What is everyone’s take on “strategic defaults”? That is, people choosing to walk away from properties for which they can afford to continue to make payments. Personally I think when you take out a mortgage on a property you have an obligation to satisfy the terms of the loan. Obviously, in the case of unemployment or severe financial distress, sometimes default can’t be avoided, but that is not the case with “strategic defaults.” Any thoughts?
It’s all part of the deal. The financial institutions get screwed, their fault for not managing the default risk properly. Case in point: good risk management = Wells Fargo. Bad risk management = Countrywide.
If the benefits outweigh the long-term discounted costs I’m walking. Just the rational thing to do. I have no guilt or remorse.
Yeah- its morally reprehensible, but like many will do it anyway if the balance of pro’s and con’s shifts too far one way. Its only logical- considering the fact that the only real con is a blemished credit score- but even that is limited in time. What bothers me is that most wouldn’t even have their things repo’d as a result, the lack of recourse on the part of the lenders, I think if someone does this the bank should be able to take their speedboat. But then again- they knew what they were signing up for so? What I don’t know is the tax effects. Does on get taxed on the bank’s loss as you would w/ a short sale? For a limited amount of ppl such a move may also create issues with future employment.
In Europe we find the US model a bit odd, you would never get a mortgage here with ONLY the house as collateral. For commercial it is of course a different thing. I guess strategic defaults must be priced into the debt margins. Does that not mean margins are higher than needed for most people? How common is it to “walk away”?
Hopefully those people who can actually afford their mortgages but choose to walk away have their credit scores dinged 300 points. Good luck to them ever receiving a loan under 8.00%
Chuckrox8 Wrote: ------------------------------------------------------- > Hopefully those people who can actually afford > their mortgages but choose to walk away have their > credit scores dinged 300 points. Good luck to > them ever receiving a loan under 8.00% How much value is there really in that vs losing 100k+? The action would only be on you record for what- 7 years? Furthermore- with rents as low as they are and one having been burned by ownership, many don’t really care. Yeah your next car pmt will suffer, but the saving still outweigh the costs- both in scope AND duration.
Be careful before walking away or short selling. There is potential for banks to come after personal property. I did not believe they could either. http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0
I don’t understand how there is a moral argument to exercising your option to default on your mortgage vs. exercising other kinds of options. If you sell a callable swap and the payments shift against you, it’s perfectly reasonable to call the swap. With mortgages, the only difference is that the collateral is physical, and is not just some series of payments. Adverse effects to your credit score are other factors to consider in a “strategic default”. However, this has nothing to do with any notion of personal responsibility to fulfill your mortgage payments. Financial institutions enter into real estate collateralized agreements with full knowledge that there is this optionality built in. That’s why they charge you higher rates if they think there is a significant probability that you might default. If the financial institutions lose tons of money because they have extreme long unhedged real estate exposure, it’s probably because they are mismanaged.
Treynor Wrote: ------------------------------------------------------- > In Europe we find the US model a bit odd, you > would never get a mortgage here with ONLY the > house as collateral. How much more collateral is required over there?
adavydov7 Wrote: ------------------------------------------------------- > If the benefits outweigh the long-term discounted > costs I’m walking. Just the rational thing to do. > I have no guilt or remorse. the whole you have an obligation to pay your mortgage is such BS. You only really have an obligation to do things that are legally required of you. There is no law saying that you must pay your mortgage so if it doesnt make economic sense the shrewd mind would walk. businesses abandon projects right? your mortgage is a project for the company of You. Even though it worked at underwriting, it might not work now and your NPV might be < 0, so abandon.
Even if you are okay with stiffing the bank, how can you justify also screwing your neighbors, whose home values will suffer as a result? And in terms of legal vs. moral obligation, the fact that most states allow banks to pursue deficiency judgments should indicate that there is a legal obligation as well.
^why would I give a fukk about my neighbors over what is best for my family?
In this situation you have to do what is right for your family
Hello Mister Walrus Wrote: ------------------------------------------------------- > It’s all part of the deal. The financial > institutions get screwed, their fault for not > managing the default risk properly. > > Case in point: good risk management = Wells Fargo. > Bad risk management = Countrywide. Wachovia=Bad risk management World Savings=Bad risk management Wachovia+World Savings+Old WF = New WF= Good luck with your risk management
Off-course walk away. Then rent the house next door for half the payment you were making to the bank. With the money saved you can buy yourself something nice, like a new car 
Most people don’t have much integrity, and so the idea that anything legally permitted is morally acceptable is pretty common. Fortunately, after a while, these people ultimately get abandoned by those with integrity and have to live with each other, which is it’s own kind of hell.
Everyone throws integrity out the window in this day and age. If you say you are going to do something, you should do it within all means possible. This is why the country is bloated with lawyers and excess costs, everyone tries to get out of their obligations if it is no longer in their favor.
Everyone throws integrity out the window in this day and age. If you say you are going to do something, you should do it within all means possible. This is why the country is bloated with lawyers and excess costs, everyone tries to get out of their obligations if it is no longer in their favor.
I am not sure what does this have with integrity? Do you stay with an employer if you’re offered a better job “based on integrity” ?