Thoughts on Walking Away From Your Home Mortgage

Walking Away

by Ryan

Here’s the scenario: You can easily pay your mortgage, there is nothing physically wrong with your house, but you’re walking away. What gives?

In a recent 60 minutes clip I learned of a new trend in which Americans are simply “walking away” from their mortgage commitments. Why? They’re doing this because the values of their properties have decreased, sometimes by more than half, and staying in their homes doesn’t make financial sense. With the value of their home so decreased it makes more sense to walk away and let the bank deal with it while they rent nicer places than their current homes and clean up their credit history. Doesn’t exactly sound like roughing it… Is this right?

A Bit Like Marriage

This whole situation reminds me a lot of marriage. Marriage used to be something that was sacred and permanent (hence my fear of it 😉 ). Then divorce was legalized, a loophole was created and people were able to end their marriages easily without recourse. Now I realize there are many instances in which divorce is neccessary; A highly abusive relationship is one of these instances, but I also doubt that the current rate of divorce (approximately 50%) is based on need, instead it’s a change in attitude and the sanctity of the institution.

The same holds true of these mortgages. When signing a mortgage the signee should have the knowledge knowing that they’re in this with the bank until they sell the home or pay off the mortgage. You’re committed no matter what since you chose your situation. During the show one of the interviewees mentions that losing your home used to be too shameful to do, so nobody would dream of walking away… however today that’s not the case. It seems that money has beaten out pride and responsibility for one’s own actions. Which brings us too blame…

The Market is to Blame

The reason home prices were (and possibly still are) overvalued are because of homeowners who actively participated in an overinflated market and were willing to pay the astronomical prices on these homes. These people bought at the top and were the market demand that jacked prices up to begin with. These people are the market.

Now these same people who were the market demand and caused the market highs are saying it’s not fair and are walking away. You paid X for your house, you did it and nobody else. You created this problem, now man up and deal with it. I really should’ve considered purchasing back then knowing now that there would be no responsibility for my actions and no downside if my home value decreased!

A Home is a Business Decision

Many of the people who are walking away say that they’re treating this like an investment and that the banks are at fault because they offered the mortgage in the first place. However, if you purchased stocks that dropped 50% are you able to give them back? Doubtful. If you took out a loan for a small business and your business failed, could you simply walk away without having to repay?

The fact of the matter is this… home mortgages are treated different than standard business transactions because it’s a place of residence. Most people don’t run their personal finances like a business because most people aren’t business minded. I find this argument to be a scapegoat response as a way to again avoid responsibility for their own actions.

Walking Away Hurts Everyone

The banks are getting their butts kicked in this situation which is going to affect how mortgages are written in America in the future and the defaults are going to hurt everyone else. If the people who purchased the homes for outrageous prices are able to wash their hands of them scott free who pays for the massive losses? The consumer, which means you and I, whenever we go to the bank or whenever we bail out another bank via our taxes.

Final Thoughts

To the people walking away – Take some responsibility for your own actions. You purchased the home, you signed the dotted line, you fell in love with the granite countertops, you stood in line for that condo, and you bought into the hype. The bank allowed you to seal your fate, but if you make a deal with the devil it doesn’t mean you can avoid going to hell.

In the end I’m totally against these people leaving their commitments. Although several people in the video argue that it’s not morally incorrect to walk away since business is business after all there is still a lasting affect that will hurt other Americans and yet again, the blame is shifted while nobody takes responsibility. The decisions made by millions of Americans regarding “walking away” from their mortgages will show the moral fabric of our country and will reshape the housing market forever.

What do you think? Is it right to walk away from a mortgage and home that you committed to because it lost money?

Do you think new rules in mortgages should be formed to eliminate people being able to simply walk away from their homes?

Am I being too harsh on these folks who are walking away?

Watch the clip titled Mortgages: Walking Away

Image from skitzitibly

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{ 18 comments… read them below or add one }

Roman Soluk May 18, 2010 at 10:58 pm

I think walking away from your home mortgage isn’t OK.

As for me, I wouldn’t take a risk with such a thing at all. I do not like credits no matter what they are meant for.

Thanks a lot, Ryan, for sharing.
.-= Roman Soluk´s last blog ..How to become a perfect woman =-.

Little House May 19, 2010 at 3:54 am

The people who bought into the market during its insane peak were a little like lemmings; they followed the advice of their friends, neighbors, and the “Joneses” because they didn’t want to be left out. Now, they’re again following the “lemmings”, they’re walking away from their homes because others are doing it too. That whole mass mentality thing is really powerful! (I’m so glad I’m not a “Jones”!)
.-= Little House´s last blog ..Livable Living Expenses =-.

