by Tanta on 2/15/2008 10:43:00 AM

This was a pretty amazing article in the Financial Times:

Homeowners are being advised that it would be cheaper to walk away from big mortgages than incur further losses on their household budgets, increasing the chances that more high-end real estate transactions will collapse.

This advice from lawyers contrasts with the conventional wisdom that homeowners would risk serious damage to their credit scores if they were to default on their loans.

But legal advisers argue that the future credit costs homeowners would incur in such cases would be far lower than the cash they would have to bring to closing if they sold their homes, given the current cataclysmic conditions in the housing markets.

“It is the tipping point argument,” said a senior partner at one of the biggest mortgage firms, who asked not to be named. “The borrowers have so many issues with their balance sheets that they are considering a new policy.”

Wow, that's pretty brazen. Of course it is. I made it up. This is what the FT actually says:

Leading banks are being advised that it would be cheaper to walk away from big buy-out deals than incur further losses on their funding commitments, increasing the chances that more high-profile private equity transactions will collapse.

This advice from lawyers contrasts with the conventional wisdom that banks would risk serious damage to their reputations if they were to drop out of deals.

But legal advisers argue that the break-up fees banks would owe in such cases would be far lower than the write-downs they would have to make on their loans, given the current cataclysmic conditions in the capital markets.

“It is the tipping point argument,” said a senior partner at one of the biggest private equity firms, who asked not to be named. “The banks have so many issues with their balance sheets that they are considering a new policy.”

(Thanks, e!)