A strategic standard is a decision by the borrower to stop making payments (ie, to default) on debt, despite having the financial ability to make payments.
This is primarily linked to residential and commercial mortgages, in which case it usually occurs after a significant fall in house prices so that outstanding debt is much greater than the value of those properties having negative equity or underwater - and is expected to remain so for the foreseeable future, such as following the explosion of a real estate bubble. Such borrowers are called walkaways . The process of strategically failing to pay on a home mortgage has been called the everyday language "jingle mail" - metaphorically, one sends a key to the bank.
Video Strategic default
Gelembung post-housing prevalensi
Economists Paul Krugman and Hal Varian argue that strategy defaults will be the inevitable outcome of the collapse of financial and property bubbles in the era after 2006. They also note that this is one of the few ways to free people from the burden of mortgage debt. Once free from the mortgage, debtors are free to use their income for other expenses.
A September 2009 study from Experian credit reporting agency and consulting agency Oliver Wyman estimates that nearly one fifth of the US problem loans involve borrowers who are strategically failing.
Maps Strategic default
Effects
Effects vary according to jurisdiction; Different countries and different states in the United States treat the default of mortgage debt differently, especially distinguishing whether it is asking for debt and non-recourse debt, which means whether the mortgage lender can pursue claims against the debtor fails. Furthermore, mortgage refinancing can be treated differently from original mortgages, which are not refinanced, and mortgages on second homes can be treated differently from mortgages on primary residence.
The borrower after deciding not to make another payment can live free of payment or rental fees until the lender seized, which can take from several months to years. The borrower may use this time to extinguish or negotiate other debts. The mortgage lender can negotiate with the default debtor to ensure the maintenance and occupancy of the property until the creditor can take title and market the house, and may give the borrower a failure with more than minimum legal notice to stop (which can be as little as three days) and may even agree to pay the fee to leave the house in pristine condition.
The confiscation of the borrower's home will result in a negative entry on the borrower's credit rating, possibly making future loans more difficult or more expensive for the borrower. With good credit, new mortgages from U.S. government agencies will be denied up to 3 (FHA) to 7 years (FNMA) has passed since the actual date of confiscation.
The difference between the value of the property at the time of foreclosure and the number of records (assuming a larger record) is considered by the IRS as "debt forgiven" and may be considered "income" subject to federal income tax. For a brief period ending in December 2012 due to the 2007 Amendment Payable Mortgage Debt Law, this "ghost income" is not taxed on the primary residence.
Ethical issues
Some ethicists question the morality of strategic defaults, arguing that a person has an obligation to make payments on debt if one is able. Others argue that there is no such moral obligation, a loan is a contract between a consenting adult, and notes that financial investors routinely fail on non-recourse loans that have negative equity. Some argue further that there is a moral duty to fail strategically, and that one must make decisions based on one's financial interests "uninterrupted by unnecessary guilt or shame", because a lender who does not modify a mortgage does the same, "seeking [ing] to maximize profits or minimize losses irrespective of the concerns of morality or social responsibility, "or more assertively declare that" Economics are fundamentally amoral. "Furthermore, the obligation to honor contracts is balanced with obligations to self and one's family, the last speaking in support of strategic standards, some argue "you need to put yourself and your family's finances first," while one also has an obligation to a community, which may be broken by default.
other jurisdictions
In Europe, there is generally no pure nonrecourse debt to private individuals. Therefore, they need to pay the remaining debt even if leaving their home. Because having a home for sleep is prioritized, home mortgages are usually prioritized, while other debt may be abandoned if they can not be paid.
Corporate strategic bankruptcy is common in Europe.
See also
- The walkaway bank, the opposite situation where the bank goes away
- Strategic bankruptcy, corporate analog
References
External links
- The Menace of Default Strategic, City Journal, Spring 2010
- What Are Default Strategic Failures ?, City Journal , 4-27-10
- Moral and Social Constraints to the Strategic Standards on Mortgages (pdf)
- House Foreclosure and Debt Cancellation, IRS
- American Dream 2: Default, Then Rent
- Perspectives on Strategic Standards, by Don Bisenius, Freddie Mac, May 3, 2010
- HomeLiberty offers 'strategic defaulter' opportunities for home keeping, SanFrancisco Business Times, Mark Calvey, May 23, 2011
- "The Biggest Mortgage on Mortgages Is Rich"
Source of the article : Wikipedia
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