A New Zombie Lumbers On: The Mortgage Settlement Negotiations « naked capitalism

A New Zombie Lumbers On: The Mortgage Settlement Negotiations « naked capitalism


From what we can tell (and others who have tried to get a grip on this question have come to similar conclusions) sudden defaulters have hit a financial wall (job loss, medical emergency, loss of hours) and given that they have no/negative equity in their home, it makes no sense to deplete retirement savings (which lenders cannot seize in the event of bankruptcy) or go to other heroic measures. Better to preserve a smidge of cash so that one can move to a rental rather than wind up living in your car or on the street.




Having said that, there probably are a few strategic defaulters, with second homes the logical candidates. But as we have stressed, the costs of defaulting are high, and the idea that people would do it casually is nonsense.



Here’s an indirect proof that the banks’ assertions that strategic defaulter are the new commies in the woodpile are bunk: the frequency of searches on “strategic default” versus “short sale,” HAMP, and “mortgage modification”:




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