So, I've had lots of conversations recently about walking away from mortgages. Its seems the prevailing opinion is that it should mearly be a business decision. If its cheaper for you to walk away from your loan than keep it, you should. Of course, this is only possible in non-recourse states where if you have a secured loan, after the lein holder siezes your property in foreclosure, they cannot come after you for any additional amount owed. (If you live in a recourse state, or if you have a home equity loan or multiple mortgages, this discussion is pointless, because if your house forecloses and the bank can't recover what you owe them, they can come after you for the difference, making strategic foreclosures not make any sense.)

My contention is that if you have the ability to pay and are mearly walking away as a business decision (e.g. you are not trading off paying your loan versus feeding your family), it is unethical to do a "strategic default." Yes, its legal to do it, but not ehtical. My argument for the lack of ethics is because of the way it effects people around you. A foreclosure in a neighborhood brings down all the other house prices around you. Too many people strategically defaulting will also lead to a tightening of the credit market as mortgages become more risky to the lender. I just think its a bad thing.

But a few things are making me change my mind. One is this article that says it is nearly $1000 more expensive to get a mortgage in a non-recourse state than a recourse state. That means you are effectively paying for the "right" to walk away from the mortgage and send the keys to the bank. Now that's a different story.

Then I hear stupid stuff. Like today on NPR they interviewed someone from Arizona who bought a $300,000 house a few years ago. Its now worth $150,000, and a large portion of the value loss comes from other foreclosures on his street. Mr Joe Arizona lost his job, which accounts for 40% of his household's income, and therefore was eligible for one of the rare loan modifications. The bank allowed him to refinance the principal at 2% over 40 years, cutting his monthly payment in half. He was still considering a strategic default simply because he still felt the principal he owed (about $250k) remained more than the house was currently worth, and so it was not worth repaying. Even though three years ago he agreed to that price.

First of all, if only I could get my mortgage refinanced to those awesome terms.

Second of all, where did we as a country decide houses are different than any other purchase, where we can agree on a price to an object, use that object for years (sometimes many years), and then get to decide it wasn't worth the price we agreed to and get to change it to whatever we want?

It still doesn't make sense.