Most Homeowners Think It’s OK to Walk Away

Only 23% of respondents in a recent survey said that it’s OK to stop paying their mortgage if their property is worth less than they owe. But that’s not the whole story.

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?

Stacy Johnson

It's not the usual blah, blah, blah

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  • Veesert

    With some circumstances it is acceptable to walk away,but why just walk away when you can quit claim the property.It may look bad for awhile on your credit,but you are being an adult about it.You can't make the payments and things look bad so a quit claim would help.You would have to move out,but the bank would force you to move out anyway.Also,I believe that many of the housing problems are our own fault.We don't need a huge house and huge payment to go with it.Who are we trying to impress?family and friends,perhaps our enemies?Live within your means even if that means giving up that expensive house,car,etc.. you don't really need it. My ex got into serious trouble with the house(I let him have it because I knew what was going to happen).He had 7 mortgages on it only a few years after we divorced.And as you guessed,the bank forclosed.He is living in an apartment with his girlfriend (whom I might add did nothing to help with bills while working full time)not paying his bills,expecting everyone to feel sorry for him.(He is also working full time,full insurance).So, people like him should have bad credit.But, these days with the economy being so bad and people not having insurance, it is extremely difficult to make the bills that you need to just to survive.Having the added stress of enormous medical bills doesn't help.Maybe as part of the bill there should be a debt to income ratio for small medical payments to help get the medical bills paid.Its not the best solution but it can be a start.

  • Mdeutch3

    Suppose a very high percentage of those for whom it makes economic sense to walk away actually did so, instead of agonizing over the question and dragging it out. Then it would be that much sooner the market could find a bottom and we could perhaps begin to move past this mess. Therefore I don't agree that it hurts neighbors and the broader society in the long run.

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