All throughout this earnest attempt at making homeowners feel good about skipping out on their mortgages, you can detect the development of a growing "ethical blind spot" in this country over what is, and what is not, an obligation:
A solid two years into the housing bust, the national foreclosure wave doesn't show the least signs of abating. Banks that had called a foreclosure moratorium are now back to the business of taking back properties, and the foreclosure numbers are again at record highs. As the foreclosures rise, so too does the criticism of “walkaways” who hand the keys to their drastically devalued houses back to the bank.
Last month a study from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that close to a fifth of troubled mortgages involved borrowers who were “strategically” defaulting — walking away from mortgages they could pay but decided not to because they owed more than their houses were worth. Self-assigned guardians of financial ethics see the willingness of borrowers to abandon their mortgage debts as a sign of the “erosion of social and moral standards.” The aim of these critics is to shame debtors into sticking with their mortgages. That's something debtors should take with a grain of salt. There are many good reasons to keep paying your mortgage and avoid the black mark of foreclosure, but the immorality of sticking the bank with a loss isn't one of them.
Mr. Mark Gimein does a good job of explaining why he thinks there are "strategic defaulters" but he falls flat on his face when he complains about "the fine print:"
The most vociferous critics of the walkaway phenomenon paint every debtor who abandons a mortgage before spending every possible dime to repay the bank as an abuser of the system. This is pure nonsense. Folks who lecture debtors pile on the ethical frosting with statements about how a mortgage involves a “promise” to repay and is so somehow inviolable.
But one good way of judging whether a contract has the straightforward moral character of a “promise” is to check whether it is accompanied by many pages of fine print. Nonrecourse rules exist in the first place because some states saw more subtle gradations of what makes a promise—and decided that keeping people out of debt slavery was a higher public priority than assuring that banks get repaid.
That's some pretty weak tea right there. It presupposes that anyone who signs a contract that contains "fine print" can just plead ignorance and not have to meet the requirements laid out in it. If Gimein were to look at any modern rental or lease agreement for an apartment, a condominium, or even a car, he would see enough fine print to cause his eyes to glaze over. The states got it wrong--if there was too much fine print to begin with, containing misleading or damaging language, then the regulators should have gone after the lenders and the agents distributing those fraudulent agreements. If the state regulators had simply done their job and had done two things--severely penalized fraudulent lenders and arbitrarily refinanced, with state money, the home loans for people who were legitimately defrauded by predatory lending practices--we could dispense with the dangerous precedent of arguing that the fine print negated the contract.
Fine print does not negate a contract; it legitimizes it. And if you sign something you haven't read, you're out of luck. Next time, hire someone who can read and understand contracts and fine print and then, and only then, go ahead and sign the papers. Until then, go live in a flophouse and eat beans burned on a hotplate.
Arguing that there is no shame in walking away from a contractual obligation is ridiculous. Who, in their right mind, would then sell a home to anyone, knowing the homeowner can skate when things get iffy? What kind of an economy would this be if no one could put a home under contract?