Is socially acceptable mortgage default another fake trend story? We've heard a lot about how deadbeating has become stylish in 2010, but a substantial majority of Americans still reject the notion of walking away on a loan.
Catherine Rampell of the New York Times notes that 59 percent of respondents in a recent Pew Research Center poll defined walking away from a mortgage as "unacceptable" behavior. Nineteen percent considered strategic default acceptable and another 17 percent said it depends on circumstances. Pew does not appear to have any history on this question, so it's impossible to say whether this represents a shift up or down in public perception of mortgage default.
The Pew findings are broken out by financial and homeownership circumstances as well as ethnic lines, but the results are remarkably consistent across most categories. The only big deviation is the difference in point of view between owners and renters: A much higher percentage of renters think strategic default is A-OK.
So much for the Angry Renter? Maybe, but drawing a bright line between acceptable and unacceptable default is silly—as is Fannie Mae's misguided and probably illegal new plan to sue strategic defaulters for the balance of their mortgages. You can believe defaulting on a loan is a less-than-honorable action but still accept it as an outcome.
Mortgage papers don't just put you on the hook to pay back your loan. They also provide for the bank to retake possession of the property if you fail to hold up your end of the bargain. That's not the preferred outcome for the bank, and it probably isn't yours either, but it's right there in the deal. And unlike the ruinous and failed efforts to keep borrowers in their homes through an endless flood of taxpayer dollars, it limits the damage to the two parties that signed the contract.
The question shouldn't be whether strategic default is acceptable but whether 300 million innocent people should be made to pay nearly a trillion dollars to keep bad borrowers and stupid bankers from enduring the consequences of their own decision. And based on the evidence visible in polls, election results and street theater since 2008, most Americans find that unacceptable. But maybe that just makes them devoted libertarians who are so disengaged from political reality that they don't want a hunky strongman president to save the economy from a total financial meltdown.