If banks can walk away from mortgages, why not consumers?
Friday, January 8, 2010
New York Times: Roger Lowenstein wonders why homeowners who owe more on their mortgages than their houses are worth don’t just stop making payments. “Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them….If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.”