Sunday, March 7, 2010

Underwater Mortgages

Please check out my latest post at The Humble Libertarian in regards to "underwater" mortgages and contractual obligation.

 It begins:
The “Great Recession” has hit almost every sector of the economy. Times are tough, people are out of work, and paying the bills is no easy task for most. Therefore, many are falling increasingly behind on their mortgages, paying for homes that are worth substantially less than when they were first purchased. In light of this, Washington Post columnist Brett Arends advises readers behind on their mortgages to stop making payments altogether in his recent article.

Mr. Arends contends that you should neglect your payments, offering that “No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat.” Likewise, he claims that you should not worry about meeting your obligations because “the economy is fundamentally amoral.”

Needless-to-say, I am fundamentally opposed to Mr. Arends’ opinion. I understand the hardship, and I do not want people to suffer in order to make payments. Moreover, many of these people are victims of the government’s intervention into the economy, which makes the situation even worse. But the solution is not to shirk responsibility. Rather, if a contractual agreement was made, that needs to be honored. We should sympathize with those who have legitimately fallen on hard times, but we should not encourage bad behavior.

Contracts are an important part of a free society. They protect our relationships and property, while providing for commerce and employment. In fact, our Founders valued the right of contract so much that they inserted a safeguard against the government violating contractual obligations into Article 1 Section 10 of the Constitution. That being said, a free society can only operate when contracts are honored—whether it be a contract between the government and the governed or between individuals conducting business. Therefore, when we refuse to uphold contractual obligations, there are always consequences.

(Read the rest here.)

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