As a holdout renter waiting for the market to become reasonable; I’ve been thinking about the whole ethics in walking away questions quite a bit. I think there is a fundamental inequality in arguing that someone who can afford a house should stay in it regardless of the market.
Let’s take away the group of folks who can’t make payments because of unexpected troubles (job loss, medical problems, etc, as a group for which most would agree that losing a home is an unfortunate by probably necessary outcome. That leaves us with folks who took out loans that would reset into payments they couldn’t afford, and those that took out loans they could afford. If you argue that anyone who can make a payment should stay in their house regardless of the value, then only those who made foolish choices can walk away… which can be a benefit in the current market. How in the world is that fair? This perpetuates the problem of punishing those who were making (at least somewhat) financially sound decisions compared to the folks who were entirely out of touch with reality.
Loans are business agreements. The banks (supposedly) lent loans under conditions where they understood the risks and with significant consequences to default. There are credit consequences to walking away that still serve as a downside; it just competes with a stronger upside these days.
Besides, the more folks walk away, the more foreclosures and the more rapidly the market corrects.
