Thoughts on Walking Away From Your Home Mortgage

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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

Roman Soluk
Guest

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
Guest

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
Guest

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 =-.

Moon Hussain
Guest

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” =-.

Kristine
Guest
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… Read more »
Aury (Thunderdrake)
Guest
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… Read more »
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Darren
Guest
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… Read more »
Christine | Money Funk
Guest

Definitely, Congrats on the longevity of your marriage. That’s fantastic.
.-= Christine | Money Funk´s last blog ..The Best Recycling Websites =-.

LenciB: Falling Into favor
Guest

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
Guest

“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
Guest

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.

Ingrid@Morestylethancash
Guest

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 =-.

Everyday Tips
Guest
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… Read more »
Bucksome Boomer
Guest

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 =-.

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[…] PlantingDollars: Thoughts on Walking Away From Your Home Mortgage – Why you shouldn’t walk away from your mortgage… even if your house has lost it’s value. […]

Scott Barron
Guest
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… Read more »
Steven and Debra
Guest
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… Read more »
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LeanLifeCoach
Guest
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… Read more »
H Lee D
Guest

Actually, our home value has dropped $120K (over 1/3 our paying price) and our property taxes have gone up.

The market is so bad here (Phoenix metro) that there is no way we could rent this house even to cover the mortgage, much less to cover other expenses that come along with renting.

Kevin@InvestItWisely
Guest

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 =-.

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