[jyl]

I would tend to consider a mortgage more like a business decision than a moral contract.

There are two parties to the business deal, the borrower and the bank. Both have certain rights and obligations, defined by the loan contract and applicable law. Both had to make the correct decision and protect themselves against loss. If they were right, both expected to profit - the borrower's profit would be a combination of financial and shelter, the bank's profit would be financial. In (tens of) millions of cases all across the country now, both parties made the wrong decision and are staring at major losses.

If the borrower fully repays a hugely upside-down mortgage, he effectively takes 100% of the loss and the bank takes 0% of the loss, even though both he and the bank screwed up.

The borrower does not have to do that. He can walk away, and take a % of the loss - his ownership interest in the house, the money he has sunk into the down payment and monthly payments to date, his credit rating for many years in future, etc. But rather than taking 100% of the loss, instead he will place some % of the loss on the bank. The bank was fully aware of this risk when it wrote the loan - the industry even has a term for it, the "borrower's put". (This is in non-recourse states like CA, in recourse states it is different.)

So, that is the business decision aspect.

I realize some people view a mortgage as a moral commitment, like a marriage - to have and to hold, in sickness and in health, until death do us part, and all that.

But marriages go irretrievably bad, and people get divorced. Do you morally condemn someone who chooses to walk away from a disastrous marriage rather than stay in it and get emotionally and perhaps financially injured? Apparently not - there are plenty of divorced persons here on PPOT.

Then why do you morally condemn someone who decides to walk away from a disastrous mortgage rather than stay in it?

Surely no one thinks a mortgage with a bank, who knows you only as a number, is a deeper moral commitment than a marriage?

Okay, now, as a practical matter, I think if there is a chance to get the loan modified with a principal reduction, even one that leaves you still somewhat underwater, even if you have to put additional savings into paying down the loan, you are well advised to at least look into that option. Find out if you have a FNM/FRE loan and might qualify for one of the programs.

And I realize there is a whole range of situations. At one extreme, the borrower who can afford to pay his mortgage but realizes he will lose a lot of money by doing so. At the other extreme, the borrower who loses his job and can no longer afford to pay his mortgage. Obviously my sympathies are far more with the latter borrower. But I don't, personally, elevate either situation to a moral compulsion.