Photo by respres“Strategic default” is the term used to describe the decision to walk away from an underwater mortgage. The terms of a mortgage contract spell out the responsibilities of all parties, and include a list of consequences for borrowers who fail to live up to their part of the bargain. Some homeowners, after looking at the terms of the contract, are concluding that they are willing to live with those consequences. But are there moral and ethical implications to this? Read the article here. You can download the discussion paper referred to in the article here.
Marketplace Money had an interesting piece, with Henry Blodget, CEO of the “Business Insider,” and Megan McArdle, of the “Atlantic” magazine debating the propriety of walking away. You can hear that piece and read the transcript here.
Excerpt from the Arizona Republic article:
Arizona law professor Brent White says the only thing standing between many “underwater” homeowners and a better financial future is a misguided sense that walking away from a loan commitment is morally wrong.
White, an associate professor at University of Arizona’s James E. Rogers College of Law, has spent the past few months presenting his argument to other lawyers, real-estate professionals and the national media.
It started with a 50-page discussion paper he published in October, in which White argues that underwater homeowners, those whose unpaid loan balance exceeds the value of their home, are being manipulated into picking up the tab for a real-estate crash that borrowers and lenders created equally.
“I’m all for a society where people must take personal responsibility, but that should also apply to the banks and financial institutions,” he said.