Walking Away from a Mortgage a Good Idea? - One Professor Thinks So

University of Arizona law professor Brent White has the radical idea that people who keep paying on underwater mortgages do so to avoid the shame of foreclosure and because of what they think that foreclosure will do to their financial life.

He goes beyond that to say that these kinds of emotional reactions are actively cultivated by the government and others in order to encourage homeowners to honor their financial obligations and to ignore other options that may be legal and make more sense financially.

At the same time, he believes that financial institutions make rational, logical, unemotional decisions based on maximizing profits or minimize losses. His bottom line is that these different ways of approaching the problem makes homeowners suffer more than banks.

Deciding to Stay or Walk
If you want to read the whole paper, feel free to download it. Mortgage311.org has reviewed the paper (rather quickly) and found a few interesting things. He talks about what a homeowner should think about when considering whether to walk away from a mortgage, including what is the current value of one’s home, what is the the cost to rent a similar home, how long the owner intends to stay in the home, and the estimated appreciation or depreciation of the current home.

He states that with this kind of information, plus information on their current mortgage payments, that it would be simple to make a purely financial decision to stay or walk. He also says that one of the biggest worries, a drop in credit score, can be overcome in a couple of years after a foreclosure.

Real Life Is More Complicated
Anyone who has an underwater mortgage and who is able to keep up payments knows that the decision to stay or go is more complicated than just a financial decision. If you walk away from a home mortgage, that means you have to find somewhere else to live, and if it is far enough away, you have to find new schools, hair salons, grocery stores, and maybe even a new job.

If you find yourself in a situation where you have to decide to stay or walk, it won't be an easy decision no matter how much data you have. Before you have to make that decision, it may be better to find another solution, from negotiating with your lender to cutting back in other areas. Whatever you do, make a decision based on both logic and emotion, and make sure you don't make the decision before you have had time to really think it over.