Strategic default. When a Wall Street firm does it, it’s just business; when an underwater homeowner does it, it’s morally repugnant and irresponsible. What’s wrong with this picture? Roger Lowenstein, writing for the New York Times, opines that there’s no difference and that the government should stop trying to scare the pants off delinquent homeowners and get to work forcing Wall Street to modify these fraudulent loans. It would be in the best interest of those deeply underwater on mortgages to simply walk away from them.
What Lowenstein doesn’t say is that it’s well past time for Wall Street to write down their losses on these bad bets.
Strategic default is actively choosing not to pay an underwater mortgage—the condition where more is owed on the mortgaged property than the property is worth. Lowenstein estimates that’s 10.7 million properties in the United States including 65% of all residential mortgages in Nevada. That’s nearly 25% of all US mortgages.
