One more issue on the subprime market has come up.
Is it unethical for a home owner to walk away from their mortgage, if it is in their interest to do so?
Suppose you bought a home and took out an adjustable rate subprime mortgage. Your initial rate was 8%, but it would reset to 9.5% very soon. Unfortunately, you will not be able to refinance the house since housing prices have declined and banks have tightened their lending standards. At a rate of 9.5%, your finances will be stretched very thin. You are tempted, therefore, to drop the keys to the house off at the local mortgage broker who financed your mortgage in the first place. Now there are a lot of ramifications of doing this, not all which I understand -- you might still end up owing the bank money, requiring a bankruptcy filing, and you could also end up with a big tax bill from the IRS for any loan amount that the bank writes off. But for my point, let's just assume (very safely) that there will indeed be circumstances when it is in the individual's interest to default.
It is not as if you CANNOT make the mortage payments, just that it really is not in your economic interest to do so. You, and your family, would be better off renting a house, saving the difference between your new mortgage payment and the rent, and of course dealing with all the implications of the default.
Is it unethical to walk away from that mortgage?
I say... no.