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.
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