The Morality of Deliberate Defaults, Numerian, The Agonist

Over a quarter of American homeowners owe more on their mortgage than their home is worth. In some bubbly markets like California, three out of four homeowners are underwater. Should these homeowners deliberately default, rather than continue to pay on a mortgage when it may take 20 years or longer for market values to equal mortgage values?

Eighty-one percent of Americans think no, according to a survey done this summer by the University of Chicago and Northwestern University business schools. Most American homeowners think it is “immoral” to deliberately default on a mortgage when it is possible to make continuing payments. Yet the numbers of American homeowners doing just that is growing. It is estimated that four percent of all defaults on mortgages are “strategic defaults” according to a phrase used by the financial industry: the homeowner can pay the mortgage but makes a strategic decision to suffer foreclosure rather than continue to make payments on a wasting asset. Snip

Banks also marketed homes as investments first and foremost, to be bought and sold as the homeowner constantly traded up, even to the McMansion level. Extra equity that had built up due to the miracle of market forces could easily be extracted as cash and used as a source of even more lucrative fees for banks in the process.

In these circumstances, there is no morality imposed on the borrower to deal with the bank as a proper lender, or to treat the mortgage obligation as some sacred moral responsibility to be paid no matter what the circumstance.

Numerian, The Agonist:
http://agonist.org/numerian/20091004/the_m...