Joe Plemon May 19, 2010 at 4:03 am

Preach on brother! I recently wrote about the phenomena of “Strategic Defaults”, but not as well as you did. In the end, people need to keep their commitments and any so called justification is simply a form of rationalization…like declaring, “My word means nothing!”

Good marriage analogy too. I hadn’t thought of that one, but it is quite appropriate. By the way, I have kept my marriage vows for 39 years and running. It can be done.
.-= Joe Plemon´s last blog ..Why Joe and Jan Do Not Have Long Term Care Insurance =-.

Kristine May 19, 2010 at 5:19 am

Agree with Little House. Sure, back in the day, people would never consider not paying the mortgage especially if they had the means. Now, more people are doing it, and it’s becoming an “accepted” practice. You’ll hear arguments about how banks structure the mortgage interest to protect them in foreclosure scenarios, or the bank may come after your other assets…blah blah blah….

But I am for owning up to the decisions you choose. Sure, your home may be less valued, but no one twisted your arm to buy the house. What if your home increased in value? The bank decides to increase your mortgage to match the value. How would that feel?

When we stand by the decisions we choose, we surround ourselves with good karma. I wouldn’t want someone who owes me a 100k to not pay it back, because it wasn’t in their best interest.

Aury (Thunderdrake) May 19, 2010 at 10:49 am

I think a lot of this can be attributed to a couple huge factors in this particular regard. While I think a lot of creditors are dirty and good at screwing people over (not to mention expanding the money supply with fractional reserve banking!) A lot of people, especially average people, have the most horrible sense of financial literacy.

If the value of a home drops, this means something good. Your property tax drops. What does this mean? It means more room for profits if you place a tenant there.

Instead, If I began to loathe my property, I’d begin renting it out to people. If it’s a good home, I’d make it possible for many tenants to reduce their expenses somewhat I’d give them a competitive rate as well. Something that’ll provide just enough margin for cashflow every month to have a tiny luxury now and again. Or at least to buy an asset of my own.

That’s one way to turn a liability into an asset while keeping the economy in tact.
.-= Aury (Thunderdrake)´s last blog ..Avatar 2009 – A reflective review =-.

Darren May 19, 2010 at 7:34 am

I wholeheartedly agree that if they signed on the dotted line, they committed to pay a certain amount every single month. Just because the home value is down, it seems like a lack of integrity to just walk away, especially when they can make the payments.

I agree that it’s a great analogy comparing it to a marriage. I’m not married, so this may sound like I don’t know what I’m talking about. But if you sign off to commit to someone for life, do you just walk away when times are bad?

Joe, congrats on being married for 39 years. You give people hope and encouragement!

And I’m not too familiar about how real estate works, but if you walk away from your mortgage, doesn’t that trash your credit? And historically, don’t housing prices go up over the long term? If so, aren’t these people just making two bad short-term moves?
.-= Darren´s last blog ..What’s More Important – Your Money Or Your Life? =-.

Moon Hussain May 19, 2010 at 9:48 am

I’m just not so sure I’d be able to walk away from my home (if I had one) with the value dropped.

I think those people and the banks (both entities en mass) are to be blamed. I’m glad I’ve managed to steer clear of all of this.

How’s everything going at PD, Ryan?
.-= Moon Hussain´s last blog ..Twitter, Social Media Tools and the “Numbers Game” =-.

LenciB: Falling Into favor May 19, 2010 at 10:32 am

Love it:::::: Take some responsibility for your own actions!!!!
.-= LenciB: Falling Into favor´s last blog ..Every Place Where I set my Foot? =-.

Jonathan Gunson May 19, 2010 at 4:12 pm

“Quick bucks” is what lies behind the huge walkaway problem, because people treated their homes like ATM machines for so long. (Avoidance of work and accountability)

But there are STILL fabulous opportunities everywhere, everyday. I don’t think people need to get down about it all :)

Jonathan

Forest May 20, 2010 at 1:21 am

I agree more responsibility is needed but people have been ingrained to the easy come easy go way of credit and even bankruptcy is being taken quite lightly by many these days… Personally I don’t think I will ever use credit again. Buying a house outright will be my only way of every owning now I think.

Everyday Tips May 20, 2010 at 2:32 pm

Well, I don’t think you are being harsh at all. I can’t stand how people are taking advantage of the economy. A friend of mine walked away from her house and is buying another house for a song. She told me I was foolish for paying down my house so much because of what a great deal she got. I just grit my teeth. Our system is horribly flawed. I fear for our country because people just walk away from all commitments without looking back. The way some people justify their actions make me want to scream.

I was listening to the radio and one well-known person in our area lost his house to foreclosure. He then planned on buying it back at auction through his company, so he would basically be set free from about 300,000 in debt. As you said, there is no recourse when you get hosed on stock (kinda like today), how come housing is different?

