Tue, 25 May 2010

More homeowners choose to default on loans

I am so sick of hearing about "moral hazard" from people walking out on their underwater mortgages. All contracts have penalties written into them in case they're broken - mortgages are no different. If you're willing to accept the penalty, then the contract is breakable. Strategic defaults are not a menace:

The Mortgage Bankers Association, for example, strategically defaulted on the $70 million mortgage for its Washington, D.C. office building. Morgan Stanley did the same on a $1.5 billion mortgage on five buildings in San Francisco, despite raking in record profits last year. Neither was criticized for being immoral. Apparently, what’s good for Morgan Stanley or the Mortgage Bankers Association is good for America. Only the little guy must take his lumps for the common good.

I'm starting to seriously wonder if the housing market wasn't tanked intentionally by the large investment banks, hoping to scoop up deals from the resulting wave of foreclosures and defaults. Conspiracy theory? Maybe. But I'm not so sure anymore... the financial system has become a predator, and we're lunch.

"Strategic defaults" are on the rise as more borrowers who are underwater on their home loans decide it's not worth it to stay current on their payments each month. That trend could have repercussions for the housing market, and for borrowers, in the future.

(link) [Marketwatch]

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