (which I did when first laid off in 2004 but it only lasted 6 months, by which time I had cashed out the 401k to live off of and started a small business) now, which I don’t, I’d have over 99 WEEKS of it – they started with extensions because of the bad economy. Anyone let go now gets nearly 2 years of unemployment, a “bridge” card ($160 a month for food), work retraining or college PAID FOR, etc. None of that was available to me in 2004 so I used my education and experience to open a low-budget consignment shop, on a shoestring. You haven’t lived til you’ve learned to cook your meals in the back of a shop using just a microwave and a rice cooker…

    I ran a small business (60+ hours a week) AND worked a full-time engineering job for nearly 3 years. I was paid $40k a year at the engineering job (That is $20k less than I had been making) which did pay my bills but I was let go from THAT job in March, 2008. After that, the business tanked and basically for the last year there’s been no job and no unemployment, so I too know what it’s like to eat live frugally to survive.

    I have done everything from run estate sales to now working as a temp hauling mail at the post office until my hands bleed each day from the mail. I would never judge or belittle what a person will do to survive.

    One last comment. I was in line at the grocery store last night. I was buying some vegetables (one green pepper, one zucchini, one onion) and two small steaks (not good ones but I intended to make shish kabobs, trying to eat more red meat because I’m so anemic) that were buy 1, get 1 free. The man in front of me was buying 6 frozen pizzas and a case of beer, among other items. He pulled out his Bridge card, which only had $6 left on it for the month. The clerk told him he only had $6 available and he pulled out a fat roll of bills and peeled off 3 $20’s to pay for the beer and pizza. The bottom 5 bills were $100’s (I’m nosy, I looked). She gave him his changed and he left.

    I paid for my meat and vegetables. $7. I handed her two fives off my “roll”, which consisted of mostly $1’s from the garage sale I had over the weekend. (One bright spot about moving from your home into a storage unit – you learn to part with most of your belongings if someone will give you cash for them!) and she then asked ME if I would like to donate $1 to Big Brothers/Big Sisters. I said no thankyou, knowing I’d donated a dollar yesterday when I shopped at the same store for some other item.

    WHY DIDN’T SHE ASK THE GUY USING THE BRIDGE CARD? He had a good $700 in his pocket, in cash.
    Hmmmm. I’m still pondering that one.

  • Reply Gary Anderson |

    Beks, I met my wife in Orange County so I understand the importance of real estate in Socal.

    But here is the deal, as my website says, and if you click on it you will see more info, the banking scams was deliberate. It started with the banks being allowed to have off balance sheet accounts to hide bad loans way back in 1997 at Basel 2. The central banks were in on it. The Fed Reserve is one of those private central banks. They allowed underwriting to be unsupervised. And they allowed liar loans and no money down.

    You have the right and duty to walk away. This is a ponzi and unless you want to be upside down for the rest of your life, you need to walk away. It is your choice, but it would help the middle class get some justice against the TBTF banks and central bank.

So, what do you think ?