Mortgage morals

Here's the abstract:

Despite reports that homeowners are increasingly "walking away" from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure's perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

When I read this, I thought, YES. Yes! That is exactly how we felt. We felt the emotional constraints binding us to make a moral decision in regards to our house. The social pressure to be a good citizen and pay our mortgage no matter what was ever present!

In fact, I was once told by a HUD counselor that you should pay your mortgage before even feeding yourself. I am not kidding. They gave me an example about a family who had to go without food in order to pay their mortgage, but that was a sacrifice they were willing to make. The unspoken suggestion was that I should be more like that family and place my house above my health. Starvation is socially acceptable, apparently. Defaulting on your mortgage, not so much.

There's something off there, don't you think?

When we were facing foreclosure, we tried to consider all options. One of those "options" was walking away. But walking away never really occurred as a real option to us. Why? Well, we were trying to stay in the house no matter what. So, walking away would have been counterproductive. It was extremely hard to separate ourselves from the emotion of the situation and simply make a 'business' decision. But, I have to say, I think that we never would have walked away because of the desire to AVOID the shame and guilt of foreclosure, just as White writes.

I'm not even saying that I agree with White's suggestion that more people SHOULD be walking away. But, he has a point, I think. Especially when you consider his last two sentences in the abstract:

Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

You can't argue with that. Well, maybe you can. But I can't. I totally agree and I believe that White's suggestions are worth evaluation. Nothing much has changed since we were facing foreclosure. The lenders aren't doing much more now than they were then. Foreclosures are still happening. The housing crisis hasn't resolved itself by any stretch of the imagination. Bold thinking and reevaluation of long-held beliefs is perhaps exactly what we need right now.

QUESTION: Could you walk away from your mortgage? Why or why not?

I highly recommend reading the complete paper (especially if you happen to be facing foreclosure.) You can download it here.

Also worth the read is Kenneth R. Harney's article about White's paper in the Washington Post: The moral dimensions of ditching a mortgage - Washington Post