There has been a meme going around for a while that you don't really have a moral obligation to pay your mortgage, because the contract contains embedded options for the lender: you can pay them back, or they can take the house. I've long thought that this was rather silly. Go look at your mortgage documents. You will notice that the contract does not specify any option for you to give them the house in lieu of payment. The note you signed includes a promise to pay, period. It also specifies what will happen in the case of breach, but you have specifically promised to avoid breach at all costs.
GPurcell: It's ridiculous to talk about morals in this context. What's in the contract is all that matters.This argument makes even less sense outside of the mortgage context. At least there, people could argue that commercial borrowers do it (sort of, except that non-distressed borrowers don't stop paying their mortgages; they negotiate a giveback of the property. if they just stopped paying, they'd be in default, with all sorts of repercussions for their other debt.) They could say that shady lenders had tricked people into awful loans--though there's not much evidence that the strategic defaulters got shady loans, rather than perfectly normal loans for homes that subsequently lost value. And they could point to the bailouts--they hosed us, so why shouldn't we hose them? These aren't great arguments, but at least they're arguments.
texan99: Is there some ambiguity in the contract about whether the loan is supposed to be paid back?
gpurcell: The contract and the law governing the contract contain provisions for non-performance and any risk is priced into the interest (or should be). What I object to is imposing an additional moral obligation on a borrower beyond the terms and conditions of the loan.
Peter Twieg One common variant of this argument that I've run into states that because lenders price default risk into the price of the loan, in the big picture defaulting is simply a fulfilment of their prior expectations and thus not a big deal - your marginal contribution to a higher price is so tiny as to not really be blameworthy at all. Concentrated benefits, diffuse costs..
odinbearded It's funny how close that is to another argument. You know, department stores build a certain loss ratio into their prices so they're not actually losing anything when I take that nice tie.