Are homeowners in underwater mortgages right to simply walk away? The New York Times ran a story earlier this year about homeowners that have chosen not to continue payments on their mortgage. These are not the people that cannot afford to pay. This is a group voluntarily walking away. The housing collapse has left 10.7 million families owing more than their home is worth. Now some of these homeowners are making the calculated decision to let their home go.
The argument is that Wall Street has operated by this philosophy for a long time. If the investment is no longer promising, best to cut your losses. However, this is a relatively new phenomenon when applied to home sales. The government is calling for homeowners to “follow the responsible course” by avoiding foreclosure. But by this thinking, are they counseling people to essentially throw away money? As the Times put it, “the message is that enduring relationships count for less than the value put on assets for sale.”
Our culture seems to list increasingly toward only looking out for its own. Given that almost 25% of all mortgages are underwater and 10% of mortgages are delinquent, should we be surprised that more have not walked away? Then again, if lenders began to fear a surge of strategic defaults, would they have greater incentive to negotiate loan terms in favor of the borrower?
65% of all residential properties with mortgages in Nevada are underwater. In comparison, New York has a rate of 6%.