Now, if you are additionally lucky that mortgages are non-recourse to you, there is a very rational argument to default, but it's still a breach of a commitment you took so it does fall into the "cheating" category crankykarsten describes. Wind power
Of course, you could delay buying out your former spouse after a divorce. You could delay moving to a place closer to the job you just got. You could do a lot of things. But is it reasonable to demand it?
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Context is everything and all that is said usually in this regard in North America is that at is good for the goose (banks, e.g. corporations) is good for the gander (the rest of us).
In Europe, the rules don't apply quite the same way. Fai de bčn a Bertrand, te lou rendra en cagant
I think we all know the answer to the question in the headline, courtesy F. Scott Fitzgerald, "The rich are different than you and me." And the fact that they have more money means their defaults are couched as pure business decisions. But mere homeowners, told to view their house as an investment, are now castigated if they act as any professional would and cut their losses. The Wall Street Journal article on, ahem, voluntary commercial real estate defaults points out that some of the very biggest names are in the walk-away camp and through the article points out the similarities in decision process between commercial real estate strategic defaulters and their retail kin:Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans. Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.
The Wall Street Journal article on, ahem, voluntary commercial real estate defaults points out that some of the very biggest names are in the walk-away camp and through the article points out the similarities in decision process between commercial real estate strategic defaulters and their retail kin:
Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans. Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.
Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.
I don't think that limited liability is inherently counterproductive in the mortgage market (though the mortgage market itself may well be, because the pwnership society it promotes is counterproductive). Similarly, I don't think that exercising limited liability as a matter of convenience rather than necessity is inherently immoral, whether in the stock market or in the mortgage market.
First, about "norm asymmetry": I have already posted that snippet before, but it bears repeating:
Economic View - Will More Borrowers Walk Away From Their Mortgages? - NYTimes.com
Some homeowners may keep paying because they think it's immoral to default. This view has been reinforced by government officials like former Treasury Secretary Henry M. Paulson Jr., who while in office said that anyone who walked away from a mortgage would be "simply a speculator -- and one who is not honoring his obligation." (The irony of a former investment banker denouncing speculation seems to have been lost on him.)But does this really come down to a question of morality? A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a "norm asymmetry." In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It's as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.
Some homeowners may keep paying because they think it's immoral to default. This view has been reinforced by government officials like former Treasury Secretary Henry M. Paulson Jr., who while in office said that anyone who walked away from a mortgage would be "simply a speculator -- and one who is not honoring his obligation." (The irony of a former investment banker denouncing speculation seems to have been lost on him.)
But does this really come down to a question of morality?
A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a "norm asymmetry." In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It's as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.
Note the jab aimed at the "investment banker" calling strategic defaulters "speculators" (no, this was not for you Jerome :-)).
So, shocker #1: The Poor are Honest! (who would have thought?)
Then, this:
Walking Away From Million-Dollar Mortgages - NYTimes.com
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic. By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent. Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. "The rich are different: they are more ruthless," said Sam Khater, CoreLogic's senior economist.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.
Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.
"The rich are different: they are more ruthless," said Sam Khater, CoreLogic's senior economist.
Shocker #2: "The rich are different than you and me." (F. Scott Fitzgerald quoted by Yves Smith)
And what is my own opinion on this "moral issue"?
To me the one thing that is truly reprehensible, morally and practically, is that famous "norm asymmetry" described by Brent White of the the University of Arizona: the social expectation that the less well-off people keep up their commitment more often (and at greater cost and suffering) than the richer individual or corporations.
Truly, if there is one cause for outrage in my book, this is it.
And I'll note that, in your reaction to strategic defaulting, you definitely are on the same line as the less well-off. Too bad your norms are so asymmetrical... Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.
