I’d add to this and say that if the contract doesn’t specifically say that not paying the loan is breach of contract, then what is the problem ?
I mean if it says something to the effect of “if the borrower cannot pay the loan, then x, y, and z happens” then there are no ethical issues at all because not paying the loan is covered in the contract. If it says the borrower will make good faith efforts to pay, regarless of circumstances, then there may be some ethical issues. That is – the ethics involved vary directly with the contract signed.
Also, keep in mind that, because the bank knows it is a non-recourse loan, the interest rate is likely higher than if it were a recourse loan, so the borrower is really paying for the right to walk away without recourse and should have the right to do so without any ethical encumberances.
Being a fan of choice, I’d like to see buyers have their choice of recourse or non-recourse loans, where the interest rate spread between a recourse and non-recourse loan changes based on the market’s perception of the risks involved.
