The Morality of Walking away from an Underwater Mortgage

Strategically defaulting on an underwater mortgage is not illegal and thus not a criminal act. The fact that so many are now engaging in this practice indicates that it is laws which prevent the majority of people from committing crimes, rather than a sense of personal morality. In a culture where lack of personal responsibility has been a growing trend for decades, it has become easier for many who would previously have felt the stigma of walking away from their mortgage responsibilities to simply join the crowd and forgo any moral misgivings.

Millions of homeowners made bad financial decisions when they rushed to purchase homes which were vastly inflated in value. Others took advantage of the massive growth in equity in their homes and cashed out by taking second mortgages which subsequently left them with negative equity.

The banks have a lot to answer for by acting irresponsibly and there is no doubt that irresponsible lenders coupled with irresponsible borrowers make for bad bed partners. However a point which is completely overlooked is that when a homeowner borrowed to purchase an overvalued property, the seller made a great profit from the mass growth in their equity.

Many who strategically default do not walk immediately away, but continue to live in their homes without making any mortgage payments, even though they can afford to do so. Effectively this makes them rent free squatters simply waiting to be evicted. This is morally wrong as their actions will have far reaching consequences on the future cost of mortgages, as others will pay for their actions.

It may well appear to make financial sense to simply walk away when some State laws protect the defaulters from any financial consequences. Even those who may well find themselves issued with deficiency judgments at some point in the future can simply file for bankruptcy to evade the consequences. The fact that failing to honor ones financial obligations is morally wrong has little bearing, particularly when the paper by Brent T. White, legal professor at the University of Arizona, is much publicized and encourages the action of strategic defaults.

No doubt strategic defaulters will be perceived as victims if they are pursued for their mortgage debt at some point in the future. This contrasts hugely with the way in which mortgage defaulters in the UK remain responsible for their mortgage debt after foreclosure.

Personal responsibility for making bad financial decisions is excused in America but future potential homeowners will pay for those bad choices made today. The ones who walk away from their underwater mortgages abdicate from their responsibilities, disregarding the implications which the rest of society will pay for through ultimately higher costs.

The morally right thing to do is honor ones financial promises, but not doing so is apparently justified if the debt is owed to a financial institution. No one forced anyone to buy a home which was over valued, and those who did were happy at the time to avail themselves of easy lending. The morality of repaying mortgage debt has been tossed aside. This is hardly surprising when most defaulters presume that there will be few financial consequences in the future from their actions.