Local Real Estate Comments and Ramblings

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Stategic default ... or moral decay?

Strategic default and moral decay...

Before I even get started let me say that this post is NOT about people who have run in to serious hard times and can simply no longer afford their home. There are a lot of good folks who want to pay their mortgage but simply can't. For them, this does not apply.

What I am talking about is people who make the conscious choice not stop paying their mortgage simply because their home has declined in value.  They think it is a convenient or prudent financial decision just to stop paying.  These folks are looking at the short term responsibility just like they were looking for a short term profit on what is by its very nature supposed to be a long term investment.

Even with the recent steep decline in prices, homes in Georgia,Metro Atlanta, and Marietta / Cobb County, have had a slight increase in value over the last 10 years!

 

Zillow 10 year history

Marietta 10 year history

Your home is more than an investment.  It is a home.  It is a roof over your head, the place where memories are made, the place where you raise your family and spend your years. It is not an ATM or get rich quick investment.

The strength of our economic system lies in people having faith in that system and in each other.  If an increasing number of people make a decision to screw the system all that is left is decay.

Today's Taipan Daily investment newsletter has a lengthy discussion on this topic.  Check it out.


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Strategic Defaulters” On Home Mortgages Are Barbarians Looting Rome

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Taipan DailyThe "strategic default" phenomenon for home mortgages has hit the mainstream... and it shows, more than ever, how the fall of America is like the fall of Rome.

Roughly two months late, The New York Times is catching up with Taipan Daily.

Earlier this spring, your humble editor wrote on the topic of "Strategic Default" – the phenomenon of strapped homeowners skipping out on mortgage payments and trousering the cash.

In the April 5 Taipan Daily piece, "Did the Housing Bust Fuel the Consumer Spending Binge?" we noted the following:

In regard to the "Strategic Default" dynamic, we can see this logic writ large. To let go of one's home is to be resigned to a grim financial fate no matter what... even as the monthly cash flow suddenly takes a sharp turn northward.

Financial doom plus temporary cash flow respite, mixed with an already pronounced taste for shopping, can only lead to one conclusion, suitable for reading in full-throated Dick Vitale voice: "Why not spend, baby!"

As usual, the government plays a large role in this tragicomic farce...

"Why not spend" indeed – the New York Times cottoned to that same dynamic this week (nearly two months behind) in an article titled "Owners Stop Paying Mortgages, and Stop Fretting." Here is the flavor:

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life – something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

"Instead of the house dragging us down, it's become a life raft," said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. "It's really been a blessing."

"Force me out if you can" is the new mantra for those feeling upside down and trapped. "Any moral qualms are overshadowed," the piece goes on to add, "by a conviction that the banks created the crisis by snookering homeowners with loans that got over their heads."

 

 

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Bob Southard
Broker - Owner  Atlas Realty Service LLC #75911
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Comment balloon 4 commentsBob Southard • June 04 2010 10:11AM

Comments

I saw this also on 60 minutes a month ago.  I understand the "business decision" behind it.  But a legal and moral agreement was entered into, in my books.  It's a shame!

Posted by Larry Bettag, Vice-President of National Production (Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001) over 8 years ago

Larry,

Thanks for the comment. I agree.  If you simply can't pay that is one thing.  Choosing not to pay is another.

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) over 8 years ago

It certainly is Moral Decay!  I agree with Larry's comment.  You agreed to pay the darn thing, and you can afford it!

If it was ok to walk away because the value dropped, then we would have a lot more Repo's of cars since their value plummets like a rock as soon as you drive away!

Posted by Robert Rauf (HomeBridge Financial Services (NJ)) over 8 years ago

I had a man call me a couple of weeks ago who wanted me to list his property as a short sale.  As I started asking specific questions to see if he would qualify he told be point blank he plans to do a strategic default as he heard about it on TV.  I politely told him I understood his frustration with being upside down in his home but that I believe strategic default is fraud and I would not be a part of it.

Posted by Terry McCarley, REALTOR, SRES, CDPE - Cape Coral, FL (REMAX Realty Team - Cape Coral FL) over 8 years ago

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