Shame and Fear

The University of Arizona has just published a paper  entitled "Underwater and Not Walking Away:  Shame, Fear and the Social Management of the Housing Crisis".  It is a 54 page beast, but Mish has posted an abstract with commentary on his site.  I haven’t read the comment string, but I’m sure they are heated.  Some points from  the abstract:

–   Regional default rates are following unemployment rates more closely than they are following the number of underwater homes.

–  "Asymmetry" exists between the interests ot the lenders and the home owners.

–  The market didn’t fail, government policy did.

It is all well worth reading, and I love the term "social engineering:" used in this context.  Take a look, kick it around a while, and let’s hear about what you think. 



About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at or 775-345-7435. His continued musings can be found on the blog.
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20 Responses to Shame and Fear

  1. Avatar skeptical says:

    One definition of immoral/unethical behavior would be to seek advantage for yourself, with malice to others (or at least without regard to what harm it may cause others).

    If that is the case, underwater homeowners would not be immoral to walk away from their homes as far as I am concerned. As a prospective homebuyer, I would benefit if the market had it’s final washout and the bottom were put into prices with the last tsunami of defaults.

    The community as a whole would ultimately benefit as well, because solid “above water” owners would replace the currently heavily indebted homeowners and restore stability to the market. Further, the displaced, underwater homeowners who walked would then occupy another house and pay rent to a responsible investor. This rent would likely be at a much lower cost than their previous mortgage payment, and that extra money could be used for purchases that would improve the general economy.

    The only loser is the banks.

    After Goldman Sachs, JP Morgan, Bank of America, Wells Fargo, and Citibank took hundreds of billions of taxpayer dollars, and then awarded their executives with tens of billions of dollars of “bonuses,” I’m really in no mood for the self-righteous screamers out there trying to preach about the immorality of an upside down homeowner who walks away.

    And before the hate-posters commence, they should ask themselves if they’ve lived every day like a saint. They should ask themselves if they sympathize more with a struggling single mom or a Wall Street Bank that has already shown their clear derision and disdain for Joe Sixpack.

    Walk away if it saves your and your family’s hide.

  2. Avatar smarten says:

    Skeptical, the lawyers on this site will advise you that tortious interference with pending contractual relations is actionable. So although you may feel the way you’ve stated, you might want to rethink your advising any mortgagor to walk away from his/her obligation to repay a note as opposed to fulfilling his/her contractual obligation.

  3. Avatar SkrapGuy says:

    Interesting article, but, man, haven’t we exhausted this topic (of walking away) over and over in past months?

    Maybe there are just so many topics of discusson for a real estate blog, and I appreciate that. But it seems there has been little new here in a long time. The only time things get really rolling here now is when Bantering Bear shows up and says something provocative like only he can.

  4. Avatar Martin says:

    Yep, I can’t imagine there is anything that hasn’t already been said, many times, on this blog about the “walking away” issue.

    But who knows, maybe somebody will say something new.

  5. Avatar Downtownjunkie says:

    something new:)

  6. Avatar Downtownjunkie says:


    Can we put polls on this site? I think it would be interesting to see the general consensus on certain topics.

  7. Avatar CommercialLender says:

    Here’s a thought: will we empirically see more ‘walk aways’ in one economic strata than another? More walk-aways in sub-primes than jumbo primes as a percentage of distressed loans in those sub or prime strata?

    Will it be empirically proven lower-income owners will walk away a higher percentage of the time? A lower percentage? If higher, does this point to them having fewer dollars to withstand the downturn, or lower ‘moral’ values to bother paying? If lower, do higher income owners have some sort of sophistication level where they would not throw good money after bad, or fewer ‘moral scruples’?

    Aside from what could be a very interesting discussion surrounding this question, if it could be proven one way or other, then you might extrapolate what percentage of Primes and Alt-As will be walked away from this coming winter.

  8. Avatar skeptical says:


    Referenced study states that a primary predictor of walk-aways is not percentage of underwater borrowers, but unemployment.

    So, perhaps the question is: who will lose their jobs — high earners or blue collar types? FWIW.

  9. Avatar DownButNotOut says:

    The third category would be those that are overextended and were counting on an increase in there homes value – so they could tap it again. Those are the ones that I’ll be curious to see if they walk away.

    I guess if the renter moves in next door with the $50K ski boat behind his new Escalade, we’ll know the answer.

