Bad mortgages: To walk or not to walk? That is the question…

April 21, 2010

Is it wrong to walk away from a mortgage because your house is now worth far less than you agreed to pay for it? And is it even more wrong to do so if you can still afford to make the payment?

Technically the answers are probably yes and of course.

But common sense, the kind that many money makers use, would tell you no, circumstances may well make it the right thing to do.

The story on the TV I was watching said that the Mortgage Bankers Association was urging underwater homeowners not to default. “Think of your neighbors” , they said. It depresses property values, they said, but the narrator of the story pointed out that, paradoxically, the bankers association defaulted on the mortgage for its own skyscraper because of the lost value of it.

So there you go.

If you can’t afford to make the payments anymore there is really not much recourse.

I know from personal experience and from that of some people I know that the banks, contrary to what many so-called advisors will tell you, are not willing to listen to any renegotiation talk, and besides, you may well have nothing to offer them anyway.

Interestingly, a high number of the relatively few people who have managed to get assistance from the emergency rescue program from the Obama administration have wound up re-defaulting.

Defaulting is essentially just an unofficial bankruptcy.

Now as to willingly defaulting when you have the means to pay just because you make a gamble and lost, that does seem a tad immoral. But then again it’s human — it’s what people do to survive. And the big boys on Wall Street did get bailed out by the taxpayers on their gamble and on their crooked dealing — so there’s something to at least rationalize with.

Part of me says or wishes the government would have bailed out the homeowners, not the investment bankers, but part of me says neither was a good idea.

Consumers and big time investors were operating in a phony, corrupt market. The consumers should not have tried to take on more than in their hearts they knew they could handle and the high finance people knew what they were doing was wrong and could lead to no good. There was a collective lapse of judgment and morals and now so many are paying the price — not all. The shameless, such as Goldman-Sachs, are probably snickering as they stuff their pockets and rationalize away all their thievery, blaming any wrong doing on a few bad apples and ignorance of what was going on in the next cubicle or office.

When we get back to strict oversight in financial dealings, aimed not at protecting investments but rather insuring honest dealing, and when we let it be known that bailout is not an option, our economic vigor will recover.

And then maybe we an go back to producing things and services people really need rather than trying to make wealth out of nothing and winding up with nothing in the long run.