The longer this Recession continues on, the more in agreement I become with a Strategic Default Decision. Sooner or later the Morality issue becomes a mute point. "I pay my mortgage on time - I've never been late or missed a payment" So Mr. Banker, how will you help me change my mind about walking away from my home? What do you mean you don't care? Sad but True!!!!
Mathews Realty Group
Strategic default smarts
35% of mortgage defaults in September 2010 were strategic, an increase from the 26% more than a year earlier in March 2009 according to a University of Chicago Booth School of Business study. 22.5% of residential mortgage defaults nationwide were strategic in the third quarter of 2010. This number increased to 23.1% in the fourth quarter of the same year.
In negative-equity-laden California, strategic defaults are also widespread (more so than the nation as a whole since California is a nonrecourse state and lenders cannot viably threaten to sue for their losses). There were 45,380 strategic defaults in 2009 – 80 times the number in 2005. [For more information on the strategic default trend, see the August 2010 first tuesday article, Fannie Mae, our government and strategic defaults.]
Paying lenders the full amount on an underwater home is not what is going to fuel the recovery of a family or the California economy — what we need is to put cash in the hands of negative equity Californians. If they aren’t going to get any cramdowns in bankruptcy courts, they need to exercise their legal right to strategically default — that “put option” in every trust deed. Besides, it’s what all the smart people are doing anyway, right?
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