Spending and Saving

Ditching Your Home

It sounds so tempting: Throwing in the towel and saying goodbye to those overwhelming monthly mortgage payments and your underwater home. Starting anew with a home that’s more modestly priced (and valued) and a mortgage you can actually afford. It can seem like a pipe dream.

It isn’t, and it’s not entirely unreasonable to walk away from your home and mortgage. Enough people have weighed in on why it may make sense for you, and even urging you to take this option.

Loan modification companies have sprung up the way debt settlement companies emerged en masse earlier.

You Walk Away is one of them. The company’s daily blog is a lively and supportive read aimed at helping you become more comfortable with the idea. As long ago as December 2007, when the recession officially kicked off, You Walk Away was beating the drum for people to ditch their homes and default on their mortgages. The cheerful blog walks you through why it’s okay to walk away from your mortgage: “The lender did not loan you the money without intent to profit.  The lender DID risk their money in order to make a profit.  They created the terms.  They should live with the terms they created.” YWA warns about the possible consequences of walking away: damaged credit for years; the anguish of having your home foreclosed upon; the judgment of others; wage garnishment.

YWA charges $995 to essentially walk you through the process — they’ll send a cease and desist letter to your lender and after that, it’s mainly information providing and hand-holding (no small thing in a potentially traumatic event). It’s not known how many of YWA’s clients have successfully walked away.

Loan modification companies have sprung up the way debt settlement companies emerged en masse on the scene earlier, aiming to “help” consumers squeezed by credit card obligations, but charging exorbitant fees, and not always being helpful. (New York Times wrote a nice piece covering these scamsters last year.) We’re not sure whether YWA fits into this category, but we agree with the Caveat Emptor blog that “$995/half hour is probably the highest hourly rate in the world.”

As You Walk Away notes, there are issues you will likely turn over in your head that don’t have anything to do with financial calculations on what you can afford. You’ll be mulling whether the option is moral or ethical. If so consider this point made recently by Roger Lowenstein in the New York Times Magazine. He argues you should ditch the question altogether:

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

The decision will likely come down to a moral issue: How does walking away fit with the values you hold, and the way you make decisions. Arm yourself with information, and then really listen to your gut.

Tags: commercial real estate, home, mortgage, real estate, Wall Street