I’ve heard this argument frequently cited “If you own an underwater mortgage, it’s irresponsible to default and walk away from your house.”
A mortgage should be treated like any other business arrangement. If the contract isn’t working out for you, you should walk away.
The rules vary by state. In a “recourse” state, your personal assets are also collateral for the mortgage. If you have $20k in savings, and default on your mortgage, then the mortgage owner can also come after your $20k savings. In a non-recourse state, your personal assets are not collateral for the mortgage. That’s mostly a moot point. Most people won’t default on their mortgage until they’ve exhausted their other savings.
When you default on your mortgage, you don’t get evicted right away. You may live in your home for free, for months or years until the foreclosure process ends.
A mortgage contract says “You can stop paying, but we get to take your house.” If your house is worth less than the mortgage, it’s acceptable to default and forfeit the house.
When you bought your home, there was an implicit agreement “The amount I paid is the fair market price.” Banksters created a housing bubble. They tricked you into overpaying for your home, by inflating housing prices. Shame on you for being tricked. Shame on the bank for lending you money on an overpriced house.
That’s how free markets are supposed to work. If you lend money to someone who can’t pay, then you are stuck.
It’s also logically inconsistent. Banksters caused the housing bubble. They got trillions of dollars of direct and indirect bailouts. When insiders gamble and lose, they get a bailout. When non-insiders gamble and lose, they lose their home and your savings.
Why did banksters get bailouts, while individuals lose their homes?
Banksters committed massive mortgage fraud, in the “fraudclosure” scandal. People were signing mortgage foreclosure paperwork, without even checking it was valid. Not a single person was prosecuted for perjury, in that massive mortgage paperwork fraud. However, you’re being irresponsible, if you decide to stop paying a mortgage on an underwater home.
There are two rules, one for insiders and one for everyone else. When non-insiders are owed money, too bad. When insiders are owed money, it’s a serious crisis to default. It’s OK to walk away from an underwater mortgage. The bank would not hesitate to cheat you.