how to hand your bank a sack of manure
From James Surowiecki’s “Financial Page” column in the current New Yorker:
Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.
… Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better. The truth is that banks have been relying on homeowners to do the right thing. It might be time for homeowners to do the smart thing instead.
The data Surowiecki cites about how steadfastly homeowners try to meet their mortgage obligations echoes what Nobel Peace Prize winner Muhammad Yunus describes in his book, Banker to the Poor: Micro-Lending and the Battle Against World Poverty. This passage by Yunus shows how it might sound if American banks modified home loans more readily and took a compassionate, pragmatic approach to this crisis:
We may be accused of being naive, but our experience with bad debt is less than 1 percent. And even when borrowers do default on a loan, we do not assume that they are being malevolent. Instead, we assume that personal circumstances have prevented them from repaying the money. Bad loans present a constant reminder of the need to do more to help our clients succeed.
Surowiecki cautions that defaulting on a home mortgage “is still a lot of trouble, and to most people it’s scary.” Still, read his full column, seek other advice, think it all through, and permit yourself to act with the cold-blooded rationality of a corporation.