If more people in this country just bought what they needed instead of what would impress others, life would be much better.

Great post.
.-= Everyday Tips´s last blog ..Tracking Your Spending – Some Go To Extremes. Does It Help You Save? =-.

Ingrid@Morestylethancash May 20, 2010 at 3:57 pm

I watched this 60 Minutes segment and I kept thinking, why is this guy walking away from his home, he has an amazing business opportunity if he would chose to buy a few of those homes on his street and start renting them out. He should be working with his bank on buying up those homes.
.-= Ingrid@Morestylethancash´s last blog ..25 More (Inexpensive) Ideas to Give Your Life Luxury =-.

Bucksome Boomer May 22, 2010 at 7:10 am

You are not being too harsh. I sometimes wonder where are those people’s moral compass.

I like the analogy to society’s evolving attitude on marraige. However, I must say I think that’s swinging the other way now.
.-= Bucksome Boomer´s last blog ..Sanity Has Returned to Homebuyers =-.

Steven and Debra May 23, 2010 at 5:51 am

Wow! There sure are some strong emotions being expressed here tied to the idea of homeownership!

We deal with the emotions of fear and greed in our article titled Strategic Defaults: A Misnomer, but there is probably another emotion we could’ve have included in that piece. Has anyone else picked up on the emotion of jealousy or envy bubbling up below the surface of this discussion when referencing those who chose to exercise an additional contract option (giving the home back to the lender) others have chosen to ignore?

When we blame others, who walk away, for the decline in our home values, are we manning up to our choice of not walking away? If so, why all the bellyaching? Can we really control the behavior of others? If the quality of our choices and the quality of our lives is contingent on the choices other people make, is that being personally responsible?

Is it possibly time to reconsider our love affair with homeownership and our granite countertops when we begin to compare them to our marriages? And, how might our spouses, or spouses-to-be, feel about such comparisons?
.-= Steven and Debra´s last blog ..Strategic Defaults: A Misnomer =-.

Scott Barron May 23, 2010 at 9:34 am

Sadly a lot of people are heading to foreclosure but not intending to walk away. In order to get government protection under the Obama plan, banks need the mortgage to be in a delinquent status.

I know, you will be told that’s not true, but I worked in the mortgage department at JP Morgan Chase. It makes sense – realistically.

People that are current on their mortgages do not appear to be in need. One thing that was difficult to explain to people that there are other people “more” in need.

A priority would be helping someone that was about to loose their house and going to be homeless versus someone who is current on their mortgage. Sadly, that sometimes means being 9 – 12 months behind.

Some people also let their homes go into a foreclosure status so they can get their retirement early. 401K has rules and regulations to withdraw.

I remember people would call the bank and ask us to write a letter saying they were in foreclosure so they could withdraw their money. I would say, “But your not in foreclosure!” They would say, “I know, but I want my money out.”

Tough luck. What also upset me is how many people expect the government to pitch in without affecting their credit. Sadly, sometimes we have to make sacrifices in life. Nothing is free.
.-= Scott Barron´s last blog ..How Safe Are You? =-.

LeanLifeCoach May 26, 2010 at 2:51 pm

I’m following in Joe Plemmon’s and your footsteps! 39 years… that rocks! Congrats Joe!

Our country is sorely lacking a sense of personal responsibility. I recently attended my son’s junior high graduation. Every kid was recognized for “special achievement” awards. Literally every kid! They included things such as “Participation Award 8th Grade” and “Personal Achievement in P.E.” yet they failed to recognize all the kids that managed to place in the science and technology competitions or academic bowls. How will our children ever learn personal responsibility if they are never held accountable for their performance or lack thereof?
.-= LeanLifeCoach´s last blog ..Frugal Printing, Is It Possible? =-.

Kevin@InvestItWisely June 1, 2010 at 5:19 am

If the banks really didn’t want people to walk away, then why were the loans made non-recourse?

I’m not 100% sure, but I don’t believe these non-recourse loans exist up here in the great white north. If you try to walk away from your mortgage up here, then I believe it’s the same as defaulting for any other payment, and the bank has the right to seize your other assets in order to recoup their costs.
.-= Kevin@InvestItWisely´s last blog ..Living to 100 and Beyond: Building Your Portfolio =-.

Brittany September 7, 2011 at 12:13 pm

I just found your blog and love it! Thank you so much for sharing this. My husband and I bought back in 2007 and have seen many of our friends walk away from their homes for bigger and better things. I agree that it is a lot like marriage. Our marriage was hard in the beginning but we worked through it and are now onto our best year yet, it’s just sad that people don’t honor their commitments anymore. If they did, we might be living in a completely different world.

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