I have had the choice more than once. I paid my bills and met the commitments I made.
Never had to face such a choice in my life - unless you count that I chose not to take a loan for anywhere close to the value of the property - so I never put myself in a position where price declines could put me underwater.
Though I am in the camp of people who think that walking away from a financial obligation that you can afford to pay is wrong, I can also see that it is double standard to view it as a morality issue in lieu of a business one.
I think people who jumped on the real-estate bandwagon as dumb me-too opportunists who had no idea what they got themselves into. But then, seeing that others were able to walk away free, it would be hard for them not to follow suit.
The real solution is to require borrowers to have meaningful skin in the game.
Will we be accused here of denying the "American Dream" to everybody?
I watched the History channel on the French Revolution the other night and had warm and pleasant thought's about those fine folks who cut my dividends of some of my Norwegian widow stocks - JPM, C, BAC.
heh heh heh - I'm struggling coming up with sympathy for either party in this situation. The French razor for the boards of directors is possibly too extreme - but I will mellow after they restore my dividend cuts.
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...As pointed out by Professor White (and by Brewer above), this is an uneven playing field, because the banks will make the correct economic choice in a second to violate a contract-- but everyday people feel constrained not to act in their own best financial interests...
To the mortgagors, I would say "You deserve to pay through the nose for future loans". But it is difficult for me to have sympathy for bankers, or specifically the mortgage industry, who are supposed to be wiser than the dumbasses they loan the money to. For the mortgagees, I say "Let them eat short sales".
Can we all say "Moral Hazard"?
Oh, but, but, but why am I caught in this mess? Is it because some financial entities are "too big to fail"? Is it really for the collective nation skin that we had to bail them out, to grease their palms with billions of dollars so that they could reward themselves with high salaries and bonuses for their "job well done"?
...I think we should be using financial penalties spelled out by the law rather than moral arguments to get people to do the right thing. In particular, I like to see banks be much more aggressive in going after the assets of people who walk away from mortgages.
...In states like CA, or DC where the loans are non-recourse. I think Uncle Sam should step in and attempt to recover some of the money. I think in hindsight passing the Debt forgiveness act, which eliminated the taxation of forgiven debt was a huge mistake...
And whatever harm this has caused, if some existing laws were broken, why weren't they enforced? For what it is worth, Fife Symington, a former AZ governor in the late 90s, lost his office because of allegations of prior misconducts primarily in
making false financial statements for a business loan. Yes, and he was a Republican governor in a red state.
Of course it may be a logistic nightmare to go after the numerous fraudulent mortgage applications, compared to a single politician who served as a lightning rod. It appears that our legal system breaks down when there are millions of people falsifying loan applications, abetted by loan officers no less. Are we no longer a country of law and order? That would be a sad situation, if existing laws get ignored because they cannot be enforced due to the perpetrators outnumbering the law enforcers. Ask yourself if there is any 3rd world country that does not have on its books various laws against corruption, briberies, crimes of various sorts? Are these laws enforced? Of course it is hopeless when the populace does not even bother to obey stop signs or traffic lights. Are we headed that way? This, I found alarming.
Oh Scotty, where can you beam me up?
