Andi Grant's Blog - Everyday Real Estate with a Twist

Am I missing something here?  I've read several instances online where people were applauding strategic defaults with the mindset of "do what you gotta do" or thinking home values would decrease, therefore creating more affordable homes for buyers.  Are you sure about that?  If more businesses and homeowners perform strategic defaults and walk away from loans (commercial and residential), wouldn't the lending institutions become even stingier when lending to potential borrowers?  Even middle-class homeowners are playing the strategic default game in higher numbers.  Would this mean that borrowers would now have to have Tier 0 credit to get a loan because that's who would be deemed credit-worthy to lending insitutions? Current homeowners will see their property values sink even lower because of the "walk-awayers" as history has proven that vacant and abandoned properties can decrease the values in a neighborhood.  If I'm not mistakened, wouldn't this create a chain reaction that would affect our economy in the worse way?

*SHOUTS WITH MEGAPHONE*  When the banks stop lending, buyers and businesses can't get loans, employees are laid off, sellers can't sell and the most likely option for the masses would be to continue renting therefore creating fewer real estate transactions.  Also, with the thousands of "walk-awayers" now in the rental pool,  rents would more than likely increase due to the law of supply and demand. 

Do I advocate letting your kids go hungry to pay a mortgage? NO. There are people that have lost jobs or who've had other tragic circumstances happen which created a situation of true struggle.  In those instances when loan modification wasn't approved, the short sale didn't get approval/close in time, renting the home out to others or Section 8 while you rented somwhere for cheaper wasn't an option, etc. then ok, you've possibly exhausted every option and resource. Kudos to you for trying!

But those who simply take on the attitude to simply walk away in order to save money while home forecloses in order to save for a bigger and better house to rent as seen in last night's segment of 60 Minutes or those who excuse it by saying the banks were greedy and should've never loaned them the money are thinking selfishly and very short term.  You signed a contract that stated what your payments would be and what they would increase to. If you can afford to pay it, pay it.  Call a Realtor to sale, rent out the home, look into renting it to Section 8 before simply walking away.  Your decision is one of many raindrops that will potentially become a flood of the same type of irresponsible thinking.

Turning a blind eye to the stratgic default trend and allowing the unpopular lending industry to take it on the chin is not a viable option long term for all of us including the "walk-awayers."  This country is already in a huge deficit with a fragile dollar that will only become weaker if this strategic default trend continues.  What if your dollar became worth 30 cents, would you still be pro-strategic default then?  If the banking system implodes while we are in a deficit, the dollar weakens.  People have been buying during peaks and losing during downturns for centuries.  But now we're gonna let every one pay for it in the cases where SOME people walked away when they clearly bit off more than they could chew or bought during what turned out to be bad timing?  We're in serious trouble if it becomes the average mindset of the "average American homeowner" who can afford to pay, but choose to walk away by strategic default and not honor their contracts. 

Again, am I missing something here?  Did I miss an announcement, news broadcast or something that demonstrated that strategic default is best for our country, our economy, my occupation in the long run?