The Morals of Your Mortgage

From a message to a friend who is underwater on his extremely high interest loan, cannot refinance due to the lack of equity, and whose lender is uninterested in adjustments:

There's a lot of moral pressure on homeowners not to walk away from their loans because it's "just not right", but I hope you disregard that. Your relationship with your lender is a business relationship. Look at every aspect of your banking and financial transactions -- not just for your home, I mean, but for everything. Are these relationships being carried out on a friendly basis? Or a business basis?

In the case of the banks' credit card operations, it's clearly not friendly and it might not even be "business" in the sense that I usually think of business relationships being ideally free of deception. Banks employ tons of smart people whose only job is to figure out ways to nail their customers with surprise fees. I'm not being a cynic here; I know one of those people.

Also, keep in mind that banks build the potential costs that come from doing work in a non-recourse state like California into their loans, i.e., we pay higher interest rates here to compensate lenders for the additional rights we have as borrowers. So you have not gotten this right for free -- no, you paid for it.

So given all this context, you shouldn't feel bad about being aggressive in your dealings with these guys. I'm not saying I want you to walk, but I do think you should make that decision strictly on the basis of your interests and the interests of your family.

[Update:] And for those who think it's a stretch to relate a credit card relationship with a mortgage loan, maybe Morgan Stanley's walk away from some CRE loans will provide a better basis for moral comparison.