filtherton

A strategic default occurs when a borrower decides to stop making loan payments despite being financially capable of making payments. It happens for any number of reasons. For example, a person who owes more on their house than it's actually worth might simply cease making payments, let the bank foreclose and rent for a while (probably want to sign that lease before your credit rating is shot).

I think that if we're going to accept the view that homes are primarily investments, one of the views which fed the recent housing boom and bust, then it only makes sense to treat them like an investment and cut your losses when it makes sense to do so. It's what competent investors do.

This doesn't necessarily answer the question of ethics, though. For some folks, this poses an interesting ethical dilemma. How much of our personal honor is at stake in our financial dealing with large institutions? Is signing a loan agreement with a bank a personal promise, cross your heart and hope to die?

I don't think it is, and I wouldn't think twice about strategically defaulting if I felt like it made sense in the context of my personal and financial goals. I don't subscribe to the notion of corporate person hood, and so I don't think that it makes sense to think of a loan as statement of personal integrity. Certainly, the bank isn't likely to make any exceptions to their normal practices out of a sense of personal responsibility to you.

What are your thoughts? Would you walk away from a loan for reasons other than an inability to pay it back? Have you? Do you think it ethical?