Walking away from a mortgage: Is this moral?

Here’s a story sure to tick off those critics who say homeowners facing foreclosure largely brought their problems on themselves: Writing in the Wall Street Journal, reporter Nick Timiraos says that a growing number of homeowners are simply walking away from mortgage loans they can no longer afford, basically abandoning their homes.

But that’s just the beginning. These homeowners are then taking advantage of the slumping housing market to purchase a new residence — often one in the same neighborhood and the same size — for a far lower sales price.

You can read the story here. But if you don’t like reading about people working the system to their advantage, you might want to skip it.

Oddly enough, this move isn’t illegal. Mortgage-lending rules allow homeowners to purchase new primary residences before selling their existing homes. This allows homeowners to first buy their new home and then — in what is known as the “buy and bail” — stop paying the mortgage on their first home, letting it fall into foreclosure. In the end, the homeowner is left with a new house with a lower mortgage payment. Not a bad deal.

Problem is, while such a move may not be illegal, it strikes me as highly unethical. It’s also extremely unhealthy for a homeowner’s credit record. The foreclosure can stay on a person’s credit report for seven long years. Try taking out an unsecured loan if you have a foreclosure on your record.

This housing crisis has brought out a lot of bad behavior on the part of homeowners, mortgage lenders, real estate agents and government officials. The “buy and bail” plan is, unfortunately, just one more example of homeowners taking the easiest way out of a bad situation.