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Are Strategic Defaults the Housing Crisis’ Culprit?

Infographic: What would you do if you can't pay your mortgage?
Creative commons image courtesy of flickr user truliavisuals.

Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Wednesday’s query:

Name: Tuba Gokcek

Question: Strategic defaults are a big problem in California and many other states. They are the main reason the housing crisis keeps getting worse and more and more homeowners lose their equity. We have started a new advocacy group to stop them: www.StopStrategicDefaults.com. Please spread the word to help end this ugly epidemic. What is happening to America?

Making Sense

Paul Solman: Strategic defaults are the “main reason the housing crisis keeps getting worse?” You really think so? Not un- and underemployment that’s still above 14 percent, according to our U-7 monthly reckoning? Not foreclosures that glut the housing market? Not the failure of the government or banks to renegotiate the terms of underwater mortgages?

As for strategic default on real estate commitments, its defenders point out that businesses do it regularly. See our story from last year on the two sides of the strategic default debate: Strategic Default: Right or Wrong?

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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