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Your Take: Default on Underwater Mortgages?

Posted By Jim On 12/04/2009 @ 7:50 am In Your Take | 60 Comments

There’s an interesting article on the Consumerist [3] two days ago discussing a paper written by law professor Brent T. White of the University of Arizona. The paper, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis [4],” argues that more people should be strategically defaulting on their mortgages but don’t because they feel guilty and because the consequences of foreclosure are overblown.

If a business finds itself in a bad loan, it can go bankrupt and restructure (Trump has done it about a billion times!), but people can’t because people have feelings and a conscience. Obviously bankers hate this paper because they would prefer it anyone, individual or business, continues to pay on a loan regardless of the financial implications.

What do you think? Do you think it’s OK to default if it’s the financially correct choice?

Personally, I’m a little mixed. I think businesses should be held to the same standards as individuals, not the other way around, but that’s simply not possible. So that leads us to our current scenario, which is whether it’s OK for someone to strategically default and I think that’s OK. If we think it’s OK for the Trump empire to restructure its debts, why not let individuals?

I’m really curious to hear what you guys think about strategic defaults.

(Photo: respres [5])


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[3] Consumerist: http://consumerist.com/2009/12/go-ahead-strategically-default-on-your-underwater-mortgage.html

[4] Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis: http://online.wsj.com/public/resources/documents/WalkingAway1029.pdf

[5] respres: http://www.flickr.com/photos/respres/2539334956/sizes/m/

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