When homebuyers and lenders enter into mortgage contracts, each side takes on risks. Included in the risk that the lender assumes, is that the collateral will maintain value in excess of the loan amount. When that doesn’t happen and a homeowner continues to make payments, for whatever reason, they are performing above and beyond the implied expectations of the contract.
I find it no more immoral for borrowers to stop paying in these circumstances than for the lender to foreclose. (Actually, I don’t think ethics or morals should even be a consideration. Lender corporations, despite the courts treatment of them as a “person”, rarely act out of ethical or moral considerations. They act based of legal considerations.)
Things get a little bit dicier for recourse loans, risks are greater for the borrrower, more options exist for the lender. But morals and ethics still don’t come into play in any greater degree. Risks are still taken by the lender. And the legal consequences of failing to pay are spelled out in the contract. Both borrower and lender have to live with those consequences.[/quote]
I would argue that to stop paying while continuing to live in the home is unethical. It’s trying to play both sides. Breaking the contract but still reaping the benefits (occupation of the house.)
I believe that there is plenty of blame and pain to share among the parties to the contract – borrower loses downpayment and takes credit hit. Lender takes hit to investment and has costs associated with reselling the property. But if the person doesn’t vacate and chooses to not pay – in some ways, that’s theft. It’s kind of like “dining and dashing”. They are reaping the benefits without the costs.
