The phenomenon of strategic default has been highlighted lately in news stories and on television. Basically this means that people who have jobs and who can afford their mortgage payments are deliberately defaulting on their mortgages and getting out from under the financial obligation of a home loan that is substantially under water.
A couple who purchased a home at the height of the boom in 2006 was recently interviewed on television. They bought a small home in the Phoenix area for about $400,000. They referred to this home as a bungalow, and it looked from the pictures like a very small house. Their bank says that it is currently worth $85,000. They have the income to make their payments, but they are planning on letting the home go into foreclosure and walking away.
So this begs the question about the morality of sticking someone else with one's mortgage debt. To be honest this practice does feel a bit slimy. If their bank gets stuck and has to eat most of the loan amount and take the loss, the costs will eventually be borne by others in the community through higher prices and more difficult loan terms for other people. On top of that, the borrowers are adults. They signed a valid contract, so why shouldn't they pay their debts, especially if they have the money?
Then again one might ask how bad do banks feel when they foreclose on a homeowner? The big Wall St. banks created dubious financial instruments with mortgages, and they approved loans for buyers who were not the least bit qualified. They did this to make quick paper profits and give themselves huge bonuses.
And were these firms or their employees who enriched themselves and ruined the economy and cost millions of people their jobs punished? Absolutely not, to the contrary they were bailed out by the federal government.
Therefore it is the opinion of this author that if a homeowner with a mortgage loan that is significantly under water decides to walk away from it and give the obligation back to the bank, that is a valid financial decision. Yes, the homeowner signed a valid contract and agreed to pay the loan, but the bank also made the loan under certain conditions. The fact that they did not cover themselves for this eventuality is their responsibility.
A couple who purchased a home at the height of the boom in 2006 was recently interviewed on television. They bought a small home in the Phoenix area for about $400,000. They referred to this home as a bungalow, and it looked from the pictures like a very small house. Their bank says that it is currently worth $85,000. They have the income to make their payments, but they are planning on letting the home go into foreclosure and walking away.
So this begs the question about the morality of sticking someone else with one's mortgage debt. To be honest this practice does feel a bit slimy. If their bank gets stuck and has to eat most of the loan amount and take the loss, the costs will eventually be borne by others in the community through higher prices and more difficult loan terms for other people. On top of that, the borrowers are adults. They signed a valid contract, so why shouldn't they pay their debts, especially if they have the money?
Then again one might ask how bad do banks feel when they foreclose on a homeowner? The big Wall St. banks created dubious financial instruments with mortgages, and they approved loans for buyers who were not the least bit qualified. They did this to make quick paper profits and give themselves huge bonuses.
And were these firms or their employees who enriched themselves and ruined the economy and cost millions of people their jobs punished? Absolutely not, to the contrary they were bailed out by the federal government.
Therefore it is the opinion of this author that if a homeowner with a mortgage loan that is significantly under water decides to walk away from it and give the obligation back to the bank, that is a valid financial decision. Yes, the homeowner signed a valid contract and agreed to pay the loan, but the bank also made the loan under certain conditions. The fact that they did not cover themselves for this eventuality is their responsibility.
About the Author:
Visit Homes For Sale Monument Colorado, and get the Free Report "How to Save Money on Mortgage Closing Costs". Also read more about Deliberate Default of a Mortgage.
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