Thursday, January 14, 2010

Underwater Homeowners Get the Guilt Trip?

Would you walk away from your mortgage if you knew you owed more than your home was worth? What if you owed significantly more? Turns out a lot of us do.

FEMA recommended homeowner attire?

As New York Times Magazine contributing writer Roger Lowenstein points out, businesses often implore the "strategic default" as a means to minimize losses and bring forward potential returns. Bankruptcy, renegotiation, and contract termination are all cards to be played if free-market circumstances call.

The idea of an individual walking away from a mortgage, though, seems to carry moral implications not emphasized in the high-stakes world of big business deals. Homeowners are being implored by CEOs and politicians to "do the right thing" and honor their contracts even though it could be against the individual's best interests.

Certainly there are economic consequences for an individual defaulting on an underwater mortgage (e.g. foreclosure, personal bankruptcy or damaged credit); so if those consequences are fairly suffered, why the moral argument?
Inside the Brackets wonders if its readers think it's hypocritical for leaders to expect individuals to act a certain way while they run their businesses another. Further, speaking strictly in the long term, is it possible that staying in an underwater mortgage hurts not only the owner, but other homeowners as well?

Let us know what you think. Comment below.

Full NYT Magazine article text: here.
Interesting interactive graph of negative equity mortgages on WSJ.com: here.
Photo credit: http://www.flickr.com/photos/mister_tee/ / CC BY 2.0

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