Monday, May 17, 2010

When is it ok to walk away?

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.

7 comments:

  1. Love it! however, I'm a little less sympathetic to today's homeowners. The mortgage agreements may very well be unfair to the consumer, but the consumer still knew what they were getting into when they "consumated" these agreements. They were even okay with not knowing (ie: Adjustable Rate Mortgages-ARMs). It is the result of our immediate gratification, consumer ridden, me me me society...which is really the issue here. So suck it up America. These are called consequences.

    Love you Vic! :)

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  2. In my opinion, it's never ok to walk away. Only borrow money you know you can pay off in the very near future, and you won't have problems with loans. It's important to be responsible individuals in order for America to fix its current debt crisis.

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  3. I agree Amarant, I too believe that people need to take more responsibility for their actions, but sometimes certain situations can call for very "un-typical" actions.

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  4. What "certain situations" would justify not paying money you owe? Against abusive loan sharks, I don't mind walking away. Government or bank loans are an entirely different ballgame.

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  5. Thank you for your visiting Speedstar- the "certain" situations I had in mind would be job loss, illness of a loved one or of a child that would hinder ones ability to pay his or her mortgage while sustaining the well being of one's family. If given the choice between walking away from my mortgage vs. the ability to support my family while not being able to do both. I would choose my family every time.

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  6. Hmm, I'm partial on this one. On one hand, it's your fault for falling in debt and you should take responsibility. On the other, some circumstances are just impossible to work around...

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  7. I read your Article very carefully it is really very informatics Article,, I would like to thank you for the tasks you have developed in composing this content.

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