strategic default: Strategic Default, Principal Forgiveness and the Specter of Moral Hazards - 11/13/11 08:01 AM
 
As we wind up year four of the worst housing crisis since the Great Depression, the country still faces the issues of strategic default, principal forgiveness and the specter of moral hazards. It now seems obvious that waiting for an illusive housing recovery is an exercise in futility, for we’re no closer to stability than we were at the beginning of the recession. However, we’ve also seen that ill-conceived government actions do little more than waste precious tax dollars, while in some cases worsening the crisis. What’s a homeowner to do? 
 
Since the beginning of the housing collapse, … (35 comments)

strategic default: Strategic Default in Reverse - 01/13/11 10:53 AM
 
An article in the Chicago Tribune describes how some mortgage servicers are exercising strategic default in reverse and are abandoning properties after determining that the costs of foreclosure are greater than the underlying value of the property.  Often in distressed neighborhoods, such properties only add to the decline of communities, as vacant houses become eyesores and havens for criminal activity.  Chicago area foreclosures increased by 20% in 2010, only adding to lower home values and further blight.   
 
The Tribune article describes the “stewardship relationship” that exists between borrower and lender and how certain loan servicers are failing to … (19 comments)

strategic default: Strategic Defaults Will Eventually Crush HAMP - 07/07/10 02:51 PM
Strategic defaults will eventually crush HAMP, the administration’s homeowner rescue plan, as a new study reveals that the average participant is underwater by more than 50 percent. An article in the Huffington Post provides details of a June 24 report released by the Government Accountability Office.
 
With more underwater homeowners aware that It Will Take Years For Home Prices To Return to previous values, strategic defaults will continue to rise. Studies have shown that as home values reach 50 percent or more in negative equity, such as many of those participating in HAMP, the owners are much more likely to … (51 comments)

strategic default: Charges Of Fraud And Strategic Default At Goldman Sachs - 04/16/10 10:52 AM
An article in the Wall Street Journal has reported that Goldman Sachs Group and one of its vice presidents, Fabrice Tourre, have been charged with fraud in a civil complaint filed by the SEC. The complaint alleges that Goldman failed to disclose to purchasers of CDOs, collateralized-debt obligations, that the selection of the underlying mortgage backed securities had been influenced by Paulson & Company. With the bursting of the housing market bubble, the CDO investors lost $1 billion, Paulson raked in profits of $1 billion, and Goldman earned $15 million for handling the transactions.
 
And while the stock market and … (110 comments)

strategic default: Perhaps It’s Time To Re-think “Strategic Default” - 12/17/09 04:33 AM
Taking a cue from struggling homeowners, Morgan Stanley, the giant Wall Street securities firm, is planning to transfer 5 properties it owns in San Francisco to its lender, Barclays Capital. The move, in effect a strategic default, will terminate the firm’s obligation on a loan of $2 billion.
 
Although Morgan Stanley paid $6.5 billion for the office buildings in 2007, property values have declined as much as 50%. And while the company is current on its debt and has the funds to maintain payments, the move represents a purely financial decision.
 
It seems that strategic default may be the … (22 comments)