Re It's "immoral" to strategically default on one's mortgage

I have argued for several years on this board that underwater "homeowner's" have no moral or civic duty whatsoever to continue to pour money down an inescapable black hole. Some luminaries of the board sharply disagree. Oftentimes, they are unable to muster an argument beyond a lame ad hom "whatsamatter, JJ - you poor?" or something stupid like that.

Anyway, Surowiecki has a great piece on the topic in the New Yorker this week, cast against the backdrop of the American Airlines bankruptcy:

quote:

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We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.

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quote:

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Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

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I would go so far as to say an underwater family has a moral duty to itself to strategically default or find some other way - legally - to lessen the forward burden.

The author is right - the grandstanding moral hypocrisy has been outrageous.

LINK