Portfolio manager Cale Smith on investing, Spoke Funds®, and Islamorada in the Florida Keys.

“We have come to the inescapable conclusion that owning our own building was the smartest long-term investment for the association.”

~ Jonathan Kempner, Former President – Mortgage Bankers Association when they bought the building in Washington D.C.

“Mortgage borrowers should keep paying their loans even if that no longer seemed to be in their economic interest…. Paying off a mortgage isn’t only a matter of personal interest. Defaults hurt neighborhoods by lowering property values. What about the message they will send to their family and their kids and their friends?”

~John Courson, President – Mortgage Bankers Association

This is another sign of do as I say, not as I do. Should we expect any less? This short sale comes after JP Morgan walked away from five commercial properties in San Francisco. Not even a short sale…just sent the keys to the lender.

I think the lesson here for individuals is we need to realize it is the banking and real estate industry that has tied paying off a mortgage to one’s word. You don’t give your word when you take a mortgage. You sign a contract. A contract that lays out the actions required of each party and the recourse if either party defaults.

The banks want the homeowner to eat the losses even though the banks are just as culpable here. They loaned too much money, often more than 100% of the loan value, to people that they never even properly qualified to borrow the money (liar loans, stated income loans, etc.). The banks are responsible for appraising the property even though the borrower pays the cost of the appraisal. So the banks are the ones who misjudged the values of the homes. But, they try to shame us to keep paying our mortgage so they don’t experience any pain for their misdeeds.

If a homeowner is way underwater and paying considerably more for their mortgage then equivalent rents in the same neighborhood, then I say the homeowner should walk away. It makes financial sense. The banks and realtors would do the same thing. It is a financial decision, not an ethical one. Even by walking away, you are fulfilling your contractual obligation so long as you give the home back to the bank in the condition you received it. (I have heartburn with the bums that destroy homes after being forclosed)

As far as hurting the neighborhood, that is bunk. If a foreclosure causes the neighborhood to lose value, then the neighborhood was overvalued to begin with. Let the markets work.

There, I said my peace. I am sure there will be others who argue that it is a moral obligation to pay the mortgage. They have been programmed well by the bankers. We should act as the bankers and realtors would. They realize the mortgage is just a contract with clauses to revoke the contract.