Monday, Jan. 11, 2010
Written 10:00 a.m.
THE GFE EXPERIENCE: The new year brings something good for mortgage borrowers: a standardized good faith estimate that is supposed to be accurate.
I have an article about it on the site today. Later, we'll have an annotated GFE that explains the various sections of the three-page document.
Also, Marketplace's Tess Vigeland interviewed me for the weekend radio show. You can listen or read a transcript.
WALKING AWAY: Is it irresponsible to walk away from a mortgage that you can afford? That's the question that Roger Lowenstein wrestles with in an essay published last week in the New York Times.
Lowenstein points out that Morgan Stanley recently walked away from five office buildings in San Francisco because the mortgages were deeply under water. "Nobody has said Morgan Stanley is immoral -- perhaps because no one assumed it was moral to begin with," he writes. "But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials."
After exploring why it's considered antisocial and amoral to walk away from a mortgage, Lowenstein concludes that the government "should encourage borrowers to default when it’s in their economic interest." That's what businesses do, after all. And more important, he adds, if more people walked away from their mortgages, the lenders would have an incentive to grant friendlier loan modifications.
I used to disagree with this argument, but I've been coming around to it lately. Lowenstein isn't making the populist argument, which could be summed up as: "The banks are screwing us, so let's screw them." Lowenstein isn't saying that homeowners should get back at anyone. He's merely suggesting that people do what's in their financial best interests.
There are known and unknown costs to deliberately defaulting on a mortgage, and I recommend a visit to a lawyer and an accountant for anyone who contemplates walking away. Find out the legal ramifications, how default will affect the ability to get auto loans and credit cards, and what the rental market looks like for people who have gone through foreclosure.
Read more Mortgage Matters blogs.