Strategic Defaults Hit the Mainstream Conversation
Last night 60 Minutes aired a report on Strategic Defaults and it definitely stirred up the conversation regarding the topic. Since home values are off 40-50% from their peak in parts of the East Bay, this is something that we’ve seen bubbling under the surface in the past few months and now it seems as if it’s about to hit the mainstream conversation.
In case you’re not familiar with the term…
A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.
This is particularly associated with residential and commercial mortgages, in which case it usually occurs after a substantial drop in the house’s price such that the debt owed is (considerably) greater than the value of the property — the property negative equity or “underwater” — and is expected to remain so for the foreseeable future, such as following the bursting of a real estate bubble. Such borrowers are called “walkaways.”
In case you missed it, here’s the segment:
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