Most Homeowners Think It’s OK to Walk Away

According to a recent survey by the National Foundation for Credit Counseling, fewer than one in four homeowners believe that it’s justifiable to stop paying their mortgage if their home is worth less than they paid for it.

In its annual financial literacy survey conducted by Harris Interactive, the NFCC asked “Under what circumstances, if any, would you consider it justifiable for someone to default on a mortgage?” Only 23% said that an underwater mortgage justified a default, something the NFCC emphasized in a recent news release titled “Less Than One-Quarter of Survey Respondents Agree with Walking Away from an Underwater Mortgage.”

Here’s a quote from that release:

“Taken together, the NFCC survey data brings us some encouraging news: consumers still place a priority on making their mortgage payment, less than one-fourth think that defaulting on a mortgage is justifiable simply because the property is underwater, and a significant number take mortgage obligations so seriously that they find no acceptable reason to default on a home loan,” said Gail Cunningham, spokesperson for the NFCC. “Americans continue to prioritize their obligation to service their mortgage loan, and this is indeed good news for homeowners, mortgage lenders and the housing market overall.”

Sounds rosy. But what the NFCC didn’t mention in its press release was that there are many other circumstances in which homeowners did feel justified in walking away. Here’s the complete list from the survey.

• Misled about the mortgage terms: 49%
• Unable to pay: 46%
• Lender won’t work with borrower to modify the mortgage: 43%
• The emotional stress of trying to meet the payment each month is overwhelming: 30%
• The borrower needs to relocate: 26%
• The property is now worth less than what is owed: 23%
• The property is not the borrower’s primary residence: 16%
• The property is an investment property: 14%
• Other: 18%
• None: 15%
• Don’t know: 4%
• Refused: 1%

To summarize those results, 80% of Americans do believe there is some justifiable reason to walk away from their mortgage obligations; only 15% think there isn’t. Furthermore, nearly half think being misled about the terms makes it OK to default, despite the fact that they were probably given the terms in writing prior to agreeing to them. And 43% say it’s OK to default simply because the lender won’t agree to modify the terms of their original agreement. (If you lent money to someone and they later demanded to modify the payback terms and you declined to do so, do you think they’re justified in not paying you at all?)

While it’s apparently “encouraging” to the NFCC that only one in four Americans think it’s fine to forgo their obligations when the collateral for their loan goes down in value, looking at the entire survey results, it’s easy to draw a different and far less flattering conclusion.

What’s your conclusion?