8 Responses to “The New Real Estate Trend ‘Strategic Defaults’” »»

1. JohnG
   Comment by JohnG | 03/17/10 at 9:41 am

   When you overpay for a house (either through stupidity of greed) or refinance to take money out, I don’t buy the excuse that the lender screwed you so it is ok to walk away.

2. Ari
   Comment by Ari | 03/17/10 at 10:22 am

   I have no problem with “strategic defaults”. The bank wrote the loan secured by the real estate. If the owners stops paying then they take the property. It is as simple as that. There are no “ethics” when it comes to an agreement where the loan is secured by property.

   The professor here is doing nothing wrong and is playing by the rules set forth in his mortgage agreement.

3. Anon Ymous
   Comment by Anon Ymous | 03/17/10 at 1:25 pm

   It wasn’t a promise. It was a legal contract that specifies explicitly what non-performance will result in (i.e. foreclosure).

   Strategic defaulting by banks and businesses is ok but when it’s people doing it they’re failing to live up to a promise.

   Please, more real estate drivel.

4. Bob
   Comment by Bob | 03/17/10 at 1:51 pm

   Corporations can walk away from bad debt. None other than the mortgage banker’s association did just that last month:

   “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. A spokeswoman for the MBA added that the MBA has reached “an agreement with all relevant parties” regarding the outstanding amount on that loan but declined to provide any details.”

   In December John Courson the CEO of the Mortgage Bankers Association had this to say:

   “It’s not for me to judge morality,” he says. “You probably have a legal obligation.” But, Mr. Courson says, defaults hurt neighborhoods by lowering property values and leaving homes abandoned and derelict. He says those considering a strategic default also should ask themselves this: “What about the message they will send to their family and their kids and their friends?” ”

   I think the message is clear. It made strategic sense for them to walk away from their loan and it makes strategic sense for some borrowers to walk away also.

5. megan
   Comment by megan | 03/17/10 at 2:33 pm

   Thanks for posting that Bob. I’m surprised I never saw that in the news.

6. anon2
   Comment by anon2 | 03/18/10 at 3:00 am

   “Strategic defaulting by banks and businesses is ok but…”

   No it’s not.

7. anon2
   Comment by anon2 | 03/18/10 at 3:31 am

   “It wasn’t a promise. It was a legal contract”

   Funny that you can distinguish in your mind between a legal contract and a promise. The mortgages I’ve seen have been titled “Promise to Pay”.

8. Funny
   Comment by Funny | 03/18/10 at 9:13 am

   anon2,

   You really should take some business classes. Promise to Pay is pretty entry level contract stuff, and in business and legal speak it has very concrete definitions not attached to any “Morality”.

   Like the posters above, this is all legal and it should be as long as BOA or any other lender of business can do the same. It’s capitalism! Deal with it, or let’s talk about changing it; not demonizing owners who were either defrauded, or playing the game (Take your pick!).

   We’re supposed to lynch the homeowner, when the banks is getting the property they lent out 400K via the terms of the contract they made with the homeowner? Let them sell it for that! Wait, it’s only worth 200K now?

   Who the hell in the bank thought that be a good idea, a good investment? Oh, the guy that’s move on last year and washed his hands!

   Anyways, doesn’t it make sense to forgive some principle to keep the revenue stream flowing? That would make too much sense, and it sets bad precedent in the banks opinions; but it be the least costly thing all around. Then again, no one pays attention to game theory; I got mine, frak you!

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