Blogging at Naked Capitalism, Edward Harrison provides a persuasive argument for why retail sales and consumption are increasing, despite persistent joblessness
“„Why might someone do this? Basically, someone strategically defaults because one finds oneself in a situation in which repayment no longer makes financial sense. For example, you buy a house for $400,000, $40,000 in cash and $360,000 as a mortgage. The value drops to $300,000, so you are now 20% underwater and rentals are half the price of your mortgage payment. Meanwhile your repayments are 60% of income and you and your spouse have two children to take care of.
“„A person in this scenario who could continue paying the mortgage might opt to default, knowing that the bank might even delay in foreclosing on them, giving them rent free accommodation on top of defaulting. Remember banks are playing the pretend and extendgame in order to avoid credit writedowns. The growing divide between delinquencies and foreclosurestells you that this is what is happening.