Feature

The myth of strategic defaults

The threat of “walkaway” homeowners has been vastly overblown, said Michael Hiltzik at the Los Angeles Times.

Michael HiltzikLos Angeles Times

The threat of “walkaway” homeowners has been vastly overblown, said Michael Hiltzik. Since the housing crisis began, banks have vilified the supposed hordes of homeowners who chose to strategically default even though they could afford their mortgages. Lenders have warned of an “outburst of moral turpitude” that would make the housing market “indescribably worse.” Well, it’s been several years, and “there’s still no firm evidence” that underwater homeowners have walked away in droves. Independent analysts and the Fed have discovered that it’s impossible to tell from the data whether homeowners are unable to pay or just unwilling. And in the end, why should it matter? “A mortgage contract is a legal document, not moral catechism.” It’s outrageous that self-appointed ethics gurus cast a mortgage as a sacred obligation, but consider it “just fine” for corporations to shed their pension obligations and union contracts in strategic bankruptcies. If a house is unlikely to recover its value, homeowners don’t deserve to be called deadbeats if they rationally walk away.

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