Is it MORAL to Walk Away From Your Mortgage?

The answer to this should be very simple but actually there is no universal response. Is there the morality involved at all? The mortgage industry is doing everything it can to stop this, including telling homeowners that they have a "moral obligation" to re-pay their mortgage.

Lenders to protect their money, require pledging the house as collateral. As a result of borrower defaulting on payment, the Lender has a right to seize the house. It is spell out in the Contract/Promissory Note: if you stop paying, bank gets the house back. Pretty simple.

Lender and borrower made a business decision. Lender concluded that was a smart investment to loan 125% of the value to make a profit. Borrower took a risk to buy a house counting on instant equity. Well, it turned out that both parties of the transaction made a bad business decision.

Many borrowers ask the lender for solution before they decide to walk away. They cannot afford payment for a reason. Either loan needs to be restructured, or principle balance reduced, or rent it back, or something. And then, if the lender says no and… no, then here you go - take the collateral.

In some states banks have recourse; lenders can go after personal asset, so that could be dangerous. But is that OK? Again, banks made a business decision while loaning the money. Why are borrowers held to a higher standards then banks?

Another issue: is it immoral to stop making payments on the mortgage? In most of the cases banks do not even talk to borrower unless he is 3 months behind. Otherwise you are not a priority. Call back when you late on the payment, then bank may notice the issue.

Is it okay to walk away from the mortgage for no other reason that it doesn't make financial sense? Did financial institutions approach anything from a moral standpoint?

Some opinions state: “There is no moral issue as long as the contract is legally addressed.

Morality cannot be legislated or made a clause in a contract. If the lender thought at the beginning that you had a "moral obligation to pay," it would have specified that in the contract”.

I am not an advocate for any solutions but certainly this question is being asked more often by troubled homeowners. And many times leaves me speechless.

Loan Modification will hurt your credit.

In the race of trying to avoid foreclosure many consumers does not realize that their credit is affected even they are successful with their bank on modification process.
A potentially damaged credit score is one of those hidden costs of home loan modification. It varies significantly depending on the lender, and how your loan was altered.
More than often Banks do not tell troubled homeowners up front that could happen.
Frequently banks utilize as a form of loan modification a trial period that allows temporarily reduce monthly payment for set numbers of months’ to make sure that income is still in place, before program could be implemented permanently.
Banks explain that modified payment during the trial period is going to show up as a rolling 30 day late payment on credit.

The rolling 30 day late payments will have a serious negative impact to Fico scores. More than likely mortgage will show up as being 30 days past due for 4 straight months. This is a great illustration of the disconnect between these mortgage relief plans and the realities of credit reporting.

Supposedly, the federal program requires three trial payments (in some cases four) before the loan can be modified. The reason that it would be considered delinquent on current mortgage is that the payment is lower than originally agreed on the Note. Therefore, it will show as a rolling delinquency on the payments of the difference between old mortgage payment and new mortgage payment the first month, and then when the next trial payment is submitted, the delinquency would be made up but I would have a new delinquency in the second month, and so on, until the loan is modified.
The lender said that "Treasury Guidelines" do not allow the lender to waive the negative credit reporting.

After the terms are met, payment are made on time and modification moves to the permanent status the delinquencies showing on credit bureaus are being wiped out.

But is this really happens?