Underwater Mortgage: Why You Should Walk Away
by Mogamahttp://mogama.info
I heard the sad story of a home owner who borrowed more than $300,000 on a house that now appraises for less than half that price. To “help” the borrower, Chase Bank modified his mortgage from a 30-year-fixed to 40 years at a lower interest rate and monthly payment.
The mega bank was shocked to hear that the borrower wasn't impressed with this “great deal”. Apparently the borrower concluded there was no way the house would ever recoup all the value lost to the housing bubble caused by our lending institutions.
There are those who side with the lender, telling the borrower, “It is immoral for you to renege on your obligation after you signed a contract to repay your lender”.
But is a mortgage a moral contract? No, it is a legal document. Legal does not automatically mean moral. Remember the lender brought in a lawyer, not a clergyman, at closing, when the borrower signed the mortgage note.
If you're like the borrower referred to above, you'll be a fool to let the government, the lending industry and society at large load you up with guilt-ridden shame. You have a legal right to walk away. Why?
Corporations frequently opt out of real estate deals if they are upside down, if the mortgage is eating into their profits. A corporation makes this investment decision to save its shareholders money. Why shouldn't the individual do the same with a clear conscience?
Most people who default on home loans are not speculators. They are honest people who have fallen on financial hard times, due to no fault of their own?
The mortgage contract often includes language that allows the borrower to legally default. That's the whole point of using the house as collateral to the loan: you lose the collateral when you can no longer afford to make payments on the debt. When you closed on that mortgage note, you paid for the right to walk away. What do you think closing costs include? Why pay for a right you are never expected to exercise?
As an individual, it is not your responsibility to prop up the economy at any cost. You should not be expected to keep up the market values of your neighbors' homes by crashing under the load of your worth-less home.
If lenders are right that your home is an investment, then hold them to their words. It is a wise investment decision to dump a losing deal. This decision is purely financial, not moral.
In a capitalistic system like ours, it only makes financial sense to leave behind an upside down mortgage. Capitalism thrives on making a profit on one's investment. Holding on to an underwater mortgage is against the rules of capitalism, especially if there is little chance that the investment will ever bounce back to turn a profit. Shouldn't one be regarded as a free market hero to walk away from a bad investment like an underwater mortgage? I say YES! If it's financially smart for banks and other investors to dispose of bad investments, it should be just as sensible for individuals.
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Article submitted Thursday, January 28, 2010 & read 150 times.
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