  10. Avatar Carleton says:

    Some other articles, referenced in the prior discussions, state that another predictor of who walks away is who bought with nothing down. Or a very small down.
    People who put no, or very little of their own skin in, tend to walk away more than people who put in a more substantial down payment.
    Probably don’t need to be a genius to grasp this.

    I believe it was Time magazine that had a cover story a couple months back about the complete collapse of the LV housing market. It identified a realtor who very publicly acknowledged that she was encouraging people to walk away from their mortgages, but not before they had purchased another far less expensive, and usually nicer, house (with her services of course). She bragged how people can now buy another much nicer house for less money, then walk on the mortgage of the first house. Then, a couple issues later, there was short blurb about this realtor was now saying she had been misquoted and of course she never encouraged anybody to walk away…….:(

  11. Avatar Raymond says:

    The whole issue of people “walking away” who can afford to make the payments exists in very large part because the banks refuse to file deficiency actions against defaulting borrowers. If the banks started filing deficiency actions against people who “voluntarily default”, and word of that started to circulate, then I suspect we would see a lot fewer of these.

    Why the banks refuse to pursue deficiency judgments, even against people with assets such as a JOB (remember only 75% of wages are exempt from execution) continues to be a mystery to me. I would think the prospect of having 25% of one’s wages garnished would cause people to think twice. And yes, we have discussed that issue over and over here as well.

    I guess we really are starting to run out of new topics for discussion.

  12. Avatar Downtownjunkie says:

    Going to a court auction next week… which building is it?


  13. Avatar MIkeZ says:

    Shame and fear?

    Some people worry too much about what their neighbors will think and too little about what’s best for their financial future.

    Walking away is a perfectly legal and ethical option.

    How else will reckless creditors learn their lesson?

  14. Avatar Perry says:

    Not to wander off on a tangent but MLS# 90015023 looks like a bank effort to get the highest bidder. I almost bought this house back in the day (’06), then I came to my senses. When this house finally sells and I have to guess it’s going to be $100k more than listed I think we’ll get a good read on the value of this great neighborhood. The house is a flash back to a John Hughes film but it’s still a nice house.

  15. Avatar FutureRenoHomebuyer says:

    If anyone needs a chuckle, you might want to read the following article, where everything about the loan process at the top of the bubble — ignorant loan applicants, fraudulent loan companies, etc… is detailed:

    “‘They knowed me and my husband were illiterate, that we had a hard time reading and understanding what we read,’ Naill told the Huffington Post. ‘We told ’em straight up they’d have to read it to us, and they said that they would.'”

    Sorry, but I just can’t have sympathy for that kind of stupidity.

  16. Avatar willk says:

    “Walking away is a perfectly legal and ethical option.
    How else will reckless creditors learn their lesson?”

    The problem is all the rest of us are paying for it. It’s just like outragous lawsuit awards or class action lawsuits that are supposed to teach someone a lesson. There is no money tree out there.

  17. Avatar DownButNotOut says:

    Numerous times I’ve read here ‘we the tax payers pay for it’ when someone defaults.

    To me that’s just BS, as in reality we pay our own GOVERNMENT to create these rules. Follow me on this; if an individual takes advantage of what is offered, whether through bankruptcy, ‘walking away from a loan’ without repercussion, SBA backed loans for a loser investment, FHA backed loan, government run Fanny/Freddie loans, even food stamps, welfare etc then the problem isn’t the person using the law, it’s the laws themselves.

    I never cease to be amazed at how intelligent this blog is when it comes to RE, and how ignorant we become when it comes to the politics that govern all this.

    Oh I know, lets not talk politics,personal protection (guns), or lawyers and lawsuits, because what does that have to do with Real Estate?

  18. Avatar skeptical says:

    The elected politicians are actually too cowardly to have the taxpayers pay for all the largess.

    Actually, it’ll be the taxpayers’ children and grandchildren, who will pay via: higher taxes, a lower standard of living, and a dollar that is in shambles (not to mention a country that is severely debilitated in international standing).

    As long as the corporations own the congress, things won’t get better, I’m afraid. Do yourself a favor and vote out every incumbent on the ballot next year (including the hypocrit Senator down south who cheated on his wife with his best friend’s wife and hides behind God).

    Did I offend enough out there? Wake up people.

  19. Avatar DownButNotOut says:

    Thanks for backing me up, Skeptical. Campaign finance reform is the first step in not having our Democratic government be just a government for sale.

    Lobbyist??? That means I give you money for the result I’m trying to achieve.

    This subject hasn’t been broached much. But after all if politics aren’t integral to RE, well – we’re kidding ourselves if that’s what we believe.

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