According to the latest figures, some 23 percent of Americans are underwater with their mortgage. That means their home is worth less than the amount they owe to their lender.
If you have a job, and can afford your payments, being underwater may not cause anything other than a really bad headache. But if you’ve lost your job, you’re probably running through all of your available cash plus anything you can beg, borrow and perhaps steal in order to keep making your mortgage payments.
The question on Brent T. White’s mind is “Why?”
White is a professor at The University of Arizona James E Rogers College of Law. His latest paper is called “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.”
In the paper, White writes that despite reports that Americans are “walking away” from their mortgages, most homeowners are continuing to make payments even though they would be far better off by “strategically defaulting.”
White suggests there are two reasons homeowners don’t default, even though they are seriously underwater with their mortgage:
- The desire to avoid the shame and guilt of foreclosure; and,
- Exaggerated anxiety over foreclosure’s perceived consequences.
White’s entire paper seems to boil down to this point: Send a message to Wall Street and default in mass.
It would feel good to stick it to Wall Street. Which is what would happen initially if this country saw 15 million defaults. But then the housing system would collapse again, leaving taxpayers to clean up a very expensive mess. Housing prices would decline another 20, 30 or 40 percent from where they are and suddenly 60 to 70 percent of Americans would be underwater with their mortgages.
What do you think? Should 15 million Americans default on their mortgages to send a message to Wall Street?
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