While we might not know what it takes to be a strategic defaulter, we do know what it takes to be a celebrity defaulter. And, truth be told, that’s why I remembered the earlier Journal story:
Just this week, a Tudor mansion in Bel-Air belonging to film star Nicolas Cage was in foreclosure auction and reverted to the lender. On Wednesday, Richard Fuscone, a former top Wall Street executive, declared personal bankruptcy, forestalling a foreclosure auction that had been scheduled this week on his 14-acre Westchester mansion. Last month a Manhattan condominium owned by Italian film producer Vittorio Cecchi Gori was sold in a foreclosure auction for $33.2 million.
To be fair, the Times also included a celebrity in its story—the rapper Chamillionaire, who recently walked away from a $2 million house in Houston.
“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”
I’m not going to argue with his investment smarts. He’s Chamillionaire, after all.
But when it comes to strategic defaults, the Times (and everybody else) should do some more reporting, or at least stop guessing.
Here here, CJR. More reporting=good. Then too, I noticed that a few of the Time's commenters also asked the key question: How does the newspaper define "rich guy?"
The definition certainly cannot be "owes at least a million bucks on his house." Can it?
#1 Posted by edward ericson, CJR on Fri 9 Jul 2010 at 09:03 PM
It seems both this critique and the Times article are making an implicit assumption that "strategic default" is something unsavory. A mortgage is a loan a secured by a piece of real property. It's a fairly straightforward business arrangement. Companies default on loans from time to time; they fail to make payments and return the collateral to the note holder(s). It's not considered anything more than a good or bad business decision, certainly not some kind of "moral failure." There are consequences to defaulting (loss of the actual house, substantial damage to one's credit rating, etc). Those are significant penalties. There's no need to moralize about people's "obligation" to pay banks when it's clearly not in their own best interest. After all, the vast majority of the damage to the housing market was made by reckless lending that drove housing prices up far beyond their long term value.
#2 Posted by jph, CJR on Sun 11 Jul 2010 at 01:04 AM
I think the senior management of the banks would (and do) strenuously disagree with JPH's post above.
Their worst nightmare is every borrower looking at their transaction with a purely rational eye.
#3 Posted by garhighway, CJR on Mon 12 Jul 2010 at 12:22 PM