Tuesday, December 1, 2009

Prof. Brent White: Walk away

A law professor encourages people to walk away from their homes:
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.

That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike. ...

Better yet, you can default "strategically." Buy all the major items you'll need for the next couple of years — a new car, even a new house — just before you pull the plug on your current mortgage lender.
Scenario #1: You walk into a bank and take a bunch of money that doesn't belong to you. This is called theft.

Scenario #2: You take out a loan, promising to pay it back. Then, after you have the money, you decide not to pay it back. How is this not also theft?

I can completely understand not paying back a loan if you lose your job and are unable to pay back the loan. I can also understand if you get sick and end up with huge medical bills that make it impossible to pay back a loan. I can even understand not paying back a loan if the bank deceived you regarding what your payments would be.

However, if you decide not to pay back the loan simply because you overpaid for your house, then I consider that the moral equivalent of theft.

Keep in mind that being underwater doesn't mean you can't afford the monthly payments. It just means that the value of your house has fallen by more than the amount of your down payment (and any subsequent principal payments). A person who stiffs their lender because their investment didn't turn out as expected is scum. Just because you can steal from a bank doesn't mean you should steal from a bank.


  1. Your comments lead me to believe that you did not read all 52 pages of Professor White's paper.

    Please read the entire paper, and then tell us what you think.

  2. #2 is not exactly the same as #1. In #2, you leave the house keys as you walk away with the money. The bank knew they'd have to eat the house if you did that.

  3. Excellent article. I find it interesting that most people don't comprehend the Lenders complicity regarding the mortgage meltdown.

    Values have never dropped as dramatically since the great depression, and this is mainly due to mortgages being sliced, diced and securitized, of which the Lenders and Wall Street were in neck deep.

    Talk about thieves! They effectively ripped off the world in excess of 160 TRILLION $. The world economy will be dealing with this pain for the next 20 years.
    And they have temerity to lecture the masses on the morals of being responsible?

    The U.S. government (Taxpayers) bails them out, they refuse to do loan modifications and turn a blind eye to the suffering they created for the very people that reloaded their pockets.

    Somehow the masses are to buy into the fallacy that only they need be ethical and moral, while only the Lenders have the right to practice the pursuit of what's in their best economic interest.

    Let's be cerebral here. The Lenders should have never been bailed out. That and only that would have given the banks the needed incentive to keep people in their homes and limit their stockholders losses.

    Not to worry. The lenders will be back for more money and we'll have a second chance to get it right.

  4. I am so happy that someone had the guts to publish a research paper that "goes against the grain" of the social norms and clearly articulates the financial and logical arguments to "walk away" from a bad investment.

    I would like to piggy-back on that and "toot the horn" of an effort that I started (www.mbscollateral.com or "Coalition of underwater homeowners" group on LinkedIn) to unite the underwater homeowners and use the "collective bargaining" tactic to achieve what is needed (reduction in mortgage principals) without walking away.

    .... please read more....
    Workers have unions to articulate and protect member interests. Businesses have trade associations and lobbyists to do the same. Consumers, on the other hand have very little in terms of organization and structure to protect their interests. And, to be honest, in 99 percent of the cases that is not a big deal.

    However, "big deals" do come around and then absence of such organization (that could unite the voices and actions of many individuals) is regrettable. The "big deal" right now is the situation with mortgage modifications - struggling consumers all over the country are "jerked around" by mortgage lenders and/or servicing companies.

    The purpose of this group and www.mbscollateral.com website is to attempt uniting the consumers on this issue and coordinating the actions and efforts of many individuals to achieve LEVERAGE over the companies that we are dealing with. Please continue reading this site to find out what could be done and how these actions will get all of us closer to the final goal - REDUCTION OF MORTGAGE PRINCIPAL BALANCES IN LINE WITH MARKET VALUE OF THE PROPERTY