More on walking away from a mortgage

The tsunami may be building. The banks and auto industry have led the way. They have shown America how to solve your debt problems. How? By defaulting and not paying their bills. Last year one million Americans followed suit by "strategic defaults." That is purposely stopping payment on their homes. In a Wall Street Journal article American Dream 2: Default, Then Rent they say:
Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.

"It's a stealth stimulus," says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. "The quicker these people shed their debts, the faster the economy is going to heal and move forward again."
People are doing the math and figuring out how much better off they would be by just walking away from their mortgage. It could be years or decades before they gain any equity in their home. If they just stop paying it can be close to a year before they are evicted. Thus those with a $1,000 per month mortgage could have over $10,000 in the bank by the time they had to move and then rent a place for half of their mortgage payment. For many this is the difference between being an indentured servant and living OK and with considerable stress.

Before you get on the case of the people doing this, give the following factors some consideration.
  • The banks in one way created this problem. People used to have an incentive to keep their homes because they had equity in them. But the banks talked or conned people into taking all the equity out of their homes. Thus creating their own problem.
  • Staying in the home and taking care of it until being evicted protects it from what happens to many homes left to the bank. Damage from freezing pipes, vandalism, thieves stripping out all the copper wiring and pipes, etc. Resulting in the house being valueless and having to be bulldozed.
  • Is this really as moral an issue as banks want you to think? The contract is clear. Both sides have agreed on what will happen if you don't pay. The bank gets the house. So when you don't pay you are not breaking any rules of the contract. Your giving them the house. The banks had no trouble when it worked to their advantage. No moral issue on their part. The people lost their house and the bank made money on that.
  • As mentioned already, the banks and businesses have been helped by the government to default.
Another interesting article Ditching Your Home.