Strategic Default: Right or Wrong?

MAKING SEN$E -- January 5, 2011 at 11:44 AM EDT

Strategic Default: Right or Wrong?

We've been concentrating on the housing crisis over the past several days here on the Business Desk. For the rest of the week we'll be focusing on the issue of strategic default. If you're an underwater homeowner who can afford your mortgage payments, is it right to walk away?

In our broadcast story, we featured folks both for and against doing so. We also provided an interactive tool from KQED in San Francisco that helps with the decision.

But what's the substance of the debate? Is a residential mortgage all that different from a commercial one, or isn't it? When you borrow to buy a home, the home is collateral. Does that imply that the lender expects you to default, or doesn't it? This week we thought we'd "webterview" some folks on either side of the debate and explore the ethics of "strategic default" in a little more detail.

First: It will probably not surprise you that Florida banker Bill Valenti, whom we interviewed on the show last April, still feels strongly about his borrowers honoring their contracts.

"When you make a promise to pay or a promise to do anything you have an obligation, a moral obligation, to stand by your word," says Valenti.

We'll spend the rest of the week with two other experts: an economist and a law professor. Stay tuned; their arguments may surprise you.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions. Follow Paul on Twitter.

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