Every now and then my husband and I will wonder out loud questions like:” When do we finish paying the kids’ college expenses”, “When will we finish paying that tzedakah pledge?”, “How many more years on our mortgage?” etc.  We used to revel in our observations about the increasing value of our house. But that question ceased to be fun with the plunging housing market two years ago. It’s such a painful thought that it has been a while since we wanted to even wonder out loud. But this week I ventured back into the territory, and we talked about the good old days of the high point and the sobering days of the adjusted value of our house.

Fortunately, we are lucky to live in an area where the market didn’t take a terrible hit, at least relative to horror stories that we have read in the news.  But all of us who own our homes have lost money or value during this Great Recession. In many ways we are still learning lessons and shaping the new normal. The lessons have we learned and the way we respond will be the enduring legacy we will leave for our children.

Watching a segment of Sixty Minutes (CBS) the other night, we were confronted with one of the newest moral challenges of our day. The story (interviewed by Morley Safer) chronicled some homeowners who live in areas where the home values have plummeted, some to just 25% of the value just two years ago. Many people who bought homes in these communities before the market plunged are now saddled with mortgages far exceeding the value of their houses – sometimes by hundreds of thousands of dollars. The segment highlighted a growing trend – “strategic default” – whereby homeowners who can afford to make the mortgage payments have decided that it is not in their interest to continue to do so. They walk away from their houses, defaulting on their loans, and starting over again. Several were delighted with their ingenuity; they could pay rent for a couple years, wait for their credit to recover, save lots of money, and then buy their dream house all over again, for much less money. Some were reflective, appreciating the seriousness of this action. Others interviewed knew they could do this, knew their neighbors are doing it, but couldn’t justify it.

As if to emphasize that this is really a trend, just the next day, I heard an interview on WNYC on this same topic by the TARP Oversight panel chief Elizabeth Warren. She indicated that the foreclosure crisis is not going away, even as the economy recovers. In fact, it is heating up as people are walking away from mortgages, choosing to default because of the gap between the loan and the value of their houses. She predicted that this will be a problem for years to come. And the question then arises: who pays for these defaults?

So my husband and I tried to imagine ourselves in the position of the homeowners whose home values have steeply plummeted. Would we, could we walk away? Could we intentionally breach the contract we signed when we arranged our mortgage?  We certainly feel empathy for those who have lost so much, and for their lost or involuntarily downsized dreams for their future. But we all assume risk when we make an investment. We all bet on the market when we buy a house. To default on a loan as a financial decision rather than a moral one is to assume that we are all on our own in a great game of chance. Each person for themselves, each household looking out for its own interests without regard to the interests of others.

Morley Safer asked one of the couples who was quite clear that this was the right choice something like, “How do you think your neighbors will feel?” Each house that goes into foreclosure in a neighborhood brings down the value of the houses around it. And the downward spiral takes on a momentum of its own as more and more people abandon their homes. The couple seemed to have no guilt about this, acknowledging that this would affect their neighbors, but oh well, that’s the way it goes. Each of us has to look out for ourselves.

I’d prefer to a different social contract – one that assumes that we are all in it together. That we each have a responsibility not only to ourselves, but to our community and our nation. A collective social contract drives people to consider the consequences of their actions beyond their own legal obligations. When we are unable, by virtue of changed financial circumstances, to fulfill our mortgage contracts, we may be forced to hand our house back to the bank. This is a tragic loss – one that millions of Americans have sadly experienced during this recession. Our social contract prompts us to want to reach and take care of those who have been felled by this loss – and in part that was a purpose for government programs meant to bring us back to our feet.

But when we assume that we are each on our own, with no responsibility for each other, we harm one another by breaking our contracts out of financial planning choices. Yes, it is tragic to lose so much when housing prices painfully disappoint us. Yet, the way our society should respond to these disorienting experiences is by learning about the value of community, the value of money and the value of living in a country that accepts and supports mutual responsibility. Don’t we want to live in a society where we care about each other?

It is not about what is legal – it seems that for some people this may be legally acceptable. It is about what is moral.  A contract is a contract. It is an obligation not only to the banks, but to all of us.

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