The Business Change of Not Paying Your Mortgage

I’ve written about intentional mortgage default once before. This coming Sunday the idea will be in The New York Times Magazine, and today it’s in Henry Blodget’s Business Insider.

Amazing business change idea; let’s revisit:

Anyone in business has experienced the incredibly ugly and difficult issue called “collection”. When you decide to extend credit to a customer you accept a simple reality: if they can’t pay their bills, their problem becomes yours. I wrote about a tangential issue just a few days ago; we do things like offering discounts to encourage customers paying their bills early, but the truth is that discounts are offered to get them to pay the bill . . . period.

So what’s the real story on intentional mortgage defaults?

Time was, walking away from his mortgage was just about the worst thing a man could do. It carried social stigma, it ruined your credit rating, and it left you without a home. In the incredibly difficult economy we’ve experienced for the last few years many people have lost their homes because they just couldn’t keep up with their mortgages. But there’s been a side effect: lots of people who could afford their mortgages have decided to default as a pure “business decision”. Ugly, right?

Why? Businesses have done this for decades.

Get past the “lose your home” angle, and the other issues really are just math, right? OK, we can add the moral issue (“What? You just walk away from your obligations? You’re a jerk!”), but I’m removing that from this discussion: as The Times’ Mr. Lowenstein points out, businesses do this as a matter of . . . doing business.

I’m not endorsing intentional mortgage default. I’m not endorsing walking away from any obligation. But I am making an important point: business is a full contact sport, and if your opponents are wearing protective padding you need to wear some too or you’re going to get hurt.

Or, in business change terms, maybe you can invent new padding, or even redefine the rules of the game.