Anyone remember Henry Blodget? Well, he was the dude who worked for Merrill Lynch during the internet boom. He talked up internet stocks in Merrill Lynch research reports and then dissed those same stocks in private emails. He eventually lost his job and settled a lawsuit with the SEC without admitting or denying wrongdoing and paid a $2 million fine.
Since then he’s written a book and currently writes columns for various websites. Ramit over at IWillTeachYoutoBeRich posted a link to Henry’s latest piece, Yes, It’s Okay To Walk Away From Your Mortgage. Some of Blodget’s logic doesn’t make sense. For instance…
“…The contract spells everything out: If you stop paying, the lender gets the house. That’s it. Unless the contract specifically differentiates between a failure to pay based on hardship (involuntary) and a failure to pay based on a collapse in the value of the house (voluntary), there’s no difference. If you had a “moral obligation to pay,” that would be spelled out in the contract.
Now, compare this to a situation in which you DO have a moral obligation to pay: When you borrow money from a friend at no interest, for example. THAT is a moral obligation to pay. In this case, your friend did not lend you money to make a profit. Your friend loaned you money as a favor–with no collateral or contract.
And here’s another way of looking at it: If you have a “moral obligation” to pay your mortgage, doesn’t the bank have a “moral obligation” to keep you in your house? After all, they loaned you the money to buy it, got your hopes up, moved your family, etc. (And, no, of course the bank doesn’t have this moral obligation).”
So, if you borrow from a bank, you’re under no moral obligation to pay it back since the bank is making money off the transaction. But, if you borrow from a friend interest-free, then you do have a moral obligation to pay it back. Interesting.
Can you compartmentalize morality? Is it okay to act with morals in some circumstances but not in others? If so, who’s to decide what’s a moral decision and what’s not? What if you borrow money from a friend with interest? Is it then okay to walk away from the debt since you’re no longer “morally obligated” to pay it back since it’s a business transaction? What if there is no contract?
This is crazy. The bottom line is YOU do what’s right, no matter what. Sure, there are circumstances beyond your control when you might lose your house. Perhaps your company shuts down and there are no other jobs in the area. Losing your home might be a reality. But to simply walk away because it’s worth less than you paid for it EVEN THOUGH you can afford the payments is wrong. No ifs, ands, or buts…it’s WRONG!
All this is going to do is make things harder on those who are responsible. For those who can get a loan, there will be longer contracts to sign with lots more CYA clauses for the banks.
I’d like to put this topic to bed but I keep running across stuff that I have to address. Feel free to leave a comment&151;or don’t if you’re tired of talking about this topic.