Carriage House Plans: Strategic Default

Monday 14 January 2013

Strategic Default

A strategic default is the decision by a borrower to stop making payments (i.e., to default) on a debt despite having the financial ability to make the payments.This is particularly associated with residential and commercial mortgages, in which case it usually occurs after a substantial drop in thehouse's price such that the debt owed is (considerably) greater than the value of the property — the property has negative equity or isunderwater — and is expected to remain so for the foreseeable future, such as following the bursting of a real estate bubble. Such borrowers are called walkaways. The process of strategically defaulting on a home mortgage has been colloquially called "jingle mail" — metaphorically, one mails the keys to the bank.