Ten million Americans owe more on their homes than what those homes are worth. That number is expected to rise to 21 million by the end of this year. If one fifth of those folks default on their loans, the banks and investors stand to lose as much as they did in the savings and loan crisis of the 1980’s and ‘90’s. Plus taxpayers would be out more in bailout money, and credit would be trashed for years for borrowers who defaulted, but there is up side.
Strategic default is not the NFL’s latest way to avoid head injury debate. A strategic default is when a homeowner simply walks away from a home and its mortgage. It sounds like a last resort, an act of desperation if refinancing or mortgage modification do not work out. It does not seem very strategic at all, but strategic default comes with a hidden stimulus for the borrower and the US economy alike: cash flow.
If people can right themselves from upside down mortgages and go rent at a lower monthly payment, that puts cash in hands, which could amount to more than the Obama tax breaks over the long term. Already this money is moving through restaurants and vacation spots. With money not bogged down in mortgage payments, the US former homeowner can enjoy living it up a bit, while contributing to a trickle-up effect of economic regeneration.
Comments