[And most of these “morality” studies do not even contemplate lender fraud, which was rampant in the 2003-2007 era.]
Professors: More homeowners should walk away from loans
Phoenix Business Journal – by Mike Sunnucks
More homeowners should walk away from their underwater mortgages.
That is the conclusion of a University of Arizona law professor who says many distressed borrowers are sticking with their loans because of societal expectations, while banks are focused on profits rather than societal good.
UA law professor Brent White writes in a new report that the government and banks pressure homeowners to stick with their underwater mortgages, but lenders are not abiding by the same rules. White said most homeowners don’t abandon their homes despite owing more than they are worth because it is perceived as failure and would hurt their credit scores.
“These emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision,” reads the abstract summary of White’s research paper.
“Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility,” White’s paper continues.
Recent reports say close to half the mortgages in Arizona and two-thirds in Nevada are underwater with projections of it taking years for values to rebound.
White says while consumers are told to stick to mortgages their lenders are slow to rework distressed mortgages even when banks share culpability in the housing crisis due to lax lending practices and subprime mortgages.
The Obama adminstration and state governments have encouraged homeowners to stick with their mortgages and to seek help, but government efforts to help distressed borrowers have not gained steam in hard hit states such as Arizona, Nevada