Walking Away from Mortgages: Good or Bad?

Some Eye Strategic Defaults as Home Values Tumble

Video Courtesy of  PBS News Hour

By Paul Solman

Published August 19, 2010

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When the U.S. housing market took a turn for the worse in 2008, many homeowners who still owed the bank money on their homes suddenly found that they owed more than their home was actually worth. That phenomenon, dubbed "being under water," led many homeowners to simply walk away from their mortgage obligations without paying any more of what they owed.

"Yes, I'm defaulting. Yes, I'm walking away. But I'm not going to keep running a business that is losing money as the days go on." 


Josh Bartlett, Florida homeowner

Although "walking away" negatively affects one's credit score, a number that shows how responsible borrowers are in paying back loans, homeowners like 28-year-old Josh Bartlett think it's easier to rebuild a credit score than it is to wait until home values go up again. Many other homeowners in Florida, a state that has been hit especially hard in the housing crisis, feel the same way.

But, others feel that paying off their full mortgage is their ethical responsibility. Kevin Jarrett, another Florida homeowner who was facing foreclosure, felt he needed to "do what's right." Instead of walking away from his mortgage, he made as many payments as he could and accepted the inevitable foreclosure. He compares buying a house to buying a car, saying that "If you buy a car, it loses value as soon as you drive it off a lot, but you still keep making the payments for that vehicle. I don't see the difference with the homes."


"What right do you have to say, well, I'm going to not pay, because now you're taking money from other people, because, oh, I want to take care of my family. Well, somewhere along the line, some ethics have to come into play, you know?"

Kevin Jarrett, Florida homeowner

"But, if most of the people who are underwater walk away, then house prices will drop even more, and then that will induce more people to walk away. So, we can have sort of vicious circles in a lot of real estate markets, local real estate markets, that are going to be very dangerous." 

Luigi Zingales, economist, University of Chicago Booth School of Business


This story speaks for itself. What you heard are the results of many years of GROWTH-MISMANAGEMENT and OVERBUILDING

Just another reason why we need to vote: