Paulson's warning: Don't walk away

Interesting, and revealing, comments from Treasury Secretary Henry M. Paulson Jr. (pictured) in Chicago last night. With two of the nation's most influential newspapers reporting the same trend at the same time -- a rise in "jingle mail," or "walking away" from mortgages -- Paulson strongly urged homeowners not to walk away. He sounded a bit like a bill collector.

"Homeowners who can afford their mortgage should honor their obligations. And nearly all do," he said. "Homeowners who gambled in the housing market and viewed their purchase as a short-term investment may choose to walk away. Those who do this are nothing more than speculators, and they are not the focus of our efforts."

We have explored this issue to death on the blog, and the views here are pretty clear: Most of you believe that walking away from a mortgage is not a matter of honor, it is a financial decision, and sometimes the smart one, for borrowers.  It comes with serious consequences, but a majority of you have made clear you believe it is sometimes the best choice.

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo credit: Reuters

Comments

[Tombstone Realty]

People who are speculators, and walk away, are just going to consider this a loss, and move on to other investments. Paulson just doesn't seem to understand the dynamics of the situation - and he himself made it worse by making all homeowners out to be the 'victim' of some kind of iffy lending in previous comments. It's now 'okay' to walk.

I believe it was the NYT article that had the guy saying that while he expects a hit, he knows that so many people will also share that hit to their records, that the banks in the future will overlook it. And he's probably right.

It's not the sound of a bill collector you're hearing - its the sound of a Federal Economic figure terrified of what he's hearing from the lenders, and seeing in the balance sheet. It's probably been awhile since either he, or Bernanke have slept a full night.

[1]

Peter said, ".....but a majority of you have made clear you believe it is sometimes the best choice."

I find this sad. Hopefully the blogging majority is actually a large minority in the “real world”.

[jb]

I think the term "walking away" has negative connotations of abandoning some responsibility - a more accurate term might be "exercising your option for bank ownership".

This is in fact the agreement which both the lenders and the borrower agree to. The banks own these houses, not the borrower. (they may not like this fact in a rapidly declining market, but they sure as hell knew better - "jingle bells is NOT a new term", they are VERY familiar with it and had ample means to protect against it by requiring 20% down, etc that they greedily ignored. I say F them, send em the keys)

[anonymous]

jb,

Walking away IS abandoning responsibility. If you sign those loan docs, you ARE responsible for paying it back. YOU agreed to PAY THAT AMOUNT for the house!

[jaded]

>

you mean like "kill" has negative connotations of murder?

[blah_to_you]

You can rationalize walking away any way you wish, and yes it is legal, but the fact remains you are reneging on a promise and commitment you made.

Nowhere does is it say on the mortgage papers “I agree to pay ONLY if the house price does not fall”. You promised to pay your mortgage. Too bad if you gambled and lost. That sure the hell isn’t the bank's fault. Reasoning that the banks should have known better is childish and irresponsible on the borrowers part.

Walking away makes you a deadbeat, period. Everyone else that IS ethical will have to pay for your actions. Walkers aren’t just hurting the banks, they are hurting everyone else.

[theproblemwithcaring]

YOU agreed to PAY THAT AMOUNT for the house!

Posted by: anonymous |

I was ambiguous about the arguments for and against the morality & future financial soundness of such a monumental and far-reaching decision...until someone clarified everything with ALL CAPS.

SOLD

[pugtv]

"Strongly urge" vs. "Warning" have completely different connotations. It's sad to see, but it shows the one sidedness and sensationalistic bent of this blog.

I still like the blog because I think it's very informative (excluding the resident village idiot's opinion who's name starts with an "L"). I just hope for more balance.

[mattress man]

The trouble is that walking away (after free-renting
for a year) doesn't carry enough penalities.

1.) There should be no tax forgiveness on the windfall
amount received in walking. The IRS needs to
hound these people for the rest of their lives.
2.) Free-rent time needs to be recourse time and
also needs to be followed thru to collection.
3.) Credit needs to be permanently damaged.
The ability to own again in the next 12-15 years
should be all but impossible.

The last thing honest people need is competing
with deadbeats looking to buy another home a few
years after they walked away with a year's worth of
free money collected in squatting.

Should these deadbeats manage to obtain another home,
then let the IRS and recourse collectors grab any money
delivered as a downpayment. Then, (through liens on the property)
foreclose promptly, kick them out fast, and put the (hopefully)
now stable-priced property back on the market.

We need to find ways to get a pound of flesh
from the buyers who laugh at what they've done to
the RE market and the general economy.

No bailouts for banks... and no bailouts for their scum clients.

[Bargain House Hunter]

Did you promise to pay the bank? Or did you agree that if you failed to pay then the repercussion would be that the bank would reclaim the house? I'm not sure (I've never read a mortgage contract in detail [never signed one either]).

The banks speculated - if a bank had had a 20% downpayment, and if prices weren't dropping, and you said you were walking away, they wouldn't say "But you promised to pay... " They'd say "Thanks, bye".

But I guess everyone who's got an opinion on this has a piece of one pie or the other. Personally, I've got a (more than 20%) downpayment burning a hole in my pocket, and when it looks like things are stable I'll think about buying.

If I'd bought recently there's a good chance that I'd be saying the exact opposite.

Maybe all morals are relative. Or maybe it's just some of them.

[White]

Matress man has hit it right on point. I agree 100%.

[tom]

I doubt if anyone WANTS to walk away from their home. However, if you think about how many people were employed in housing related fields one has to wonder how these laid off workers can afford to eat let alone pay a large mortgage. They probably have no choice but to walk away.

[mike]

i think they should fry any home purchaser who falsafied documents and can't pay back their loan. when i say fry, i mean in a CRIMINAL court of law.

[Michael Snyder]

Paulson's remarks are indicative of just how scared he and the the rest of the financial sector are. It's not "jingle mail they're worried about. It's that cascading sound of hundreds of thousands of upside down borrowers bailing themselves out of a losing situation.
The banks have only themselves to blame and they;re exacerbating the situation at every turn. In Wells Fargo's move limiting all mortgage loans to 75% of appraised value; a major player in creating this debacle has tacitly owned it's previous failures and sent a undeniable signal that the worst is yet to come.
In the end, Paulson sounds like a frustrated preacher demanding contributions. But when it comes down to feeding your family or feeding your banker it's a pretty easy choice.

[mike]

fry any short term real estate speculators. they don't know anything about real estate. let them go back to day trading. fry the short termers. fry the short termers. real estate is a buy it and wait game. long term investment. send the liars to criminal court. put them in jail. i have no sympathy for zero down wannabe home owners. go live in rural minnesota or north dakota, work at wal mart and buy a home. the prices are competevive with wages back there. leave california to the people who know how to deal in r/e properly. go freeze somewhere.

[scott]

It seems that the tax forgiveness would apply even for people who over stated their income on their original mortgage applications? I wonder what would happen if these people were forced to pay income tax on the income they stated they made to get their mortgage....

[IToldu2CashOut]

The banks are supposed to be far more savvy then the average home buyer. In many was they were because they packed off most of these junk mortgages and sold them to hedge fund who also made out for years.

Do I care if people walk away and get away with it? "Hell no. Is it slimy, of course, but if you have no skin in the game and someone is going to basically give you a free house then of course people are going to take advantage. Now it turns out they were basically renting from the bank at a high rate, they got to act like big shots in front of their friends for a few years, but now its eviction time. Not even forecloser since they never really owned in the first place if they never paid any principle.

The important thing is that now the jig is up they get the hell out and no one bails them out. The quicker this happens the quicker prices will drop and someone else who was responsible can buy the property.

I feel sorry for people who bought and put money down and are going to continue to pay on their overpriced house but anyone who bought in the last 3 years was foolish also. Sometimes people need to use common sense and not listen to the heard. Besides if you keep your house (prison) it will eventually go back up and you can sell for what you bought it for. After all you bought it because you wanted to live there right?

[Valley Resident]

The Ideal BAILOUT in my opinion would be to match the down payment for all new buyers by giving new buyers a tax credit equal to their down payment. This will:

1: Reward those who did not gamble and saved their money instead of rewarding the speculators

2: Create demand for homes in danger of getting foreclosed and save the banks - people will be able to sell their homes instead of walking away.

[Raul]

This is not a moral issue, according to the Bible is inmoral to charge interest on any loan. This is a financial decision, Paulson is saying: homeowners that can afford the mortgage should honor their obligations; the ones that can not, just walk away..... and do it fast that way we can get over this and know exactly where we stand. The Banks, the Investors, every one would know what to do, Wells Fargo would go back to 10% down payment, Lefty would be in busines again selling houses, the economy would improve ,the State would be collecting more and of course spending it as fast as they collect it, no one would accuse us of being terrorists, everybody would be happy until the end of times......

[Ann]

(1) Treasury Secretary Henry M. Paulson Jr. said "Homeowners who can afford their mortgage should honor their obligations.

This has to be one of the most hilarious things that I have read in a long time.

Paulson, a member of the Republican administration and member of the Republican party is giving morality lectures on financial decisions.

Guess he missed the Republican party ideology training sessions that taught:

(a) Greed is good – and avarice is better.

(b) Only look out for yourself – and to hell with everybody else.

(c) Take all you can get and ‘morality’, ‘ethics’ and ‘community and social responsibility’ be damned.
The day Paulson pushes to have the bonuses of the Wall St wizards taxed as regular earned income as they only get the bonuses by being employed, he might have some credibility.

THe Republicans INVENTED the concept of "I've got mine - now screw you."

The day Paulson goes on record that corporate CEO salaries and golden parachutes are excessive and irresponsible when the regular employees’ incomes have not kept up with inflation, he might have some credibility. (19980 CEO salaries were around 40 times the salary of the median employee of the business, now they are over 300 times the median salary of the employees.)

The day Paulson gets behind tying CEO and upper management wage increases to the rate of wage increases given all other employees of corporations, he might have some credibility.

The day Paulson stops worshipping at the alter of super-capitalism (the religion of Milt Friedman and the Republican party) which preaches that “The glue binding all Americans, rich or poor, is self-interested greed, pure Adam Smith economics. We all want more, we want it now, and more is never enough” and “If you don’t get rich, you are a loser”, he may have some credibility.

(2) Bargain House Hunter
You ask “Did you promise to pay the bank? Or did you agree that if you failed to pay then the repercussion would be that the bank would reclaim the house? I'm not sure (I've never read a mortgage contract in detail [never signed one either]).”

There are two documents involved: (a) the promissory note which says that you are borrowing so many $$$ and will pay the money back over so much time and at a certain amount per month a plus so much in interest and (b) the mortgage which creates a lien on the property for the amount that you borrowed as set out in the promissory note.

The contract is this:

(1) Lender will lend you the money.

(2) You are to repay the money according to the agreement.

(3) If you repay the money as promised, the lender will release the mortgage against the property (ie: it’s ‘security to make sure it gets something if you don’t pay.)

(4) If you do not repay the money, the lender gets the house which was (or so the mortgage assumed) at least equal in value to the amount that you have not paid back.

So the contract is that the lender gets either the money or the house, and you either give the lender the money or the house.

[Robbie Fields]

Jingle mail favors the lenders.

We are now in an undeclared inflationary environment, which will lead inexorably to hyperinflation, given Helicopter Ben's policies.

The smart people will do everything to stay current on their fixed and semi fixed indebtedness and have the coming inflation reduce their million dollar indebtedness to the price of toilet paper.

Jingle mail only makes sense in a deflationary environment. The property bubble's deflation is a sideshow to the main event : monetary inflation.

[MCL]

What Paulson and his gang are really worried about, are those who will "walk away" from the Republican Party this November, I suspect...

Does anyone remember the "Savings and Loan" debacle way back in the 1980's? Weren't the bank regulators supposed to make sure that banks stayed financially solvent? Where were those guys???

I've watched the stock market melt down over the last two days, since Bob Bernanke said to Congress that
"There will be bank failures." This has provoked a mass walk-away from both the US financial markets, and the US dollar as the world reserve currency.

Believe me folks, when I tell you, that this is not at all a good thing, as it is coupled with a co-ordinated "walk away" from liabilities associated with numerous exotic financial vehicles (like CDO's) and other bonds and bond-like investments, by many different financial institutions. (See what happened to a little-known group of folks called the New York State Dormitory Authority. They just saw a $330 billion bond market evaporate this week, when all the Wall Street boys stopped making a market in the municipal bonds that the "Dormitory" holds and manages.)

It now does not matter if private individuals walk away from their mortgages, since all over the world, major financial institutions are tripping over themselves as they *run*, (not just walk), away from their commitments to provide market-making and other liquidity-related services to the very markets they were very well-paid to create.

Honestly, Paulson should shut the heck up about what private small people are doing, and focus on the sound of the imploding financial markets. Large parts of the global fixed income market appear to be simply imploding - either locking up, or just vaporizing as auctions are held, and *NO* buyers whatsoever emerge to take the paper. The buyers and the market makers have just "walked away", and this type of walk away is about 100 billion times more serious than anything that private mortage holders can do.

And what really astonishes me, is how little effort and attention anyone in the American Government is focusing on this complex, expanding crisis. It started out as a credit crunch, has now become a serious liquidity panic, and threatens to turn into a capital-burning hellstorm that will burn everyone and anyone who holds any kind of US-dollar denominated asset. Secretary Paulson should really focus his attention on this problem, and leave the moralizing to the preachers.

- M. Langdon,
Waterloo, Ontario, Canada.

[bottom line]

A giant bravo to MCL for contributing the above piece, although I implore you to understand the fact that the shrub and all his incompetent minions, thugs, syncophants, and camp followers are, under the direction of "5 deferrment Dick" and the "ghost of greenspan", just looking to kick the can down the road, until 1/19/2009.

Are you expecting due diligence from Henry? The assistant to John Erlichmann in '71 & '72? The Paulson that knocked down $37 million at Goldman Sachs in '05 before taking over for the woefully inadequate Snow in mid '06?

If Hank had ANY duty to America, & the Dept. of Treasury, he'd fly you D.C. and learn at your knee. But then he's a fascist, an elitist, and will only, in the long run, advocate for the interests of U.S. financial interests, big pharma, oil, and anything the lobbyists bring down the pike.

The chickens WILL come home to roost. When things reach the apocalyptic stage, & the disenfranchised are jumping these bushies fences because there might be food there, I sure hope Monika Goodling has some canapes made up.

[Name (required)]

Hey Waterloo, chill out. We Americans will be just fine. You have plenty to concern yourself with in Canaduh.

[Cal]

Robbie Fields, I keep hearing the inflation argument. Lets say Ben IS making the dollar worthless.. if housing prices are still falling in the face of that (i.e. housing deflation) then it still doesnt make sense to purchase in that enviroment.

The conventional wisdom of "Buy a house as a hedge against inflation" became conventional wisdom because houses generally rise at the rate of inflation. If prices are dropping in nominal terms, they are dropping even further in real terms. The last thing you want to do is leverage yourself in a depreciating asset.

[LA-renter]

Paulson as a federal official should encourage people to abide by an agreement.

However, because the situation of loan-holders is more gray than black or white, Paulson's impugning all "walkers" as if they were an organized criminal gang suggests that insomnia is taking its toll on the treasury secretary.

If you foresee that (despite the efforts of G-men like Paulson) you are eventually headed for foreclosure or financial ruin, would you continue on that path?

In the end, it was the lender's money, and the lender should have ascertained whether the borrower's collateral would satisfy if the loan failed.

[CD]

M. Langdon is right this is our Waterloo.

[MBWD]

I find it sad that "the majority" of board posters believe that it ok to walk away from a mortgage.

Others' irresponsibility (i.e., banks) does not excuse your own.

If you signed a contract, you have an obligation t fulfill it.

If you do not, you HAVE gone against your word.

And I for one believe that is all we really own in this world.

The comments favoring walking away are truly a sad commentary on the free-fall in American values.

[brad]

Anne has it right. The last thing I want to hear is some preaching on morality from a Republican. These guys have spent my grandchildren's future on an immoral war. There is no question that folks that lied on their loan docs should be held accountable in a criminal court of law. But whether or not someone walks from their mortgage and breaches their promissory note is their personal choice with personal consequences that they must live with ie. IRS debt forgiveness, destroyed credit rating, maybe even a guilty conscious.

[Tourist]

I don't understand why the banks are not getting a bit more hard nosed on these loans. When I defaulted on a mortgage back in 1988, the bank had the court place a judgement against me for $7000.00 (the difference between what the bank received in a foreclosure sale and what I owed). Do the banks have the ability to go after these debtors to make good on their contracts? I had to pay the 7k plus interest 3 years later when I was again making money.

[Jesse]

Screw the moralizing and the Republican bashing.

I read that there was a housing bubble in the 90s, and now this one is worse. But when will finish bursting? I also hear that prices now are over valued about 50%, back in the 90s it was 20% to 30%. I think it was the flippers who caused these overvaluations. So a house down the street, and this is not Bel Air, selling for 600K with a few cosmetic changes, should really be 300K.

I can't wait, I hope.

If they come down to the mid 200K, I will be happy. And I have 20% down payment and good credit for that. Just pray I don't get cancer--before or after I buy.

[Teresa]

Since we're on the topic of the responsible being made to pay for the irresponsible, for those of you who believe that borrowers should be put in prison and hounded by the IRS for the remainder of their lives, who do you think is going to end up paying for that?

Do you think imprisoning people is FREE? Do you think gov't thugs will hound those debtors for FREE? Not just no, but HE// NO.

This isn't even getting into the additional costs of these Draconian proposals, such as paying for the foster care for the underaged offspring of the TENS OF THOUSANDS of debtors you wish to put in prison. Do you think that will be FREE?

You want to put all these debtors in prison--YOU pay for the cost of imprisoning all of them and caring for their minor children (and any other dependent relatives) while they are in prison.

YOU can also pay to hire more gov't thugs to go after debtors for the rest of their lives. YOU can pay their wages, worker's comp, benefits, etc.

And please, don't say I'm talking out of "compassion" or any of that claptrap. This has nothing to do with "compassion" and everything to do with the fact that I don't want to have to pay to quench your thirst for revenge.

I prefer letting them walk because that is THE CHEAPER SOLUTION. Far, far cheaper than the little revenge scenarios so many of you dream of.

If you don't believe me, why don't you calculate how much it costs to imprison someone? Why don't you figure out how many more prisons will need to be built to house all of them, how many more prison staff will have to be hired, etc., etc.

I'm also curious how many child molesters, serial killers and other violent criminals would be let out of prison so we'd have room for all the debtors.

And don't say we'll just put them in dungeons and feed them bread and water...I'm talking about the costs in the REAL WORLD, not your little fantasyland where they're put in dungeons and starved. Even serial killers and child rapists are not put in dungeons and starved. They are housed in prisons and it costs MONEY to house them there.

[Teresa Rothaar]

------------I don't understand why the banks are not getting a bit more hard nosed on these loans. When I defaulted on a mortgage back in 1988, the bank had the court place a judgement against me for $7000.00 (the difference between what the bank received in a foreclosure sale and what I owed). Do the banks have the ability to go after these debtors to make good on their contracts?-------------

They very well may, but a judgment is only as good as the probability of it being satisfied.

Lots of these debtors earn no money now, have never earned a reasonable income, and have very little probability of ever earning a reasonable income.

Judgments cost MONEY to obtain, and a bank could very easily lose A LOT more money than they'd ever collect if they spend money filing judgment after judgment.

A bank must balance the cost of getting a judgment against the probability of it being paid. Again, this has nothing to do with "compassion for the debtor" and everything to do with choosing the cheapest option for the bank.

I had a contractor walk out on a job. I COULD sue him. I COULD get a judgment against him. Problem is, he's a deadbeat and is very unlikely to pay up, now or ever. But the court would still charge me MONEY to sue him and file a judgment against him. The court doesn't care if I ever collect that money; I have to pay the court no matter what. So I decided not to sue him, not because I feel "compassion" for him--if he dropped dead, I'd ask where he was buried so I could urinate on his grave--but because I don't want to throw good money after bad.

Likewise, if I were in charge of a bank, I wouldn't go after a debtor unless there was a reasonable probability they'd actually pay up someday. That means I wouldn't go after people with high-school educations who are in their 30's and have never made more than $15.00/hour. What is the probability such a person will ever earn more? Not high enough that I'd spend my company's money pursuing it.

[shockg]

We have explored this issue to death on the blog, and the views here are pretty clear: Most of you believe that walking away from a mortgage is not a matter of honor, it is a financial decision, and sometimes the smart one, for borrowers. It comes with serious consequences, but a majority of you have made clear you believe it is sometimes the best choice.

Genius Peter, of course you all enourage distressed buyers to walkaway so we can add to already high inventory and you can benefit from it. Your statement reeks of vested interest and is horrible advise. Your "followers" are not at all reprentative of the general public. This site attracts greedy speculators.

[Daniel]

The majority of people here certainly don't belive its is okay to walk away, only the idiots with no financial sense do.

Its pretty simple to me. Do you send your mortgage bank a bonus if your home appreciates? No? Then you have no business sticking them with the bill if it depreciates. Honor your obligations, its not a financial decision, its a life decision. Either you stand by your word, or you are moron, and pond scum, the choice is yours.

D

[NoWayinLA]

The decision to walk away from your mortgage is very much a moral decision.

In a democratic capitalist environment, the individual's first responsibility is to tend to their own affairs. There is a pool of resources available for those who cannot take care of themselves... but for those who can, they have a duty to society to provide for themselves, and to be a net contributor to that pool of shared resources, rather than a net receiver. The more who contribute, the less the burden on the entire contributing society, and the stronger the entire system will be.

A homeowner with a mortgage he can't afford, to stay in that house, will do terrible damage to their personal situation. They will spend all their retirement savings, leaving society to deal with the problem later. They will discontinue preventive medical services, leaving society to deal with the problem later. They will take on additional work hours, at the expense of time and attention to the children, leaving society to deal with the problem later. All these problems will be paid for by the nation with interest. And none of this does anything to prevent the inevitable... they'll still lose the house.

It is that homeowner's moral obligation to society to cut his losses and move out. And when he mails in the keys, he is not breaking the contract... he is honoring it. The contract basically says "the payments, or the keys." He's simply exercising the second option.

What about the banks? I don't see anyone crying for a bailout of all the poor owners of Countrywide stock, which has dwindled to under $7 a share. They made an investment. Investment carries risk. It's the mortgage lender's responsibility to accurately measure that risk, and to plan accordingly. They know when they make the loan that there's always the chance that, for whatever reason, the buyer will stop paying. The reason we're in this situation is because the lenders failed in that responsibility. Because they failed to tend to their own affairs, society will pay... with interest.

The lenders now have a moral obligation to cut their losses by working out as many of these problem loans as they can, and selling the homes of the ones they can't. The buyers have the moral obligation to cut their losses, with a workout or jingle mail as appropriate to their particular situation. And the sooner both parties man up to their responsibilities, the sooner prices will return to sane levels, and the sooner sidelined buyers will get back into the game... reinvigorating all the economic activity associated with real estate transactions.

Lenders, agents, appraisers, buyers, sellers, and the government need to get real about the true value of real estate for us to get out of this crisis, and nobody wants to man up to that responsibility. So we'll continue to see this spiraling out of control.

[Teresa Rothaar]

----------------And when he mails in the keys, he is not breaking the contract... he is honoring it. The contract basically says "the payments, or the keys." He's simply exercising the second option.------------------

That's what all of these "we shouldn't let those deadbeats get away with it" types don't seem to grasp. By giving the bank back the house, a debtor IS holding up their end of the mortgage contract. It's not like they get to keep living in the house for free. They have to give it back.

[Sean]

Maybe this should be a lesson to banks who loan money to people. Responsible lending means not lending to people who are not in a position to pay you back - ie, people who lie on their mortgage application (liar loans) and people with bad credit.

I hope many banks fail as a result. This will teach them a lesson next time. This unneccessary mess and economic slowdown we are in has been caused by irresponsible people who do not pay back what they promised to, banks who didn't scrutinize their clients well enough before approving a loan and a federal resevere whose job it is to protect against inflation did nothing while homes prices escalated out of control.

Despite their recent price drops, home prices are still way to high. They wont stablize for years. We wont hit a bottom until regular people (ie, responsible people) can afford to buy them.

Any government intervention IS tax payer money being used to bail out irresponsible people.

NO GOVERNMENT BAILOUT for irresponsible banks or irresponsible borrowers.

[TrojanDLA]

It's obvious most of you have NOT read your loan documents. The "contract" is not simply a promise to pay the loan. It clearly gives the the borrower 2 choices in return for accepting money from the bank:
1. Repay the loan with interest
2. Walk away and give the bank the house

The borrower's obligations are limited to those 2 repayment remedies that the bank itself has written in the contract. Nowhere in the contract does it ever state that you promise to repay the entire loan. It simply says that the borrower will make the monthly payments as agreed, and if the borrower chooses not to, then the bank can accelerate the loan and take the home. That's it.

If you borrow money from a friend and you don't have any money left to repay him, but would like to give him your Honda Accord instead and he's happy to take it, is there a problem with that? The banks are "happy" to take your home. Oh yeah, I forgot, banks are faceless corporations, they are always "happy".

[MyLessThanPrimeBeef]

The media has a bad habit of not quoting everything people say.

This is what I imagine Paulson actually said, 'Don't walk away...RUN AWAY!!!!!!!!!!!!!!!!'

