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"Strategic Defaulting"

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Calculated Risk:

Walking away (what the researchers call a "strategic default" and the mortgage industry call a "ruthless default") is when the borrower decides to stop paying a mortgage even though they can still afford the payment [#88]. This has always been difficult to quantify. ...

[O[ne of the key points in the research are changing social norms - the more people a homeowner knows that he believes "walked away" the more open the homeowner will be to mailing in their keys. ...

This research suggests that this is happening in significant numbers. ...

This has led many people to suggest principle reductions (as opposed to payment modifications) is the only solution.

Yeah, that would have been HOLC (check the tag, above), which never got onto the same continent as the table, let alone actually on it. Wouldn't want to give the good people of this country the impression that anybody other than the banksters deserves a break or bailout, would we?

Then again, I wouldn't call it "strategic defaulting" at all. I'd call it "inequity aversion". When the game's rigged to fuck you, why not (a) fuck the gamers first and then (b) stop playing?

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koshembos's picture
Submitted by koshembos on

Geithner allows the banks to pretend that properties didn't lose value. In other words, the banks are as sound as the Egyptian Pyramids. Mortgages being paid go along with the pretension. Foreclosures are fine because the banks may pretend that the property maintained its value; when foreclosures don't sell it's even better. The only lose bank wise is incurred when foreclosed property sells; there aren't too many of these to incur substantial bank loses.

HOLC says to the banks to stop heir denial. Obama and the banks don't want that.