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Walking Away from Your Home for Dummies.

By Nick Timiraos

You might call it, “Walking away from your home, for dummies.”

Brent White, the University of Arizona law professor who’s made a name for himself by urging more underwater homeowners to consider walking away from their homes, has published a 168-page book to help borrowers who are wrestling with that decision.

In a tone that is both conversational and precise, “Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?” lays out the case for and against walking away from an upside-down mortgage where the home is worth less than the mortgage balance. As is his habit, Mr. White strips away many of the emotional reasons that are often touted to deter walkaways.

Mr. White, who specializes in behavioral economics and the law, touched a nerve with a paper last year that was one of the first to seriously challenge the long-held view that borrowers have a moral obligation to continue making their mortgage payments. He says he’s been inundated with thousands of emails from people that showed him “the real texture of what’s going on—what difficult times people are having, and how people really do struggle with these decisions.”

Mr. White tells readers that he hasn’t set out to recommend any particular course of action. Borrowers need to factor in their personal situation, and the laws in their state. “The bottom line is, people need to make their own call,” he says in an interview. He adds that he wrote the book because he realized “they may need help about how to think about it.”

Too much information about walking away from mortgages “is intended to scare homeowners,” he says. His advice to borrowers wrestling with the decision: “Make sure you’re staying in your house because you decide it’s worth to you, and not because you’re worried about things that are probably not going to happen.” These views, and others, are likely to give heartburn to mortgage investors and lenders.

The book falls roughly into two parts. The second half walks borrowers through the different options available depending on their situation. The first half gets there by evaluating three considerations: financial concerns, practical ones and moral dimensions.

On the first two, Mr. White urges readers to answer a series of questions to decide whether walking away makes financial and practical sense. Can your bank pursue your assets? How much of a hit will your credit score take? How much will you save, if anything, if you rent? The book also includes a handful of worksheets to calculate these and other costs.

But it’s on the moral question where Mr. White has penned a polemic against the lending industry’s arguments against walking away. Financial institutions and the government, he writes, “have acted to make sure that underwater homeowners and not lenders bear the primary burden of the housing collapse.” (Left unsaid is that taxpayers, too, could bear the costs of mistakes made by lenders, Fannie, Freddie, the government, and homeowners that walk away.)

Mr. White says there’s lots of blame to go around, and that “a little of it” belongs on homeowners. But he says that underwater borrowers have paid a far higher price than lenders or the government, which are more responsible for the bust. So should borrowers feel badly about defaulting?:

[Y]our lender knew the bargain that it was making when it loaned you the money, including that it was loaning money on a home with a possibly inflated price. It also knew that you might default if prices crashed.…

If your lender miscalculated the risk of defaults due to a housing collapse, that‘s not your fault. You aren‘t barred from collecting on an insurance policy if your insurance company miscalculates the chances of a tornado and wishes that they had charged you more. If your lender miscalculated the risk of a housing collapse and borrowers defaulting as a result, that‘s the lender‘s error. It will be more careful next time. But you still have an option to default.

Under what circumstances, then, is it reasonable to walk away?

I think it‘s OK to stop paying the mortgage long before you clean out your savings, sacrifice your retirement, spend your children‘s college fund, and certainly before you have to start using your credit cards to survive. Before you do any of those things, I think the more moral course is to stop paying your mortgage. Indeed, I think it‘s morally acceptable to default if your mortgage threatens your ability to save adequately for the future, regardless of whether you can pay it according to some arbitrary definition of “affordability.” It may be more responsible to put the money saved from giving up your home and renting instead into an investment account, so that you are secure in retirement. Or put it into a college fund, so that you can give your children a chance at a higher education.

In other words, things aren‘t so black-and-white. Given the unprecedented nature of the housing collapse, it should at least be possible for reasonable people to disagree about the most moral or responsible course of action for underwater homeowners. No one is entitled to sit in judgment of you.

Readers, are you thinking about walking away from an underwater mortgage and willing to be interviewed?  Email me at Follow Nick on Twitter for more housing and mortgage news: @NickTimiraos