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“Struggling Homeowners” Default and Go to Disney World

December 10, 2009

The Wall Street Journal tells us about the New American Dream—default on your mortgage, rent for half the price and go to Disney World in your BMW. My favorite part of this story: The two main characters are a teacher and a firefighter. Both walked out on $400K-plus mortgages; one owns other rental properties, the other hung on to his 6-series Beemer.

Think of these two the next time someone starts blathering about how we need the government to subsidize developers so they can build “affordable housing” for “teachers, cops, and firefighters.”

The moral indignation is on display in the comments section. Don’t let it overshadow the macroeconomic result:

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month—an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.
“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy.

By the way, such “strategic defaults” (when people who can pay decide not to, just ’cause) encompass some 16 percent of all Maryland mortgage defaults. That’s double the California rate, but only half the rate in (highly ethical, no-bubble-havin’) Texas.