The news is full of people who, for one reason or another, are unable to make payments on homes that they bought for top dollar back in the mid-2000s. However, these aren’t the only people who are walking away from their mortgage and choosing to rent. There are plenty of people who are still able to afford their mortgage payments, but don’t see the financial sense in staying in a place that is costing them hundreds or thousands of dollars more than a comparable rental.
According to The New York Times article, “No help in sight, more homeowners walk away” (Feb 2, 2010), “when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.” This is disturbing news to lenders around the country, as 2008 saw approximately 17% of owners (who were otherwise solvent) drop their mortgage payment.
There are a number of reasons why people are walking away, rather than holding on to what they own. Some people are looking at the likelihood that it could take a decade or more to get their home to the point where they could break even and considering that a ruined credit score could be repaired faster than their home’s equity. Some cite their banks’ refusal to work out new terms based on the new value of their homes. Others simply say that they aren’t going to pay more money to own a home – with all of its attendant maintenance and repair bills – when they could pay half as much and have the landlord take care of that.
The moral question of whether it’s ethical to walk away from a home loan is still very much in the air. While the White House is urging people to “do the right thing” and stay with their mortgages, there are plenty of corporations that unload properties that they owe millions for and there isn’t so much moral outrage – it’s just the cost of doing business. Many homeowners feel the same way, when it comes to the home that they paid $250,000 for and which is now maybe worth $100,000 on the market.
The fact is that people are built to operate within small groups. If someone’s actions are not directly affecting Uncle Henry and Aunt Em, they don’t have as much compunction about defaulting on their financial obligations. The problem is that these aren’t isolated instances; the number of people, both solvent and insolvent who are dropping their mortgages, along with their property taxes, are growing. Staying with your mortgage in this atmosphere is starting to look to many homeowners like rats staying with a sinking ship along with the captain.
Like it or not, an increasing number of homeowners are dropping their mortgage and choosing to take the hit on their credit. Morals are not a good platform to base one’s argument on – if major corporations can do it without being censured (or even noticed) by the majority, why should people who own their homes not be able to? Owning your own home is a business and when that business is not profitable, conventional market wisdom indicates that you should jettison it. In order to keep homeowners paying, lenders and the government need to find a different means of persuasion that neither beats home owners down nor absolves them of the debt they voluntarily took on.