CHESSNOID

The New York Times has a good article in regards to mortgage defaults.  I have seen this topic covered already, but this is more main stream media trying to help regular people understand the problems in our economy and sends the message to act in your best financial interest.

I blogged about the mortgage responsibility of the borrower.  It is just a contract, nothing more nothing less.  The NY Times characterizes it even better.

NY Times:

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.

I think the government and business try to put the idea that walking away is wrong, while at the same time its actions show they are hypocrites. That is what the actions of the bailouts demonstrate.

I agree with the article’s summary.  If more people actually acted in their best financial interest, the market would actually run better.

And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.