By almost any standard, going through a foreclosure is a bad deal. You lose your home and a good chunk off your credit rating, while also dealing with a fair amount of shame and stigma.
That said, the New York Times reports that a growing number of Americans are walking away from their homes after deciding that it simply doesn't make sense to keep making payments on something that has lost value. Yet, however rational that might be, they are condemned for acting immorally or irresponsibly, despite the fact that businesses walk away from bad investments all the time.
Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)
El Paso County Public Trustee Tom Mowle, who oversees local foreclosures, says he hasn't heard that a lot of people here have given up on their homes because of declining values. His data suggest home prices here have dropped around 13 percent in the past two years, which is a modest drop compared to communities in places like Las Vegas and California.