Monday, January 11, 2010

Mortgages, "strategic default," and repugnance

Steve Leider writes:
I’ve noticed lately that a lot of people (both public intellectuals like Megan McCardle and Rod Dreher as well as [other people I know]) seem to be really affronted at stories of people who walk away from mortgages that they can afford the payments on for houses that are under water (“strategic defaults”). Everybody seems to feel that even though this option is legal under the mortgage contract that this is somehow dishonorable or immoral. It’s a bit different from repugnance because while both parties voluntarily agreed to the contractual rules that allow this at the start, the bank probably isn’t happy about it now – but it has something of the same flavor of deep emotional disapproval of the economic activities of others.

But see also Roger Lowenstein in the NY Times: Walk Away From Your Mortgage!
Update: see also Dick Thaler: Underwater, but Will They Leave the Pool?

1 comment:

Topdot Mortgage said...

If the home you bought devalues by 20%, the thinking is lets get out even though you can afford it because you lost money on your investment.

If you hold your position that same house that lost 20% of its value in the long run may increase its value by 40% giving you a nice profit later on. A good investor will also rent out all or half the house to create income used to help pay off the mortgage. If you rent out part of the house you are giving some one else an affordable home which is a nice thing to do.