The hysteria driving strategic default
Enough already with the strategic default whiners.
Yes, there are some real hard luck cases out there - check out this Times piece on the trend.
Apparently, new research is showing that when the value of a house falls to 75 percent of the mortgage, our new breed of fearless, strategic-defaulting home owners gets ready to walk.
But I have a couple bones to pick with the strategic defaulters, starting with the fancy name.
The term connotes a shrewd bunch of 21st century homeowners, unbound by tradition and ready to make a corporate-like, rational decision to cut their losses and walk away from their underwater mortgages. These are folks who are still pulling down the bucks and can pay, but clearly feel they are smarter than the rest of us who are dutifully making our montly mortgage payments.
Yet too often we are talking about people who overpaid, sometimes massively at the height of the market, even amid all sorts of warning signs. That was hardly shrewd or sensible - not much business sense there.
Now, at the depth of the market, with the future of the real estate market and prices pretty hazy, these financial geniuses are making another rash decision based on the fears and emotion of the moment.
A lot of home buyers who bought in pricey markets like Greater Boston in the past decade overpaid to one degree or another based on today's prices.
For most of us, it's a bit like going to a boisterous party, getting a little tipsy, then apologizing the next morning for a poorly chosen joke.
But the strategic defaulter too often appears to be the guy who shows up late to the party, gets plastered despite the warnings of his friends, then crashes the car and walks away, blaming society for his woes.
Sure, it's hard to make an argument that we all owe some nebulous allegiance to nation's banking system, though more defaults just push lenders into further tightening lending standards.
But walking away from your mortgage when you still can pay can hurt your neighbors, pulling down the value of nearby homes.
The main example of the Times piece of a potential strategic defaulter is someone who bought a condo in Miami Beach for $215,000 in 2006 with 20 percent down. Comparable units are now going for $90,000.
But I suspect there are many others out there like "Sarah" from Marlborough who I profiled last year.
A marketing executive, she and her husband laid out $370,000 for a three bed, two bath home in a new subdivision back in 2004 when the home price bubble was fast inflating.
Suddenly, with prices headed downhill they were full of regrets. It turns out they didn't really like the Marlborough school system, which they felt was mediocre, and, best of all, discovered the commute to Boston wasn't exactly a picnic.
Having heard about strategic default, Sarah wrote me to say she and her husband were thinking about walking away. She was convinced the value of her home would never reach the $300,000 range again.
So here's clearly an example of someone who blindly followed the housing bubble up and now is panicking when the chips are down.
Hardly a good advertisement for the supposed shrewdness of the strategic defaulter.
