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Walking Away: the Moral Ground

AIR DATE: February 12, 2010

The giant wave of foreclosures and huge drop in real estate values have left many homeowners in Las Vegas dishing out monthly mortgage payments that are meaningless in investment terms. It's money they may never recover. Why not walk away, take the credit hit, and start over, rather than throwing good money after bad at a home that won't likely see any equity return for at least a decade and in some case, much longer?

We look at the moral dilemma of walking away. Borrowing and lending as a practice, lives and dies on one basic principle: the sense of duty debtors feel toward their creditors. Have we now entered a period of time where walking away from debt has become more acceptable, more normal?

Our guests include Felix Salmon, finance blogger for Reuters and Megan McArdle, finance and economics blogger of the Asymmetrical Information, and writer for the Atlantic Monthly.

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The banks are handing out huge bonuses right now while we the people are suffering and have lost savings that were put down on the house. The situation was created by the banks through insider trading by creating the supply and demand by offering homes to people who would default, by changing the rules in midstream and using foreclosures and short sales as comps, which never used to happen and by not offering pricipal redutions for homeowners who have lost the value in their home due to these tactics. The immoral thing is to keep playing this game and enabling the bank to make millions while we lose our retirement plan and future of owning a home we can pass to our kids. I think the moral issue rests on the banks for creating this and to go on benefiting from it.The correction should be to let foreclosures become the "deal " in the neighborhood and allow the value of the neighborhood to be reestablished. This is not just a supply and demand issue. The banks changed their rules by arbitrarily deciding that the value of the house is not what you paid for it nor is the lot premium aplicable even though you paid for that lot before the house was built.
jodiFeb 10, 2010 20:40:15 PM
To me it seems that the banks are taking a shot on peoples moral feelings that they will stay in a house. So they will make more money on the people that will not default.
AaronFeb 10, 2010 00:00:00 AM
My understanding is that Nevada is a "recourse" state and that means that the bank came get you at any time in the future, so you can't "get away" with it. Is that true?
BarbaraFeb 10, 2010 00:00:00 AM
Your program is very interesting. I'd like to ask: Is it moraly correct to jeopardize the future of my kids by keep on paying a house that will never be theirs? Or should I rather destinate all that money to their education instead? These are only a couple questions we face while trying to survive during this crisis. I certainly don't think that walking away from my home loan is going to hurt the banks, but on the other hand if I try to pay the loan for an undervalued house I will put at risk my financial future and my kid's as well.

DavidFeb 10, 2010 00:00:00 AM
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