Does Paying Your Mortgage Make You a Good Person, or a Stupid Person?
Posted by Brad Tuttle Monday, October 11, 2010 at 9:32 am
1 Comment • Related Topics: debt, housing, recession porn, recovery , foreclosure, strategic default, homeowners, walking away
If your home is underwater—meaning you owe more on your mortgage than the property is now worth—simply walking away may make the most business sense. Considering the ongoing foreclosure mess, it would seem easier than ever to just stop paying the mortgage and enjoy what amounts to "free rent" until the lenders get their paperwork in order. Regardless, many homeowners continue to pay their mortgages because 1) they love their homes and don't want to ever lose them; 2) they believe the real estate market will rebound and their homes won't be underwater for long; or 3) they think that paying the mortgage is the right thing to do. But when it comes to business, is there right and wrong? And perhaps more importantly, what happens if every underwater homeowner stops paying the mortgage and milks the situation for all it is worth? Is that situation "good" for anyone?
More and more, when the question of whether strategic default is OK, ethically speaking, comes up, it seems like Americans consider walking away to be acceptable, or not all that bad. About a year ago, when an University of Arizona professor recommended walking away as the most sensible approach for millions of homeowners, it seemed somewhat outrageous. Now, a recent Pew Research survey says that 36% of Americans consider walking away to be acceptable under certain circumstances.
Rather than bothering to explain why it is that so many homeowners have stopped paying their mortgages in the past couple of years, a WSJ columnist instead wonders why so many distressed homeowners continue to pay their mortgages. Why aren't more people defaulting? The arguments for default, strategic or otherwise, are easier and easier to make in today's amoral business environment:
We live, alas, in a world, and an economy, which rewards ruthless self-interest and penalizes "morality." Just look at the big banks.
A mortgage isn't a blood oath, it's a business contract—a collateralized loan. It isn't simply a promise to repay the lender. It's a promise to repay the lender or to forfeit the home. Isn't someone simply fulfilling their contract by handing over the keys when asked?
While the economy remains in the doldrums, and while new stories continue to pop up regarding shady big business tactics, this kind of logic increasingly makes sense.
But while it's fairly easy to rationalize walking away, there are consequences—obviously for the individual's credit score and for the lender eating the loss, but also for the business atmosphere at large. If people make it a habit of walking away from their obligations, whatever trust there was among buyers, borrowers, and sellers erodes further and further.
"If bankers don't trust that people will pay off their loans," a a story from the Chicago Trib's Gail MarksJarvis explains, "banks will demand higher interest and other assurances before lending in the future." Continuing:
In fact, there's research behind the concern, says Tom Donaldson, a University of Pennsylvania Wharton business ethics professor. And it shows that both bankers and borrowers are at risk if trust erodes.
"We've known for decades that trust is critical to successful business," said Donaldson. "Studies have shown that if one party cheats on one end, the other party feels more entitled to cheat. It's not the most noble way, but it is human nature and it becomes a race to the bottom."
Unfortunately, we can't trust people to do the right thing—if for no other reason than in today's business world, it is not clear what words like right and wrong and good and bad actually mean.
Read more: http://money.blogs.time.com/2010/10/11/does-paying-your-mortgage-make-you-a-good-person-or-a-stupid-person/#ixzz129xD6z9O
This is an issue I have been wondering about lately. Not for personal reasons because I am not upside down in my house. But is it immoral to walk away from a home and leave the bank stuck with that devalued house even if you still have the ability to pay? Does it make sense to keep paying a $400K mortgage on house that is now worth $250K? The bank would feel no moral obligation to take one one on the chin like that for you.
Is it fair to expect people to act against their own best interest for the good of society and then have society not be willing to help them more?
Are we be played the fool by thinking we should follow a moral code but then not demanding that the banks follow that same code?
I don't know the answers to those questions, which is probably why I find them interesting.
Posted by Brad Tuttle Monday, October 11, 2010 at 9:32 am
1 Comment • Related Topics: debt, housing, recession porn, recovery , foreclosure, strategic default, homeowners, walking away
If your home is underwater—meaning you owe more on your mortgage than the property is now worth—simply walking away may make the most business sense. Considering the ongoing foreclosure mess, it would seem easier than ever to just stop paying the mortgage and enjoy what amounts to "free rent" until the lenders get their paperwork in order. Regardless, many homeowners continue to pay their mortgages because 1) they love their homes and don't want to ever lose them; 2) they believe the real estate market will rebound and their homes won't be underwater for long; or 3) they think that paying the mortgage is the right thing to do. But when it comes to business, is there right and wrong? And perhaps more importantly, what happens if every underwater homeowner stops paying the mortgage and milks the situation for all it is worth? Is that situation "good" for anyone?
