Friday, January 08, 2010

Is Defaulting on Your Mortgage Immoral?

That's one argument bankers are trying to make to shame borrowers into staying in their underwater homes. But, apparently, more people are refusing to be shamed.

Let's face it. If you owe $225,000 on a house now worth $175,000, you have to ask yourself how much worse life can be if you walked on the mortgage. That $225,000 mortgage could be costing you as much as $2,000 per month, while you might be able to rent a comparable house for $1,200 down the street. It's pretty hard to argue that "not being a failure" is worth the extra 800 bucks a month. And if the mortgage is the albatross around your trying-to-get-debt-free neck, it may be pretty tempting to tell the bankers they can have their overpriced property back.

Sure, foreclosure isn't pretty and it can ding up your credit pretty badly, but how smart is it to overpay by 25% or more on a property? As the linked article notes, businesses do this all the time, defaulting on loans for properties that aren't worth the money anymore. I don't think those businessmen are feeling ashamed of those financial decisions.

I'm not advocating backing the U-Haul in your driveway and leaving the bank high and dry regarding your mortgage. But the fact that so many banks are putting onerous fees on loan renegotiations means they don't want you to work out a deal on your home. Under those circumstances, it's hard to have any sympathy for the bank that gets stuck with tons of bad loans.