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June 02, 2010

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Walking out on a mortgage can very well be the right thing to do for those people who live in non-recourse mortgage states and who are upside-down on their mortgages. And by right thing to do I mean the prudent thing to do and the moral thing to do. Banks are happy to try to guilt people into paying their mortgages but those who live in non-recourse mortgage states have paid for the option to walk away by paying higher interest rates. And giving the collateral back to the lender is upholding the terms of the loan.

Is bankruptcy a mistake? Not if you need to do it. The same for walking away from a mortgage. The bigger mistake then is to try to avoid it when you cannot and deplete all your reserves and compound all your woes.

Payday loans brings back memories. When in the Army at Fort Hood Texas we'd gamble a lot - play cards and shoot dice - because basically there wasn't a whole lot to do otherwise. As a result we would end up on the short end, many times, a week or two before payday and head in to Killen to borrow $45 for a week and pay back $50. It was only later after taking a basic finance course that I came to understand the rate of interest this comes to.
My guess is that payday loans for the most part are probably a sign of some dysfunction - gambling,drinking etc. It wouldn't surprise me if people take out these loans to buy lottery tickets! There is a lot of strange behavior at the lower end of the economic spectrum.
I was surprised at the 19 million as well!

@ Michael, I must disagree with your statement regarding walking away from a mortgage. It is definitely not a good thing morally to enter into an agreement with someone, and then not honoring your word! What could possibly be moral about that?

You are not "upholding the terms of the loan" by "giving back the collateral" - the agreement was to pay off the loan and the repossession of the collateral is how the bank protects himself (not how the borrower unwinds the deal).

I agree 100% with Khaleef...legal but not moral.

I hesitate to enter into this morality-of-walking-away-from-a-mortgage discussion because it's been done ad nauseum on FMF before, but it has to be said:

When you take out a mortgage, what happens on default is written into the contract. You are not "not honoring your word", you are following 'their words' to the letter, enacting that portion of the contract. I can't possibly see how people consider that 'immoral'. If it is a legal contract between two consenting parties, and you follow the contract, then it is legal AND moral.

Full disclosure: I've never walked out on a mortgage, nor does it seem like I will ever have the need to.


totally disagree with the comments above regarding walking out on mortgages. this is a simple matter of personal responsiblity. you signed the loan papers, you knew the terms, now its your responsibility to pay the loan back, no matter what happened to the value of the house. its sad that people dont value contracts anymore, and that is what a mortgage is!

the problem is that most of the people cannot manage their finances because they are too much taken by the plastic money and spend more than they could afford, this all leads to bad money management and cause disaster in the end, if people would learn to spend according to their pockets, there would be no problem remaining!!

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