More and more, when the question of whether strategic default is OK, ethically speaking, comes up, it seems like Americans consider walking away to be acceptable, or not all that bad. About a year ago, when an University of Arizona professor recommended walking away as the most sensible approach for millions of homeowners, it seemed somewhat outrageous. Now, a recent Pew Research survey says that 36% of Americans consider walking away to be acceptable under certain circumstances.
Rather than bothering to explain why it is that so many homeowners have stopped paying their mortgages in the past couple of years, a WSJ columnist instead wonders why so many distressed homeowners continue to pay their mortgages. Why aren't more people defaulting? The arguments for default, strategic or otherwise, are easier and easier to make in today's amoral business environment:
We live, alas, in a world, and an economy, which rewards ruthless self-interest and penalizes "morality." Just look at the big banks.
A mortgage isn't a blood oath, it's a business contract—a collateralized loan. It isn't simply a promise to repay the lender. It's a promise to repay the lender or to forfeit the home. Isn't someone simply fulfilling their contract by handing over the keys when asked?
While the economy remains in the doldrums, and while new stories continue to pop up regarding shady big business tactics, this kind of logic increasingly makes sense.
But while it's fairly easy to rationalize walking away, there are consequences—obviously for the individual's credit score and for the lender eating the loss, but also for the business atmosphere at large. If people make it a habit of walking away from their obligations, whatever trust there was among buyers, borrowers, and sellers erodes further and further.
"If bankers don't trust that people will pay off their loans," a a story from the Chicago Trib's Gail MarksJarvis explains, "banks will demand higher interest and other assurances before lending in the future." Continuing:
In fact, there's research behind the concern, says Tom Donaldson, a University of Pennsylvania Wharton business ethics professor. And it shows that both bankers and borrowers are at risk if trust erodes.
"We've known for decades that trust is critical to successful business," said Donaldson. "Studies have shown that if one party cheats on one end, the other party feels more entitled to cheat. It's not the most noble way, but it is human nature and it becomes a race to the bottom."
Unfortunately, we can't trust people to do the right thing—if for no other reason than in today's business world, it is not clear what words like right and wrong and good and bad actually mean.
Read more: http://money.blogs.time.com/2010/10/11/does-paying-your-mortgage-make-you-a-good-person-or-a-stupid-person/#ixzz129xD6z9O
This is an issue I have been wondering about lately. Not for personal reasons because I am not upside down in my house. But is it immoral to walk away from a home and leave the bank stuck with that devalued house even if you still have the ability to pay? Does it make sense to keep paying a $400K mortgage on house that is now worth $250K? The bank would feel no moral obligation to take one one on the chin like that for you.
Is it fair to expect people to act against their own best interest for the good of society and then have society not be willing to help them more?
Are we be played the fool by thinking we should follow a moral code but then not demanding that the banks follow that same code?
I don't know the answers to those questions, which is probably why I find them interesting.
Is walking away from a mortgage immoral?
12/10/2010 04:45:43 PM
- 1368 Views
Just as a contract is a two way street -
12/10/2010 05:12:09 PM
- 868 Views
Of course it's immoral.
12/10/2010 05:13:16 PM
- 839 Views
But does one sided morality work?
12/10/2010 05:38:56 PM
- 958 Views
You asked about the morality of walking away when the borrower still has the ability to pay.
12/10/2010 07:31:10 PM
- 760 Views
A company or organization cannot act morally or immorally? I strongly disagree. *NM*
12/10/2010 07:50:42 PM
- 384 Views
No, it cannot. However the individuals making the decisions for the company can. *NM*
12/10/2010 08:48:23 PM
- 327 Views
If banks can not behave in moral manner why should people be expected to behave in moral manner?
12/10/2010 08:07:56 PM
- 832 Views
I'm not absolved of my obligations based on the bad behaviors of others.
12/10/2010 08:25:33 PM
- 735 Views
Because it's their moral obligation. Morality is not a trade, you act morally because it is right
12/10/2010 08:47:41 PM
- 923 Views
That's the only kind of morality there is! What the hell is wrong with you?
