Homeowners who ‘strategically default’ on loans a growing problem

[scaredyclassic]

it wouldnt take that many people to come over to the dark side of rational defaulting every year to keep the amrket down a long time though, would it. if things stay flat a while, couldnt this keep it flat for a decade or so?

[equalizer]

[quote=kicksavedave]Well some people are doing the right thing. …

So not everyone is a deadbeat these days, but the percentage who are, is clearly growing and effecting the overall market somewhat.[/quote]
Good for them, but business owners, esp luxury hotel owners follow their own righteous path. They take out massive loans at the top of the market, set rates at $300-800 a night and hope for a windfall. If the economy is soft as it is now, they burn their contract and ask for lower rates. If their lenders don’t agree, they toss keys out of their Ferrari’s and walk away like they did at San Diego W hotel. In the meantime other hotel owners get burned by bankrupt competition and their profits disappear because of the reckless behavior. So much for the bargaining in full faith/sanctimony of contracts.

http://money.cnn.com/2009/07/24/real_estate/hotels_default/index.htm

Luxury Hotels Risk Default as $850 Rooms Remain Empty

http://www.bloomberg.com/apps/news?pid=20601109&sid=acRimZeJH75o

[equalizer]

[quote=kicksavedave]Well some people are doing the right thing. …

So not everyone is a deadbeat these days, but the percentage who are, is clearly growing and effecting the overall market somewhat.[/quote]
Good for them, but business owners, esp luxury hotel owners follow their own righteous path. They take out massive loans at the top of the market, set rates at $300-800 a night and hope for a windfall. If the economy is soft as it is now, they burn their contract and ask for lower rates. If their lenders don’t agree, they toss keys out of their Ferrari’s and walk away like they did at San Diego W hotel. In the meantime other hotel owners get burned by bankrupt competition and their profits disappear because of the reckless behavior. So much for the bargaining in full faith/sanctimony of contracts.

http://money.cnn.com/2009/07/24/real_estate/hotels_default/index.htm

Luxury Hotels Risk Default as $850 Rooms Remain Empty

http://www.bloomberg.com/apps/news?pid=20601109&sid=acRimZeJH75o

[equalizer]

[quote=kicksavedave]Well some people are doing the right thing. …

So not everyone is a deadbeat these days, but the percentage who are, is clearly growing and effecting the overall market somewhat.[/quote]
Good for them, but business owners, esp luxury hotel owners follow their own righteous path. They take out massive loans at the top of the market, set rates at $300-800 a night and hope for a windfall. If the economy is soft as it is now, they burn their contract and ask for lower rates. If their lenders don’t agree, they toss keys out of their Ferrari’s and walk away like they did at San Diego W hotel. In the meantime other hotel owners get burned by bankrupt competition and their profits disappear because of the reckless behavior. So much for the bargaining in full faith/sanctimony of contracts.

http://money.cnn.com/2009/07/24/real_estate/hotels_default/index.htm

Luxury Hotels Risk Default as $850 Rooms Remain Empty

http://www.bloomberg.com/apps/news?pid=20601109&sid=acRimZeJH75o

[equalizer]

[quote=kicksavedave]Well some people are doing the right thing. …

So not everyone is a deadbeat these days, but the percentage who are, is clearly growing and effecting the overall market somewhat.[/quote]
Good for them, but business owners, esp luxury hotel owners follow their own righteous path. They take out massive loans at the top of the market, set rates at $300-800 a night and hope for a windfall. If the economy is soft as it is now, they burn their contract and ask for lower rates. If their lenders don’t agree, they toss keys out of their Ferrari’s and walk away like they did at San Diego W hotel. In the meantime other hotel owners get burned by bankrupt competition and their profits disappear because of the reckless behavior. So much for the bargaining in full faith/sanctimony of contracts.

http://money.cnn.com/2009/07/24/real_estate/hotels_default/index.htm

Luxury Hotels Risk Default as $850 Rooms Remain Empty

http://www.bloomberg.com/apps/news?pid=20601109&sid=acRimZeJH75o

[equalizer]

[quote=kicksavedave]Well some people are doing the right thing. …

So not everyone is a deadbeat these days, but the percentage who are, is clearly growing and effecting the overall market somewhat.[/quote]
Good for them, but business owners, esp luxury hotel owners follow their own righteous path. They take out massive loans at the top of the market, set rates at $300-800 a night and hope for a windfall. If the economy is soft as it is now, they burn their contract and ask for lower rates. If their lenders don’t agree, they toss keys out of their Ferrari’s and walk away like they did at San Diego W hotel. In the meantime other hotel owners get burned by bankrupt competition and their profits disappear because of the reckless behavior. So much for the bargaining in full faith/sanctimony of contracts.

http://money.cnn.com/2009/07/24/real_estate/hotels_default/index.htm

Luxury Hotels Risk Default as $850 Rooms Remain Empty

http://www.bloomberg.com/apps/news?pid=20601109&sid=acRimZeJH75o

[CA renter]

[quote=patientrenter][quote=trex]If everyone were this rational, the banks would behave more responsibly as well , requiring down payments and real income….[/quote]

Getting the banks to be more responsible about home loans requires more than rational behavior by borrowers. It also requires a removal of govt and private mortgage insurance schemes. The presence of these schemes completely undermines incentives for responsible loan underwriting.

When we have responsible home loans (no FHA or PMI or other nonsense) then we will have a sensible market for homes. Will this ever happen? Probably not in my lifetime.[/quote]

Well said, PR.

