Yesterday's report in the Indiana Business Journal that suburban growth around Indianapolis has slowed in the recession hardly comes as a surprise. Back in the halcyon days of, say, 2007, Hamilton County was one of the fastest growing counties in the country, have surged from 182,740 in 2000 to 261,661 in July 2007, according to US Census figures — a 43.2 percent increase.
But things have changed since then. Wall Street gambled with derivatives. People lost jobs. Homeowners got underwater and defaulted. Some home buyers got screwed by unscrupulous lenders. Others, caught up in the self-entitled whirlwind of the mid-decade boom, bit off more than they could chew and choked on it.
Suddenly, moving to the big house in the suburbs didn't seem so viable for would-be migrants — and didn't seem so tenable for those who'd already taken the plunge but lost their jobs, lost hours, lost benefits, lost job security.
Or lost their home values. Seemingly overnight, in the midst of that perfect storm of plunging values and plunging income, millions more Americans owed more on their houses than they were worth. As recently as February, the Wall Street Journal reported that some 11.3 million Americans were "underwater" on their mortgages — with another 2.3 carrying less than 5 percent equity, dangerously close to the edge.
Some have argued that the $8,000 first-time home buyer's credit is setting us up for a second wave. Untold numbers of new buyers may not have been prepared for the long-term commitment, or may lose jobs, etc.
Of course, the outrage is that these homeowners had to sit and watch while the banks that gambled with their assets and institutionalized the economy's failure got bail-outs while homeowners didn't. Millions lost their homes while Wall Street execs still got bonuses.
Today, Dylan Ratigan, MSNBC host and occasional Huffington Post contributor, advocated defaulting on mortgage loans if the banks don't agree to lower your payments. "Your mortgage is a business deal," he writes, "and it is not immoral to walk away from a business deal unless you went in to the deal with the intention of defaulting."
Yes, it might seem selfish, but you are actually going to help fix our country the right way, through the use of pure capitalism. There are 3 parties involved in your mortgage — the mortgage holders, the servicing bank and you. You probably want to stay in your house. Most of the people who actually own your mortgage also want you to stay in your house, preferring a mortgage reduction that you keep paying instead of the total loss of a foreclosure. But the major banks (BofA, Wells Fargo, JP Morgan, Citi, etc.) that underwrite and service the loans don't care about either of you. They (with the aid of their government) just care about hiding their true financial condition for long as possible so they can continue to bonus themselves outrageously. The credible threat of you walking away from your mortgage en masse is the only market-based solution that will force these banks to work with the mortgage holders on your behalf.
I recommend following the link above to read Ratigan's argument in full. It's hard to say how effective such a move would be unless practically everyone who's underwater colludes and does it together. Your average individual, acting alone, stands to lose credit standing and perhaps injure his neighbors' home values, as we've seen in places like Hamilton County.
But it's a compelling idea on a macro scale. Force the banks to pay for their own mistakes instead of more yachts? It's hard not to like the sound of that.