Update from the Foreclosure-Based Economy, Empty Moralizing Dept. 0

The Inky has a long story about a survey that reveals that homeowners in financial trouble are more willing to go to foreclosure than ever before. They no longer consider foreclosure an unforgivable financial sin.

The column theorizes several reasons: so many persons are in foreclosure that it has lost much of its stigma; persons have been stuck with houses so far underwater that they cannot sell them to pay off the loan; and so on. A mild undercurrent of oh! the horror runs through the article.

Buried in the middle is what I suspect is a key reason:

Matthew Hars, managing director of Varick Capital, a real estate advisory and investment firm, and Manhattan Spaces, a residential broker in New York, says that one reason for the increased acceptability of strategic default is consumer distrust.

Consumers have developed a deep resentment of financial institutions, he says, which they perceive as not dealing in good faith with distressed borrowers. “In this case, the rationale is that it’s okay to default if a lender won’t work with a borrower to right size a loan that’s upside down,” Hars says. They think “it’s the lender’s fault, because of their refusal to write down some of the principal balance, which they’re going to have to do anyway in a foreclosure.”

He left out the part about

“Consumers have developed a deep resentment of financial institutions” because, in the quest for sales commissions and mortgages to “securitize,” they pursued and made dodgy loans–ARMs, “liars’ loans,” no down payment loans–to persons in weak financial circumstances for undeserving properties, then turned around and crashed the market, leaving their loan customers holding the bag.

Persons who have been abused, once they realize they have been abused, have no loyalty to the abuser.