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April 25th, 2010, 10:45 AM #1
How Strategic Defaults Are Reshaping the Economy
- Join Date
- January 18th, 2005
One thing that's fascinating about an economic crisis is the way ordinary people confound the experts. Consumers are expected to behave according to sophisticated economic models that have been built over decades, but sometimes they don't do what they're supposed to. That's happening now in the housing market.
April 30th, 2010, 05:47 PM #2
Human behavior is definitely a hard variable to predict.
April 30th, 2010, 06:08 PM #3
The article omits mentioning the single biggest reason for the willingness, and in fact eagerness, for "Strategic Defaults" in the past couple of years, and why it will continue through 2012, The Mortgage Forgiveness Debt Relief Act of 2007 (effective 2008-2012).
Before this legislation, walking away from a home and mortgage debt was considered to be taxable income in the amount of the debt that was effectively cancelled. This legislation gave homeowners five years to take this action with no tax consequences, providing considerable motivation to both debt-ridden homeowners and those experiencing lesser financial difficulties.
Expect such defaults to continue, despite a recovering economy, until the law expires.
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