The right thing for whom?
The $26 billion settlement between state Attorneys General and five big mortgage lenders will help a couple of million people who are underwater and/or behind on their home loans.
But it leaves millions more out in the cold.
Two of them are friends of mine, and neighbors of yours. David and June, who in real life go by different first names, are a married couple in their early 40s, are well-known in the community, have good jobs, pay their bills and feel a moral obligation to honor their contracts and commitments.
Yet they are considering walking away from their home.
It's not easy for David, the son of a banker, to contemplate what he has come to know as "strategic default" on his home loan. But after several years of watching the real estate market collapse around him, and feeling the moral ground shift beneath him, he says he feels like "a sucker and a fool" for continuing to squander his family's financial future in order to pay a mortgage based on an inflated past.
David and June were a few months away from welcoming their first child into the world in the summer of 2007, and looking for their first home of their own after years of renting. The North Bay real estate market at the time was lower than its peak a couple of years before, but still on a very hot streak. And even though a median home price of nearly $600,000 seemed well out of their range, the couple felt like their chance for home ownership was slipping away as they watched house after house they were interested in sell for more than the asking price.
"There was fierce competition for every house we looked at," David said. "We would make an offer and there would be several others making bids. In one case, there were 15 or 16 others."
After losing out on several homes, they found an older three-bedroom house in a middle-class neighborhood, a little more than 1,000 square feet. It was listed at $539,000. They offered $536,000. This time, their offer was accepted.
They put down $60,000 and signed papers on a first and second mortgage with a combined payment of a little more than $2,900 a month, which covered interest only.
"We could just afford it. Not comfortably, but we felt like if we waited any longer home ownership would be out of our reach," David said.
They soon began to realize the fallacy of that belief. Home prices had already begun to back off their peak in 2007, and by 2008 they were in free-fall. In many communities, real estate values have dropped by half in the past six years. The house next door to David and June went into foreclosure and recently sold for $225,000 (it was purchased by a builder who spent several weeks remodeling and now has it listed for $358,000).
In addition to watching the value of their home evaporate, David and June saw their own expenses increase. Their son was born shortly after they moved in; a daughter arrived in 2010. The economy worked them from both ends, with inflation adding costs and the recession cutting their paychecks. David's company imposed pay cuts; June lost income after a job transfer that reduced her commute.