Sol Palha: Financial & Economic Insights Strategic mortgage defaults the next time bomb

Strategic mortgage defaults the next time bomb

 mortgage defaults

Strategic Mortgage defaults

According to a recent Morgan Stanley report, “strategic” defaults accounted for at least 12 per cent of all bankruptcies in February, up from about 4 per cent in mid-20071. The report classified a default as strategic when a homeowner who hadn’t previously been delinquent made an on-time mortgage payment one month, skipped payments for the next three months and stayed current on other consumer debt of $10,000 or more1Morgan Stanley

In a way, this it’s payback time for the banks; the banks swindled millions of innocent homeowners when they turned a blind eye and even encouraged the sale of fraudulent mortgages via the liar loan application process. Then when the S**T hit the fan, they came running to Washington and like faithful concubines, Washington bailed them out with taxpayer dollars. Thus they were handsomely rewarded for their illegal activities. Now it appears that the individual homeowner is deciding to stick it to them, and if this new trend picks up steam, a massive wave of new defaults could hit the market, further souring an already weak real estate market.

Mortgage Defaults Could Trigger Stock Market Crash

 Strategic Mortgage Default could Lead to Stock Market Crash type Scenario

Housing analysts say strategic defaults mainly occur when a home’s value has dropped below the balance remaining on the mortgage. A homeowner in that position may decide that continuing to make payments is throwing money away or may default to get the lender to modify the loan.

All told, borrowers who aren’t making mortgage payments are probably skipping roughly $100 billion annually, an amount equal to 1 per cent of consumer spending, according to Mark Zandi, a chief economist at Moody’s Zandi likens the money to “a form of stimulus, a little tax cut.”Full Story states that one in five U.S. homes with a mortgage has “negative equity”, so the number of potential strategic defaulters is enormous; what we have on our hands is a ticking time bomb, and purchasing real estate now is one of the dumbest moves an investor could make.

Long term, the trend for housing is still down. Bearish individuals can use strong rallies to short stocks in the housing sector, such as LEN, BZH, etc. ETF players can open up positions in REK, and SRS, and if you want to take an aggressive place, you can short via Direxion’s DRV. SKF is another option; it is an ETF that shorts the financial sector.

On a positive note, do you like our new idea?

When one watches videos or looks at images that are funny, cute or generate positive emotions, it has a calming effect on one’s mind. A calm mind can process almost any issue objectively and rationally. When feelings do the talking, logic does the walking, and the result is far from healthy or pleasant.

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