Strategic default hasn't been making much news lately, the housing market narrative having moved to the MERS mess and the various facets of Fraudclosure. So I was a little surprised to read that the Mortgage Bankers Association held a panel on strategic default last week at their National Mortgage Servicing Conference. I was even encouraged for a moment when I read the headline: MBA Panel: Tread carefully when going after strategic defaulters.
Had the MBA come to grips with the fact that individual homeowners have the same rights as major corporations when it comes to walking away from a bad deal? Not hardly. It was the opposite in fact. By treading carefully, the panel meant mortgage servicers need to have all their ducks in a row before going after someone suspected of strategic default. Like the MBA itself, for example:
The hypocrisy itself is maddening, but when you throw in this next bit of monkey math you can see how corrupt the entire mortgage system has become. It seems the recent decline in foreclosure starts has less to do with an improving housing market and quite a bit more to do with the fact that mortgage servicers are moving foreclosures off the books by re-instating them as seriously delinquent loans.
The fact is the average loan in foreclosure today hasn't received a payment in 500 days. Fully 28% of loans in foreclosure haven't received a payment in two years. And loans in foreclosure currently outpace foreclosure sales by 25 to 1, with 7 million of the nation's 36 million mortgages (or roughly 1 in 5) currently in arrears.
The MBA needs to get over their hand-wringing sense of persecution when it comes to homeowners strategically defaulting. As a nation, we need to quit dicking around and take the hit on housing. Only after the housing market comes into equilibrium (at much lower prices than we're seeing today) can we then begin to rebuild a stable, value-oriented market.
And, no, a 7,000 sq ft McMansion sitting on a 7,500 sq ft plot of land and built with $65,000 worth of Chinese drywall is not still worth a million bucks.
Get over it.
I hate how these types of organizations, with the help of some in the media, have tried to turn strategic defaulting into some sort of moral wrong. They resort to the "a man is only as good as his word" argument. Entering into a mortgage contract is no different than any other business decision- when walking away from the contract is more wise than continuing to abide by it, a party has the ability and right to walk away. There will obviously be some consequences, but often the rewards outweigh the risks. Any bank should know that this is a possibilty when they lend, and should protect themselves accordingly.
What are your thoughts on commercial loans for small business owners and strategically defaulting?
There are already walkaway provisions written into most corporate loans. However, small businesses are usually subject to personal guarantees, know as a PG. In other words, the owner of a small business must "personally guarantee" the loan, exposing his personal assets to seizure in the event of a default.
The best way I've found around signing a PG for every little thing is to start building a business credit rating with small loans early, and then work your way up to larger loans without a PG when your company's credit is established.
i hear this. im still thinking of buying something over in brooklyn in a co op but theyre still triple what they were 10 years ago. diediedie market
Unethical
I didn't create the current system or its problems. I went into the situation fully prepared to pay my dues, and if an opening to get a better deal comes, then yes, I am happy about it.
For what it's worth, I got my start in the due diligence / compliance areas, so I like to think I'm part of the generation that's going to fix this fucked up system. If nothing else, I know I'm trustworthy, but I'm also not a tool.
its not unethical, the games rules are laid out and you play the game. apparently if you think this is unethical then selling Bear Stearns after hearing the news that JPM was backstopping them with the fed would also be 'unethical', but who would be the smarter and more well off asshole in the end?
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