Bringing Moral Hazard To A Deadbeat Near You

Tonight's feel-good story of our time is a desperate stroll through the reality of the US housing market for millions of individuals (as opposed to the hope-driven must-say-something-positive spin the home-builder CEOs have been spewing recently). Notices-of-default jumped 33% in August, a nine-month high and largest month-over-month increase since August 2007 and it is becoming increasingly acceptable to walk away from contractual agreements as strategic default becomes the New American Dream.

Fox Business runs the story: The New Face of Foreclosure: Strategic Defaults:

"There are 3 million to 4 million seriously delinquent mortgages that under normal circumstances would be in foreclosure but have been kept out by procedural delays and paperwork problems," says Rick Sharga, RealtyTrac senior vice president. The recent spike in foreclosure starts suggests lenders are "hitting the restart button" on cases that were delayed by documentation problems such as robo-signing, he explains. surveyed several hundred of its clients earlier this year, and just 23% said they had previously shirked a financial obligation. "The people we are now seeing are nearing retirement age, who never missed a payment on anything in their lives," says Jon Maddux, co-founder and CEO of the Carlsbad, Calif., firm. "They are trapped. They can't sell or get a modification and they need to downsize or move for a job."


Attitudes toward default have also shifted, Maddux says. "Back in 2008 people were very emotional, very scared, in disbelief or denial," he says. "Now they are simply fed up. It's a very calculated, black-and-white business decision. People feel very relieved."


A more widespread understanding of the consequences of default may be a factor, says Brent White, a University of Arizona law professor and author of Underwater Home.

And an example of the justification - for better or worse:

"I was looking for a way to get back to a larger city, and this was the only way I could get out of this house," says Kessler, who paid $800 to to help guide him through the process known as strategic default.


"I don't feel guilty at all about walking away from the place," he says. "The banks really did it to themselves. They made a ton of money with me over the years. I owned four or five houses. But I don't think I'll ever buy another house. I'll probably just rent until they put me in a nursing home."

So, we have dramatically bad unemployment in the youngest age demographic, middle-age demographics have seen net worth crushed in the last few years and are lucky to have a job, and now the elder demographic is increasingly opting for strategic default. All-in-all, not such a rosy picture (but but corporate profit margins are at record highs).