We have become a country where people abandon personal obligations – even legal obligations – under the belief that there are no negative consequences to their actions. This mentality – reinforced by the escalation of nanny-state government – has evolved over the last fifty years, and has given Americans a license to be irresponsible. If we ever expect to get our budget under control, we need to put a stop to this behavior.
Recently, a client asked for some advice regarding a home purchased by one of his adult children. The residence had been obtained near the end of the up market, but had since lost significant value. They are now, in real estate lingo, upside-down on their loan, meaning that the loan balance exceeds the current market value of the property. I started by making a clear statement that I thought it immoral to walk away from a mortgage when the owners have the ability to make the payments. No one would begrudge someone who has been out of work for a year – or has undergone a personal tragedy of similar proportions – from the painful decision of foreclosure. It is quite a different matter when you decide to renege on your obligation because a realtor tells you that it will take years to regain the equity lost in this downturn.
I patiently explained what would happen to the client’s child (and his wife). This event would appear on their credit record for seven years. If they wanted another home loan, they would not be able to get one backed by Fannie Mae or Freddie Mac for four years. We looked at the effect upon most people’s next largest purchase – a car. We found that most car lenders would overlook the home foreclosure if the buyer otherwise had a clean credit record. But if there were other blotches, then the former homeowners could kiss goodbye the prospect of any car loan at all. It turns out that the young couple’s credit was pretty solid, which meant that their financial pain would likely be short-term and limited only to the purchase of a new residence.
There is always a bigger picture in these matters. These rules are relatively lenient in order to help a genuinely aggrieved person get back on his feet. America is a forgiving country, and most of us believe that someone who has suffered extended unemployment in this prolonged slump deserves an opportunity to reestablish themselves. But nowadays, people who would never have thought about abandoning their commitments are insisting that it’s fine for them. That is a dangerous path for this country to follow.