Wednesday, March 17, 2010

More homeowners are opting for 'strategic defaults' -

More homeowners are opting for 'strategic defaults' - "Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.

Nearly one-quarter of U.S. mortgages, or about 11 million loans, are 'underwater,' i.e. the houses are worth less than the balance of their loans. While home values are regaining ground -- median prices rose 10% in Southern California last month to $275,000 compared with a year earlier -- they remain far below the July 2007 peak of $505,000.

Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg."

Fourteen years? For a baby boomer that is just way. Too. Long.

Thanks to Fred Pilot for this link and for pointing out that anybody who is strategically defaulting on their mortgage has already strategically defaulted on their HOA/condo assessments as well. The rocky times continue.


Anonymous said...

Not sure that the conclusion is true. Although homeowners are without a doubt strategically defaulting or defaulting out of necessity, many are also challenging the authority of the alleged note holders to foreclose. They can stay in the home until the entity claiming the authority to foreclose actually proves it has the right to do so. Those taking this approach are likely not defaulting on HOA assessments because that would defeat the purpose.

The bigger problem with the HOA assessments is that they are a never-ending "debt" that can never be paid off, always goes up, and for which the homeowner has zero individual control to halt the consumption of goods and services mandated by the HOA corporation. The homeowner is not the one to blame for these. The existence of the involuntary membership HOA corporation and a trade group of HOA management companies and attorneys seeking to create unlimited debt out of thin air to benefit their "debt creation and collection" practices is to blame.

Anonymous said...

An Ayn Randian editorial in favor of strategic defaults for home owners.

"Stossel Gets The Freeloaders Wrong"
March 26, 2011

Recently John Stossel aired a special show about freeloaders. Now, I am a huge fan of Stossel and consider myself a fellow Libertarian as well. During his segment he brought up the freeloaders who take advantage of the program where individuals strategically default. Stossel calls this “immoral” and calls those doing it “freeloaders”. Normally I agree with John, however he has gone back to his liberal ways worrying about the greater good and moral obligations to society.

Anonymous said...


I realize this blog post is two years old, but I just came across a set of related stories (also from the same time period).

Walk Away From Your Mortgage!
Published: January 7, 2010

John Courson, president and C.E.O. of the Mortgage Bankers
Association, recently told The Wall Street Journal that homeowners who
default on their mortgages should think about the “message” they will
send to “their family and their kids and their friends.” Courson was
implying that homeowners — record numbers of whom continue to default
— have a responsibility to make good. He wasn’t referring to the
people who have no choice, who can’t afford their payments. He was
speaking about the rising number of folks who are voluntarily choosing
not to pay.

Businesses — in particular Wall Street banks — make such calculations
routinely. Morgan Stanley recently decided to stop making payments on
five San Francisco office buildings. A Morgan Stanley fund purchased
the buildings at the height of the boom, and their value has plunged.
Nobody has said Morgan Stanley is immoral — perhaps because no one
assumed it was moral to begin with. But the average American, as if
sprung from some Franklinesque mythology, is supposed to honor his
debts, or so says the mortgage industry as well as government
officials. Former Treasury Secretary Henry M. Paulson Jr. declared
that “any homeowner who can afford his mortgage payment but chooses to
walk away from an underwater property is simply a speculator — and one
who is not honoring his obligation.” (Paulson presumably was not so
censorious of speculation during his 32-year career at Goldman Sachs.)

Anonymous said...


A few months after berating homeowners as immoral, the Mortgage Bankers Association strategically defaulted on their 75$ million headquarters building.

Mortgage Bankers Association Strategically Defaults on Office Space
By: David Dayen Wednesday August 11, 2010 7:04 am

And here I thought it was immoral to strategically default:

Like millions of American households, the Mortgage Bankers
Association found itself stuck with real estate whose market value has
plunged far below the amount it owed its lenders.

But the trade group for mortgage lenders is refusing to say
exactly how it extracted itself from that predicament.

On Friday, CoStar Group Inc., a provider of commercial real estate
data, announced that it had agreed to buy the MBA’s 10-story
headquarters building in Washington, D.C., for $41.3 million. The
price is far below the $79 million the trade group says it paid for
the glass-walled building in 2007, while it was still under
construction. The price also is far below the $75 million financing
that the MBA received from a group of banks led by PNC Financial
Services Group Inc. to finance the purchase.

John Courson, chief executive officer of the trade group, declined
in an interview Saturday to say whether the MBA would pay off the full
loan amount. “We’re not going to discuss the financing,” he said.

. . .

Pretty clear to see what went on here. The MBA was taking a bath on
its headquarters, so they short sold it and walked away from the
financing. It was a rational decision based on their own economic
interest. Nobody could blame them from a business standpoint.

This hypocrisy was the subject of a Daily Show segment

Thursday October 7, 2010
Mortgage Bankers Association Strategic Default
The Mortgage Bankers Association strategically defaults on its loan after shaming homeowners who do the same.

Anonymous said...


There is another John Stossel angle here. Stossel refers to those who don't pay the mortgage, but instead simply wait for the mortgage holder to foreclose, as "freeloaders".

But such strategic defaults are the business models of HOA corporations. ie, after foreclosing on a homeowner, the HOA corporation will rent the unit out and not pay the mortgage.

HOA law firms are advising their clients that

After an association takes ownership of a unit through a foreclosure,
it is usually left with two options. The association can pay the first
mortgage holder to prevent the filing of a foreclosure action by the
bank. Another option is for the association not to pay the first
mortgage holder and simply allow the property to fall into foreclosure
again. One creative solution some associations are using is to not pay
the first mortgage and rent the unit until the mortgage holder obtains
title to the property through foreclosure. Remember this process
typically takes three to six months, if not longer, so the lease can
be for a three month term and then continue on a month-to-month basis.

Another HOA attorney, Robert Tankel (profiled in the Tampa Bay Times on June 26, 2011 and July 3, 2011 and several times on this blog ) defended his business of HOA foreclosures & strategic defaults by saying "It's called capitalism. It's the free market."

Right-wing pundits, like Stossel and others, who
(1) berate homeowners as immoral parasites for strategically defaulting on their mortgages, and
(2) frequently refer to lawyers as parasites and bullies when the lawyers represent individuals against corporations,
have no problem with free-loading strategic-defaulting HOA attorneys who prey upon individual American homeowners.

I wonder why.