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Strategic Default

Pete Springer/OPB

When the housing market burst, thousands of homeowners found themselves underwater with their mortgages, and stood by as they watched their homes devalue to far less than the amount of their loans.  A 2009 study (pdf) found that 26 percent of foreclosures were strategic defaults, meaning that homeowners chose to walk away from mortgages they could still afford to pay to get out of a bad investment.

Inside the lending industry, strategic default goes by another name, too: ruthless default. Some bankers consider the act to be immoral or at least, unscrupulous, citing that foreclosure not only affects the homeowner. Neighboring houses of those that foreclosed take a hit on their value, too, because when foreclosed homes sell at discounted prices, it affects what buyers are willing to pay. Foreclosure also contributes to urban blight.

Individuals also grapple with the ethics and logistics of walking away from the mortgage they agreed to pay. Companies have emerged that walk homeowners through the legal landmines of strategic default. This one claims that when you accept a loan, defaulting is always on the table.

Are you a homeowner underwater? Have you tried to get a loan modification or considered foreclosure? What do you want to know about your options?


  • Sarina Labrum: Homeowner with an underwater mortgage who is considering strategic default
  • Mike Dupras: Homeowner in the process of a strategic default and a client of You Walk Away
  • Luigi Zingales: Professor of entrepreneurship and finance at University of Chicago Booth School of Business
  • Jon Maddux: CEO of You Walk Away
  • Joe Ohayon: Senior Vice President of mortgage servicing at Wells Fargo
foreclosure mortgage

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