Walk away from your underwater mortgage -- the bank would

[tlatoani]

I agree with this article: a mortgage is a business transaction, and homeowners are being suckered into thinking that walking away from an underwater mortgage carries ethical implications when it doesn't. Whatever bank the mortgage is with walks away from bad financial deals all the time. And the argument about "walking away from their

Comments

[evilmagnus]

Exactly.
I see that the banks have shouldered the Moral Responsibility to work out all those troubled mortgages.
Not.

[lintra]

I don't know anyone who has stayed in their underwater home because they felt morally obligated to. If I could afford the credit hit, I'd walk away. We're still $55K underwater.

If I didn't need a good credit score for my job, though, it'd be under consideration. It will be under consideration were our renters to default.

Of course it is bullshit for the banks to try to push that moral obligation crap - but it is also good business for them to do it. We are not rational actors, after all.

[tlatoani]

Exactly. And there may be a lot of good reasons to stay in an underwater mortgage -- you like the house too much to leave, or you want to protect your credit rating, for example. But I bet there are a lot of people who are toughing it out because they think it's what they're supposed to do.

[lintra]

In just about every other position, I agree. But I'm an accountant and I could easily steal tons of money from where I sit. People with low credit scores are more likely to be in desperate financial situations... so I can see it for accountants.

But hardly any other job should have it. Top Secret military people should get checked (blackmail/money) too. I can't really think of more.

[spiziks]

Completely agreed. In fact, give it a year or two for us to ready things, and we may well walk away from our mortgage. I feel no compunction or shame about it. It'd be a good business decision. Our mortgage holder has sold our mortgage three times now. Why should I feel guilty about something the bank does routinely?

[tlatoani]

Yep. Anyone who can say "I have a moral obligation to Deutsche Bank" with a straight face is either:

1. Employed by them, or

2. A sucker

[uplinktruck]

Or someone who has enough character to honor their word given with their signature on a contract. It troubles me that you would consider someone that feels an obligation to honor a freely signed contract a sucker.

[tlatoani]

As I've said elsewhere in this discussion at way too much length, I think the decision to walk away from a house and let the bank take it is a business decision rather than a moral one, and it's a possible outcome contemplated in the agreement.

Note that I exempt employees of Deutsche Bank, who have in fact signed a contract with the bank that in my opinion does generate a moral obligation.

Outside of the employment context (though people could make arguments about that, I personally view that as a professional ethics issue) I believe it is generally naive to decide that you have a moral obligation to any entity which does not view itself as having a reciprocal one to you. A business obligation, yes.

[tlatoani]

(By the way, we aren't in this situation. Our mortgage is a small percentage of the property value.)

[nicegeek]

However, anyone considering this should check with a real-estate lawyer first. Some states give the lender recourse against the borrower's other assets, and it would suck to walk away from your home, only to have them take your car.

Also, even in states where first mortgages are no-recourse, second mortgages usually aren't, so make sure to pay those off first.

[tlatoani]

Good point. Edited to emphasize it.

[lintra]

And taxes. It goes on and on. But if we could save enough to cover all those things, it'd be a huge savings over keeping our house. (They cannot take your secondary assets in Michigan, unless I missed a law change.)

[nicegeek]

Actually, it looks like one of the bailout bills temporarily suspended the tax penalty. (But again, you'd want to ask a lawyer).