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Strategic Defaults – Financial Decision vs Ethical Dilemma

February 14, 2011

In a world who’s morality is contrived from the probability of pain, is there a “morally correct choice” to purchasing another property when you can no longer afford the property you are in?

If nothing has changed except the value of your home, is it ethical to stop paying?

If the house down the street is for sale at $100k less than your mortgage, would you be selling your soul for $850/mo?

Is your mortgage a “personal promise” with moral implications or simply a business deal where you promise to pay or the bank takes it back?

A study in September 2009 from the credit reporting agency Experian and consultant Oliver Wyman estimated that about a fifth of delinquent mortgages in the U.S. involved borrowers who were strategically defaulting.

Using this logic, if there are 12.94% of mortgages are behind, then 1/5 of that, or 2.58% of mortgages are strategic defaults. That doesn’t sound like a lot when 21% of single family homes with mortgages in Q4 were underwater.

Does that mean that the other 19% of folks feel a moral obligation to pay their mortgage? Or are they good parents providing a stable home to their kids? Or??

We have these discussions at my house ALL THE TIME! Mike is part of the class action lawsuit against Countrywide. He feels cheated by the bank, although he freely spent every penny they gave him. He thinks that the banks charge crazy high interest rates to “cover” the folks that quit paying. To him, it’s just a financial decision.

For me, I think that I borrowed that money and promised to pay it back. I believe I have a moral obligation to follow through – it’s my word. Although y finances have changed drastically from ’06, I am still paying back my debts.

What do you think? Are you underemployed? Unemployed? Did you file for bankruptcy? Walk away from a home? Or are you unaffected by the current economy?

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