Article On Strategic Defaults

I ran across this article from U.S. News & World Report, dated 1/19/10 concerning "strategic defaults":

http://www.usnews.com/money/personal-finance/real-estate/articles/2010/01/19/strategic-defaults-and-the-foreclosure-crisis.html

The article is interesting in that it summarizes various facets of the "strategic default" situation and presents an interesting example of the dynamics that one "underwater" homeowner faces.

I have mentioned "strategic defaults" on numerous occasions. It is a very important "wildcard" in the residential real estate equation.

SPX at 1097.60 as this post is written

Wall Street Journal Article On "Strategic Defaults"

Yesterday The Wall Street Journal had an article titled "Debtor's Dilemma: Pay the Mortgage or Walk Away." Here is the link:

http://online.wsj.com/article/SB126100260600594531.html

The article has a variety of statistics and views on the issue of "strategic defaults." As well, it discusses the legality and consequences of such.

I have previously written numerous blog posts on the issue of "strategic defaults." (Those posts can be found under the "Real Estate" category listed along the right side of the home page). "Strategic defaults" is an exceedingly important concept for a variety of reasons. Like many economic issues, it is a very complex topic dependent upon many factors. I find the topic fascinating.

It should be very interesting to see the course of "strategic defaults" as time progresses.




SPX at 1096.08 as this post is written

"Underwater" Mortgages and "Strategic" Defaults

This article caught my interest; it is titled "About half of U.S. mortgages seen underwater by 2011":

http://www.reuters.com/article/companyNewsAndPR/idUSN0526831020090805

Apparently their projections for "underwater" mortgages is based upon their forecast quoted in the article: "Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent."

While I haven't spent the time to really develop an in-depth projection of my own as to where the "bottom" will be in residential real estate, I do believe it will be far lower than an additional 14% decline, for a variety of reasons. If this becomes the case, the "underwater" aspect quoted in the article would presumably be exacerbated.

The Deutsche Bank forecasts mentioned in the article can also be read in conjunction with some other interesting research recently published with regard to "strategic" defaults, which was mentioned in this Economist article from 6/25/09:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13905502

This "strategic defaults" issue is important and bears close monitoring going forward, especially if more mortgages go "underwater."

SPX at 997.08 as this post is written