1. The strategic default “trend” is almost without a doubt wildly exaggerated. First, while foreclosures are rising, it’s the result of banks finally starting to move on a seriously clogged pipeline. There hasn’t been an increase in the rate of serious delinquencies, despite the continued slide in home prices, to support this idea.
Second, the costs of default are high: a trashed credit record (which limits access to jobs, not just access to loans), having to move, and probably a tax bill if the home has negative equity. If the defaulter wants to rent, a landlord will generally seek a much higher deposit given the concerns raised by his credit history. These are all considerable offsets to the supposed economic advantages of a strategic default
2. There isn’t any clean neat way to determine if someone has made a strategic default. Colloquially, it is supposed to mean someone who is capable of paying the mortgage but suddenly defaults. The problem is I suspect that the alleged strategic defaulters are in the vast majority of cases anticipatory defaulters: they can, by dint of great struggle, make their mortgage payments, but they are falling further and further behind (say escalating fees and charges on credit cards), anticipate a fall in their income (they can read the tea leaves at work), or are so close to the edge they know even a minor spell of bad luck (say the need for car repairs) will put them over the edge, and they decide to exit what is certain to become an untenable situation now.
Ms. Smith concludes:
And most important, what happens if the public comes to understand the hypocrisy of the banks’ stance, that they are demonizing borrowers for failing to live up to contracts, when they couldn’t be bothered to comply with the terms of their own contracts, which set up procedures for conveying notes to the securitization entity, and in many cases foreclosure mills have forged documents to cover up that fact? Whoever is behind the “strategic defaulter” push may well wind up hoist on his own petard.
You may recognize the above link as Max’s article Fake Documents and Fraud on the Court.