Wednesday, February 2, 2011

Just Walk Away with Your Hands in My Pockets

I heard a disturbing news story about home foreclosures on NPR this morning. In Nevada, one in four of all foreclosures were owners walking away from their mortgage payments. The article reported that the stigma that used to be attached to foreclosure simply isn't what it used to be.

The news story reported that homeowners with a mortgage are frustrated with the bailed-out banks, and that homeowners haven't yet received their bailout. Bankers seem to be pretty unpopular among the indebted set. The government assistance programs to troubled homeowners are too cumbersome, and are not helping to relieve their debt load. So the homeowners take a walk, even those who can afford their mortgage, they take a walk.

Human nature strives mightily to rationalize behavior in ethical or moral ways. When we have moral lapses, we look for excuses to explain why bad behavior isn't so bad. Sometimes, foreclosure is necessary. Sometimes the debt is too much, and circumstances make it impossible for homeowners to pay on their mortgage. Certainly, loss of a job, major illness, divorce may make it impossible to pay the mortgage. Are walkaways, where homeowners have the means to pay their mortgage, justified?

Homeowners sign a contract with a bank when they get a mortgage. What does a contract mean if a person willfully breaches the contract when that person has the means to fulfill the contract? The decision is a moral decision, and I didn't hear much justification in the news story, except that it just didn't make economic sense for the homeowners to continue with their mortgage payments. These are people who can afford the payments, but choose to walk away because their homes will never have the resale value as the mortgage that they are paying.

Here is where the finger pointing begins. Undoubtedly, banks were out to get homeowners to buy as big a mortgage as possible, in some instances to re-finance and pull most of the value out of their homes. Homeowners believed that the value of their homes would never fall. Bankers engaged in predatory practices. Homeowners bought overpriced property with money they didn't have. Now the banks are bailed out and moving toward financial health, and the homeowners are struggling and feeling like they've been screwed over.

Unfortunately, the bubble has burst; the horse has left the barn, and we're closing the barn door. Homeowners who walks away from mortgages that they have the means to pay are devaluing the property of their neighbors who continue to make their payments. While it may be best for the individual homeowner to walk away, such action damages the social contract. It hurts the rest of us. On the face of it, the act is dishonest. It does no good to blame the greedy bankers. Somewhere, sometime, individuals have to be held responsible for their actions. Unless a homeowner was signing that mortgage contract under duress or fraudulent circumstances, that homeowner knowingly and willingly signed the contract and agreed to make regular mortgage payments.

This news story isn't over yet. I'm not sure how the government can (or should) help homeowners who are underwater. I can appreciate the anger and frustration that homeowners feel. I hope they think long and hard before taking a walk when they have the means to pay the mortgage. When they walk, they are taking money out of your back pocket.