Chase Warns Investors About Strategic Defaults

Shahien Nasiripour of The Huffington Post, writes about the latest warning from Chase to its investors, as noted in a recent filing with the SEC, regarding strategic defaults - deciding to walk away from your underwater home, even though you can still afford the payments.

To hear that they’re just now telling investors that strategic defaults could become a concern is staggering. Even more remarkable is that the entire $98 billion portfolio Chase inherited from WAMU is underwater. Though, I’m sure someone, somewhere still received a bonus…

But the quotes attributed to Freddie Mac executive vice president Don Bisenius really caught my attention:

"Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy," argued Freddie executive vice president Don Bisenius in a May 3 note. His main argument? It affects neighbors' property values.

In a March 8 note, Bisenius contrasted strategic defaulters with "responsible" homeowners.

"But unlike some who walk away from their mortgage obligations -- a practice known as strategic defaults -- most responsible homeowners pay their mortgage regardless of current property values," he wrote.”

Of course, this isn’t the first time we’ve seen executives from a company guilty of their own irresponsible lending practices, lecturing on social or moral responsibility. Which isn’t unlike a husband cheating on his wife and then saying he’s not sure if he trusts her any more.

Now, I understand that Mr. Bisenius is focusing on those who can afford their homes but are choosing not to pay, as opposed to those who aren’t able. At the end of the day, it still comes down to the same fix… principle reductions. Right or wrong, more and more people are walking. Lecturing and finger wagging won’t fix this mess. Giving people some equity back will.