Underwater? Is It Ethical To Walk Away From Your Mortgage?
January 4th, 2010 categories: Economic Recovery, For Homeowners, Foreclosures, Housing Market, Mortgage Info, Real Estate News
Sometimes I’m amazed at what I read in the newspapers. In late November, the Los Angeles Times reported on a white paper written by a law professor at the University of Arizona – Brent T. White. This professor actually argued that homeowners who owe more on their mortgage loans than what their homes are worth should walk away from their loans.
White wrote that not only is such a move in the financial best interest of these homeowners, but that owners who do this are not acting immorally.
White writes that mortgage lenders and banks deserve a large share of the blame for the high housing foreclosure numbers across the country. These lenders were lax, he said, approving borrowers for too much money and passing out mortgage loans to consumers who were not financially fit to take on any mortgage loan. This helped cause the housing crisis, White argues, and led to plummeting home values across the country.
Not surprisingly, the Los Angeles Times story also quotes mortgage-industry officials who argue that walking away from a mortgage is an immoral act.
Personally, I find White’s message to be disturbing. Homeowners have a responsibility to do everything they can to pay their mortgage bills, even if they owe more on their loans than what their homes are worth. And, yes, lenders did approve some questionable mortgage loans during the heights of the housing boom. But no one forced homeowners to take out any of these loans. Don’t homeowners bear responsibility for their own actions, too?
Here’s what happens when homeowners simply walk away from their mortgage loans and abandon a house: They help drag down housing values in the rest of their former neighborhood. Sellers struggle to sell their homes for a good price when foreclosed properties are often offered for so little just two or three doors down. Foreclosed properties can also become neighborhood eyesores.
Besides, just because a home is worth less than what its owners owe today, that doesn’t mean the situation won’t change in a year or two. Home prices have traditionally risen over the long haul. Owners who hang onto their properties for seven or 10 years or longer will typically see their housing values increase. The odds are good that they’ll still see a good price should they sell after keeping their property for a long enough time.
What White is suggesting is morally offensive, no matter how he couches his argument. Homeowners have a responsibility to pay off their mortgage loans. If they are struggling to make their payments because of a hardship – the loss of a job or a serious illness, for example – they should call their mortgage lenders. The lender might be able to work out a loan modification designed to help homeowners stay away from foreclosure.
PLEASE CLICK HERE TO VIEW PROPERTIES NOT YET ON THE MARKET.
Just found your site with google. Thanks for the good read. I bookmarked you!
Just found your site with google. Thanks for the good read. I bookmarked you!
That was a wonderful post,I just subscribed to your rss.