But Brent White, an economist at the University of Arizona, argues that staying in an overvalued house is fundamentally irrational. He writes in a paper titled “Underwater and Not Walking Away” that lenders exploit fears of a bad credit score and cultural mores against foreclosure to keep people in houses.
“This imbalance is exaggerated by the credit reporting system, which gives lenders the power to threaten borrowers’ human worth and social status by damaging their credit scores —- scores that serve as much as grades for moral character as they do for creditworthiness,” he writes.
Many homeowners in trouble may be better off taking the plunge into foreclosure.
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