Comments on: Has It Become Stupid NOT to Walk Away?

By: dg

dg — Wed, 07 Apr 2010 18:23:23 +0000

The answer is yes, if you are upside down by 25% or more it is probably financially stupid to not walk away. The more upside down you are, the more stupid it becomes not to walk. What many people really don’t consider is how long the banks will wait to foreclose if you stop paying. For most this number is running around 18 months right now. If you have a $3000 a month mortgage that’s $54,000 in mortgage payments alone you will save.

By: Steve Harney

Steve Harney — Sat, 03 Apr 2010 20:33:39 +0000

John,
As I said to Matthew, I will remain neutral on this issue. However, I will tell you more and more people are beginning to see it your way.

By: Steve Harney

Steve Harney — Sat, 03 Apr 2010 20:32:19 +0000

Matthew,
I will remain neutral on this issue. However, I will tell you more and more people are beginning to see it your way.

By: John

John — Wed, 31 Mar 2010 22:20:12 +0000

There is no moral component in a decision to walk away. Accepting a mortgage is a business deal. The bank made a business decision to offer the buyer a loan based on supposedly sound lending practices. The borrower made a business decision to accept the loan based on hopefully sound personal financial abilities. If a persons circumstances change dramatically and they are unable to continue making payments the bank will certainly exercise it’s right to foreclose on the property used as collateral. If the individual decides that making payments on a $400,000 mortgage is not sound business when the property is now worth $250,000, and the bank will not accept a new negotiated mortgage principal after recieving billions of taxpayer dollars in a bailout then a decision to walk away may be sound business thinking. Morals did not enter the banks decision to lend the money, only business decisions did. Therefore morals have no part in a decision to walk away. Business decisions have no morality, only financial factors.

By: Matthew Ferrara

Matthew Ferrara — Wed, 31 Mar 2010 00:10:27 +0000

Why not look at it this way: Walking away from the home was a contractual option in the mortgage document? In other contracts, we specify the terms of the exchange: different parties make different contributions. The banks contributed the funding, the borrowers contributed interest paid on each payment. At the same time, the contract specified how each party could “terminate” the agreement; in essence, the borrowers could terminate at any time by forfeiting the property; and the banks agreed to take the property back in lieu of other recourse for the loan. It was all spelled out clearly. The banks’ risk was ownership/operation of property they really didn’t want to own/operate, but they have to deal with that; and the borrower’s risk of a walk-away is serious damage to their credit report, which will keep them from borrowing from other lenders in the future, either at all (for a while) or at low-risk terms (ie., higher interest).

I don’t understand why everyone is so emotional over the terms of a contract; if it were any other “investment” and you were taking a loss, you’d eventually decide to “dump” it. Sometimes that means everyone takes a loss (in a stock, on a car, etc) which is the case for both parties in this deal.

Especially during a recession, “you have to be ruthless” about cash flow is the right advice. Inflation of energy, food and other costs, plus government debt and increasing taxes are all factors in deciding when to walk away. For many people it is the absolutely correct decision; and perhaps best for the industry, too.