By now, all of us in some way have seen or personally experienced the effects of the mortgage meltdown. Even though there have been news reports of a so called “recovery” on the horizon, the residue of the crisis that was, still permeates through our city streets and suburban neighborhoods. We have all seen the houses with boarded up windows and weeds that are waist high: houses now owned by financial institutions rather than families, devoid of the dreams and aspirations that once made these houses homes. With an estimated 15 million U.S. homeowners under water on their mortgages, (meaning they owe more on their house than what it is worth) when is it ok to stop paying your mortgage and simply walk away from your home?
The fact of the matter is when you sign and agree to the terms of a loan to purchase a house, a contract between lender and borrower are consummated and therefore the borrower has an obligation to conform to the terms of the loan whatever they maybe. Yet there is an inherent imbalance in the borrower - lender relationship that makes the morality of such an argument unfair to the consumer.
After all it was the banks and lenders that set the rules, or lack thereof, during the housing boom. They were the ones that were literally handing out loans to people without proof of income or a down payment, in most cases the only two things these predatory lending institutions required was a pulse and the ability to sign your own name, while the institutions themselves made out like bandits. So why should homeowners care about defaulting on a loan, in which the institution that made the loan was bailed out by their own tax dollars? Well, frankly, they shouldn’t. Loan modifications are being done at a snails pace with very little success. Now that property values have dropped 20%-50% in some areas, these institutions need to assume responsibility for the bubble that they both inflated and burst.
Homeowners who find themselves in dire living situations, due to the current state of the economy need to do what is best for them and their families. Homeowners need to cut the sentimental attachment to their homes and treat the decision as a business rather than an emotional one. Why continue to pay a mortgage on a home that may never recover its original value, when you can rent a similar house for far less? Yes, there are repercussions and consequences. Foreclosing on a home will drastically affect your credit score, which could be repaired after 2 years.
Better yet, homeowners can take the “strategic” approach to defaulting on their mortgage. By purchasing all the major items they may need for the next couple of years such as applying for an auto loan or a rental lease agreement for a house or apartment right before pulling the plug on their current mortgage lender. Most families and or individuals should be able to plan in advance for a few years of limited credit, which is a small price to pay for the amount of money that will be saved in the long run. Why should homeowners put themselves in a moral quandary while all lenders think about is how to maximize profit? Did the CEO’s of the now defunct banks have the same type of moral tug-a-war with themselves when they received tens of millions of dollars in severance packages to go along with their golden parachutes? When it comes to deciding whether or not walking away from your home is the best thing for you and your family let logic and your own financial reality be your guide. Save your moral compass for the more complex intersections of life.