the new trend default on your mortgage and stay in your house!: Tech Ticker, Yahoo! Finance

the new trend default on your mortgage and stay in your house!: Tech Ticker, Yahoo! Finance


The New Trend: Default On Your Mortgage And Stay In Your House!
Posted Jun 02, 2010 08:39am EDT by Henry Blodget in Recession, Banking, Housing
Related: wfc, c, len, fre, fnm, xhb, xlf
There is now a new take on "strategic defaults"--the act of walking away from your mortgage when you can still afford to make the payments.

A year ago, when people decided to stop paying their mortgages, they also usually walked away from their houses. (That's where the expression "jingle mail" came from--you mailed your bank the keys.)

Now, however, people are increasingly strategically defaulting but also staying in their houses, thus having their cakes and eating them, too.

As Reuters blogger Felix Salmon explains, this trend is increasing thanks to the flood of foreclosures, "extend and pretend" bank accounting, foreclosure moratoria, and the collapse of the housing market--which are often causing banks to take a while to remove people from houses they've stopped paying the mortgages on. So many folks are just enjoying free rent for years.

The money "homeowners" are saving, meanwhile, which is really being paid for by the taxpayer in the form of ongoing subsidies to the banks, is creating some extra spending money for the economy. In the process, it's making the economy look stronger than it really is (at some point those chickens will come home to roost: people won't have free rent forever).

Here's one Florida couple's justification for strategically staying, as reported by David Streitfeld of the New York Times:

“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”

They used the $1,837 a month that they were not paying their lender to publicize their business, first with print ads, then local television. Word apparently got around, because the business is recovering.

And there's plenty more where Mr. Pemberton came from.