It’s funny how a person can change. Almost two years ago I wrote an article titled “Have you no morals“. The article centered around a quote from The Motley Fool (a popular financial website). Here’s the blurb that really pissed me off….
For many of the underwater homeowners in today’s market, paying down their mortgage isn’t really in their best financial interest. Particularly in states like Arizona — where mortgages are nonrecourse, meaning the lender can’t go after any of the homeowner’s assets other than the property itself — it makes little sense to continue paying a large mortgage on a devalued house when comparable rental rates are far below the monthly mortgage payment.
I was heated after reading The Motley Fool’s article. I went on to say things like…
“So you may be $100K underwater on your house. But if you can still afford the mortgage, you have every MORAL obligation to keep paying.”
“Sure it may not be illegal to walk away, but that doesn’t mean it’s the right thing to do. Remember, when you purchase a home, you VOLUNTARILY accept the risk that comes with it.“
It was one of my more popular articles receiving just shy of 70 comments. While there were definitely some that didn’t agree with my opinion on the matter, many backed me up. But now, two years later, I’m realizing that I was wrong, and so is everyone that sided with me.
There really is nothing immoral about skipping out on your house payment. I failed to acknowledge that when you sign a mortgage contract you are doing just that…signing a contract. You aren’t promising the bank you are going to pay them all the money you borrowed. Instead you are agreeing to a deal that is mutually beneficial. It looks like this.
You and bank both agree that if you pay back the mortgage on time every month, you will eventually become the sole owner of the house.
You and the bank also acknowledge that you may stop paying your mortgage at any time. And If that happens, the bank gets to kick you out of the house and ruin your credit.
It’s really that simple. I was naive for thinking people had a moral obligation to pay the banks, because let’s be honest, no mortgage contract says “I will pay you every month as long as I have the means to do so.” If it did, then we could make a morality argument, but since that’s not the case, morality has no place in this discussion.
When you borrow money from a friend, you typically promise to pay them back. When you borrow money for a house, you don’t make that promise, you simply say let me borrow the money and if I don’t pay you back, feel free to kick me out and damage my credit. Period. End of story.
….OR IS IT????….
So I started the article saying I believed people who could afford to pay their mortgages had a moral obligation to do so. I then spent the last two minutes trying to convince you that is not actually true, and that morality is irrelevant. But let me spin it one more time and once and for all declare that you MIGHT in fact have a moral obligation to pay your mortgage back if able.
For the following reason…
Although you don’t have a moral obligation to the bank, you do have a moral obligation to look out for your fellow man. Once the banks were deemed “to big to fail” and were bailed out by the fed, we the people became involuntarily investors in your loan. You should pay your mortgage bill so I don’t have to. Don’t know if I can call you immoral for not doing so, but I’m pretty sure I can at least say “You kinda suck.”
Do you think homeowners have a moral obligation to the bank? Why or Why not? If you said yes, you’re wrong.
Do you think homeowners have a moral obligation to their neighbors and the stability of America? Debate in the comments.
p.s. if you don’t get the cartoon today, see this article.