Quite frankly, I don’t blame the walk-aways. Ethical behavior can be taught to an extent, but if the people at the bottom continue to see that the people at the top are benefitting at their expense (bailouts of banks/executives who took huge risks to make huge gains), then they will begin to emulate the same behavior.

If the govt wants to stop this, then they have to hold the people accountable **at the top** who created this mess — jail time and tremendous fines that essentially bankrupt these fraudsters and their families for life. Only after they do that can they expect “ethical” behavior from the underlings.

[CA renter]

[quote=patientrenter][quote=trex]If everyone were this rational, the banks would behave more responsibly as well , requiring down payments and real income….[/quote]

Getting the banks to be more responsible about home loans requires more than rational behavior by borrowers. It also requires a removal of govt and private mortgage insurance schemes. The presence of these schemes completely undermines incentives for responsible loan underwriting.

When we have responsible home loans (no FHA or PMI or other nonsense) then we will have a sensible market for homes. Will this ever happen? Probably not in my lifetime.[/quote]

Well said, PR.

Quite frankly, I don’t blame the walk-aways. Ethical behavior can be taught to an extent, but if the people at the bottom continue to see that the people at the top are benefitting at their expense (bailouts of banks/executives who took huge risks to make huge gains), then they will begin to emulate the same behavior.

If the govt wants to stop this, then they have to hold the people accountable **at the top** who created this mess — jail time and tremendous fines that essentially bankrupt these fraudsters and their families for life. Only after they do that can they expect “ethical” behavior from the underlings.

[CA renter]

[quote=patientrenter][quote=trex]If everyone were this rational, the banks would behave more responsibly as well , requiring down payments and real income….[/quote]

Getting the banks to be more responsible about home loans requires more than rational behavior by borrowers. It also requires a removal of govt and private mortgage insurance schemes. The presence of these schemes completely undermines incentives for responsible loan underwriting.

When we have responsible home loans (no FHA or PMI or other nonsense) then we will have a sensible market for homes. Will this ever happen? Probably not in my lifetime.[/quote]

Well said, PR.

Quite frankly, I don’t blame the walk-aways. Ethical behavior can be taught to an extent, but if the people at the bottom continue to see that the people at the top are benefitting at their expense (bailouts of banks/executives who took huge risks to make huge gains), then they will begin to emulate the same behavior.

If the govt wants to stop this, then they have to hold the people accountable **at the top** who created this mess — jail time and tremendous fines that essentially bankrupt these fraudsters and their families for life. Only after they do that can they expect “ethical” behavior from the underlings.

[CA renter]

[quote=patientrenter][quote=trex]If everyone were this rational, the banks would behave more responsibly as well , requiring down payments and real income….[/quote]

Getting the banks to be more responsible about home loans requires more than rational behavior by borrowers. It also requires a removal of govt and private mortgage insurance schemes. The presence of these schemes completely undermines incentives for responsible loan underwriting.

When we have responsible home loans (no FHA or PMI or other nonsense) then we will have a sensible market for homes. Will this ever happen? Probably not in my lifetime.[/quote]

Well said, PR.

Quite frankly, I don’t blame the walk-aways. Ethical behavior can be taught to an extent, but if the people at the bottom continue to see that the people at the top are benefitting at their expense (bailouts of banks/executives who took huge risks to make huge gains), then they will begin to emulate the same behavior.

If the govt wants to stop this, then they have to hold the people accountable **at the top** who created this mess — jail time and tremendous fines that essentially bankrupt these fraudsters and their families for life. Only after they do that can they expect “ethical” behavior from the underlings.

[CA renter]

[quote=patientrenter][quote=trex]If everyone were this rational, the banks would behave more responsibly as well , requiring down payments and real income….[/quote]

Getting the banks to be more responsible about home loans requires more than rational behavior by borrowers. It also requires a removal of govt and private mortgage insurance schemes. The presence of these schemes completely undermines incentives for responsible loan underwriting.

When we have responsible home loans (no FHA or PMI or other nonsense) then we will have a sensible market for homes. Will this ever happen? Probably not in my lifetime.[/quote]

Well said, PR.

Quite frankly, I don’t blame the walk-aways. Ethical behavior can be taught to an extent, but if the people at the bottom continue to see that the people at the top are benefitting at their expense (bailouts of banks/executives who took huge risks to make huge gains), then they will begin to emulate the same behavior.

If the govt wants to stop this, then they have to hold the people accountable **at the top** who created this mess — jail time and tremendous fines that essentially bankrupt these fraudsters and their families for life. Only after they do that can they expect “ethical” behavior from the underlings.

[peterb]

This will gain popularity as more people strategically default. These things have a kind of momentum to them. The rationalization will start and then the actual action will grow and become socially acceptable. Then those that dont do it will be labeled as “suckers”. And those that have defaulted will have more disposable income and the ability to invest their money in assets that are appreciating.

[peterb]

This will gain popularity as more people strategically default. These things have a kind of momentum to them. The rationalization will start and then the actual action will grow and become socially acceptable. Then those that dont do it will be labeled as “suckers”. And those that have defaulted will have more disposable income and the ability to invest their money in assets that are appreciating.

[peterb]

This will gain popularity as more people strategically default. These things have a kind of momentum to them. The rationalization will start and then the actual action will grow and become socially acceptable. Then those that dont do it will be labeled as “suckers”. And those that have defaulted will have more disposable income and the ability to invest their money in assets that are appreciating.

[peterb]

This will gain popularity as more people strategically default. These things have a kind of momentum to them. The rationalization will start and then the actual action will grow and become socially acceptable. Then those that dont do it will be labeled as “suckers”. And those that have defaulted will have more disposable income and the ability to invest their money in assets that are appreciating.

[Author]

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