I just finished reading something, on the New York Time's website no less, that actually encourages underwater homeowners to behave like banks. The article features the bomb-throwing heading "Walk Away From Your Mortgage!", and then advises said homeowners to do exactly that. The writer, Roger Lowenstein, argues that once you strip away the moral arguments in favor of honoring the debt, what you are then left with is a very compelling case for "walking away".
Obviously, this is not the kind of advice that banks want you to hear. But, as Lowenstein points out, banks make decisions like that every day, with regard to their own investment properties, and don't hesitate to cut their losses when the investment goes bad. And yet, those very same bankers are the ones preaching to homeowners about their moral obligations. If that strikes you as hypocrisy of the rankest sort, welcome to the club.
Lowenstein registers surprise that more underwater homeowners aren't doing exactly what he is counseling. And he makes a strong case that, far from having the sort of apocalyptic consequences that the bankers warn of, a mass exodus on the part of distressed homeowners might actually result in a positive outcome. Namely, that lenders would finally be forced to make real and substantial adjustments to the rotten loans that they issued during the housing bubble.
Unfortunately, that will probably remain an unlikely scenario. Most homeowners do have an ingrained sense of shame that will mitigate against them making a perfectly rational decision, one that is clearly in their best interests. They will continue to make their mortgage payments, and pray that the property somehow recovers enough to make them whole again. Bankers, on the other hand, will continue to operate blissfully unencumbered by any such human emotions.
My thanks to Slate Magazine for the excellent cartoon...
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