[David Yen]

In some states - California apparently is one of them - in certain circumstances the lender cannot get a deficiency judgment against the home buyer/borrower. in California this rule is limited to purchase money mortgages. In other states, the lender can always get a judgment for the deficiency, though it takes a little more effort than just foreclosing on the property. Whether it makes sense to make that extra effort, and then try to collect on the judgment for the deficiency, which once the property is gone is just an unsecured debt, like a credit card or a hospital bill, is another question.

The Motley Fool had a link to a piece called "it's so much worse than you think" By Richard Gibbons March 3, 2008

In the article is this comment on walking away.

"If you owe more on your house than it's worth, deliberately pursuing foreclosure can be a rational -- if unethical -- decision. It isn't surprising that this is happening. For years, lenders have been using legal fine print to gouge borrowers by raising the interest rates on credit cards and charging obscure fees seemingly whenever the mood struck them. Borrowers are now playing the same game, taking advantage of legal loopholes to dodge their debts."

[John]

I for one agree do not feel sorry for many of these individuals who decided to overextend themselves ...

As a Realtor, I can see the value of having such programs available. Arm programs do have benefits as do programs which allow for 100% financing BUT they can also be mis-used ...

The real-estate market is one big cycle, and right now it is more of a buyers market. In my area, homeowners will earning 14-20% annual equity year over for 5+ years! The values will return for those that can stay put.

[Ron]

Most of you commenting know absolutely nothing about the situation as a whole. There are few insightful posts here, but not many.
Morals are implied and a humanistic implication at that. They are not real, and most of you are using the term morals to feed your own ego and justify a decision that is more than likely financially irresponsible on an individual level.
A house is not a home, it is nothing more than building materials propped up on a piece of land.

When you remove the ego and emotional attachment to this structure you realize it does not make sense to hold on to an investment that has lost 30%, is negative in equity, continues to be a financial burden, and will not, if at all, return to positive territory in less that 5 years.
Is it a smart decision to dump $12,000 a year into an investment that is negative?
Not on this planet.
Is it a smart decision to put $60,000 over the 5 year term while the property returns to a neutral equity situation?
Not on this planet.

Another point to consider from the big picture. These lenders that currently own the mortgage are not lenders at all. As in many cases my loans have been sold three times. These mortgages are being traded like stocks, and they are being purchased at discounted rates. I seriously doubt that the current holder of my mortgage has paid more than $0.50 on the dollar for the right to collect on the loan.
They don't have all of their skin in the game either. They can drop the principle value and still come out ahead.
I also did not make an agreement with the current mortgage holder. The original lender already has his money.
Yes, I signed and agreement and secured it with the property.
If I can't pay, they get the property.
I agreed that they would get one or the other.
Now I am making the choice of which one it will be.

It's a financial decision, nothing more.
So stop with your ill-advised moral finger pointing, you are dead wrong and financially retarded.

[Ron]

Most of you commenting know absolutely nothing about the situation as a whole. There are few insightful posts here, but not many.
Morals are implied and a humanistic implication at that. They are not real, and most of you are using the term morals to feed your own ego and justify a decision that is more than likely financially irresponsible on an individual level.
A house is not a home, it is nothing more than building materials propped up on a piece of land.

When you remove the ego and emotional attachment to this structure you realize it does not make sense to hold on to an investment that has lost 30%, is negative in equity, continues to be a financial burden, and will not, if at all, return to positive territory in less that 5 years.
Is it a smart decision to dump $12,000 a year into an investment that is negative?
Not on this planet.
Is it a smart decision to put $60,000 over the 5 year term while the property returns to a neutral equity situation?
Not on this planet.

Another point to consider from the big picture. These lenders that currently own the mortgage are not lenders at all. As in many cases my loans have been sold three times. These mortgages are being traded like stocks, and they are being purchased at discounted rates. I seriously doubt that the current holder of my mortgage has paid more than $0.50 on the dollar for the right to collect on the loan.
They don't have all of their skin in the game either. They can drop the principle value and still come out ahead.
I also did not make an agreement with the current mortgage holder. The original lender already has his money.
Yes, I signed and agreement and secured it with the property.
If I can't pay, they get the property.
I agreed that they would get one or the other.
Now I am making the choice of which one it will be.

It's a financial decision, nothing more.
So stop with your ill-advised moral finger pointing, you are dead wrong and financially retarded.