12/10/2010 08:15:55 PM
- 785 Views
nothing wrong with me but I think you are off your meds again
12/10/2010 09:34:33 PM
- 777 Views
Re: nothing wrong with me but I think you are off your meds again
15/10/2010 02:50:49 PM
- 1276 Views
well I really can't argue with the wrong is wrong end of story belief system
15/10/2010 05:40:22 PM
- 978 Views
A contract isn't a promise; it's a legal agreement. *NM*
12/10/2010 06:25:24 PM
- 405 Views
Which is why contracts have to be pages and pages long and combed over by bloodsucking lawyers.
12/10/2010 06:39:18 PM
- 816 Views
I would agree with you if contracts didn't provide for breaking them.
12/10/2010 07:33:15 PM
- 672 Views
Hrm.
12/10/2010 07:35:38 PM
- 880 Views
did you take a personal oath in front of god and your loved ones to pay the loan back? *NM*
12/10/2010 08:09:07 PM
- 393 Views
Let's assume we're talking about a marriage where no such oath was taken... *NM*
12/10/2010 08:10:54 PM
- 407 Views
if there is no oath of fidelity then straying would not be immoral *NM*
12/10/2010 08:40:53 PM
- 380 Views
It's not immoral to break the marriage contract.
12/10/2010 08:19:50 PM
- 940 Views
That must be why they have you sign something called an agreementory note *NM*
12/10/2010 07:33:32 PM
- 404 Views
I don't think it's immoral at all. The contract usually specifies penalties for breach.
12/10/2010 05:28:34 PM
- 910 Views
You didn't mention the third party
12/10/2010 08:26:56 PM
- 700 Views
in a way I did since I did mention society
12/10/2010 08:54:07 PM
- 844 Views
What if you look at it from the other perspective?
12/10/2010 09:00:20 PM
- 848 Views
Sure, you could do that.
13/10/2010 01:54:55 AM
- 851 Views
The problem is that you're buying something today and paying for it for the next 15/30/50 years.
13/10/2010 03:04:26 PM
- 735 Views
As a professional in financial services - no, it is not.
13/10/2010 01:44:18 AM
- 799 Views
but almost nobody sees it that way
13/10/2010 12:53:25 PM
- 801 Views
Is the deal that if you default, the bank gets the house and nothing else, though?
13/10/2010 02:40:48 PM
- 794 Views
I think it's morally wrong to walk away from credit card debt. *NM*
13/10/2010 09:43:11 PM
- 379 Views
I agree, what do you think is different?
13/10/2010 09:59:36 PM
- 822 Views
The difference is that the bank owns the house. Whereas when I buy stuff, it's mine. *NM*
19/10/2010 07:05:34 PM
- 362 Views
I too am unable to work out what distinguishes the two situations.
13/10/2010 11:54:15 PM
- 757 Views
I lost sleep over it, but I did it anyway.
13/10/2010 05:24:19 AM
- 884 Views
Obviously, the essential difference is can't pay versus won't pay.
13/10/2010 02:16:07 PM
- 775 Views
are you socializing your debt when it is a private bank?
13/10/2010 03:14:48 PM
- 826 Views
You are when said bank requires a bailout. And very many of them do.
13/10/2010 03:22:59 PM
- 785 Views
I really don't understand a system where this could be an advantage.
13/10/2010 11:16:57 PM
- 806 Views
There's generally something like a 7 or 10 year limit on credit reporting here.
13/10/2010 11:46:58 PM
- 821 Views
What's the use of suing someone who has no money? *NM*
13/10/2010 11:48:47 PM
- 437 Views
You can garnish their wages.
13/10/2010 11:49:36 PM
- 781 Views
With parsley?
13/10/2010 11:51:37 PM
- 868 Views
No, "someone" most certainly did not, wicked young Miss! Hmph! *NM*
13/10/2010 11:52:40 PM
- 429 Views
If they suddenly come into some, you're entitled to it. *NM*
14/10/2010 12:07:34 AM
- 504 Views
Bit of a long shot. *NM*
14/10/2010 12:09:12 AM
- 353 Views
Very. Best to cover your bases though. *NM*
14/10/2010 10:04:25 PM
- 373 Views
Not if the doctrine of election applies.
14/10/2010 10:14:07 PM
- 768 Views
Are we not talking about credit companies going after people who owe them money?
14/10/2010 10:18:47 PM
- 817 Views
I am currently in that situation...
14/10/2010 05:03:23 AM
- 899 Views
In Washington you can contest the assessed value used to determine property taxes.
14/10/2010 07:27:02 AM
- 849 Views
it is easy for me and others to be glib when it is just a theory *NM*
14/10/2010 08:19:16 PM
- 377 Views
If you have the ability to pay, I would consider it yet another immoral act in an immoral industry.
14/10/2010 07:49:38 AM
- 825 Views