Underwater and Not Walking Away – Brent T. White – Arizona Legal Studies, The University of Arizona.


The home financing system in America works because lenders count on your moral belief system, not contracts, to hold you to the deal, while they do not take that same obligation. This one single fact gives lenders the enormous power of humiliation. Brent White has created one of the most cogent and well crafted descriptions of the present storm we’re riding, along with some unusual observations.

Unlike lenders who seek to maximize profits irrespective of concerns of morality or social responsibility, individual homeowners are encouraged to behave in accordance with social and moral norms requiring that individuals keep promises and honor financial obligations. Thus, individual homeowners tend to ignore market and legal norms under which strategic default might not only be a viable option but also the wisest financial decision. Lenders, on the other hand, have generally resisted calls to modify underwater mortgages despite the fact that it would be both socially beneficial and morally responsible for them to do so. This norm asymmetry has lead to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

…fear, shame, and guilt are not mere “transaction costs” that homeowners calculate according to their own personal tolerance for each. Rather, these emotional constraints are actively cultivated by the government, the financial industry, and other social control agents in order to induce individual homeowners to act in ways that are against their own self interest…

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One response to “Underwater and Not Walking Away – Brent T. White – Arizona Legal Studies, The University of Arizona.

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