Wednesday, July 7, 2010

Strategic Default - A Business Decision. Really ?

I have heard quite a few conversations lately in which people have decided to call the act of Strategic Default a "business decision", so I decided to take a look at the meaning of the phrase "business" "decision".

The Free Dictionary Online site defines the word "business" in the following ways:


a. The occupation, work, or trade in which a person is engaged: the wholesale food business.
b. A specific occupation or pursuit: the best designer in the business.

Commercial, industrial, or professional dealings: new systems now being used in business.

A commercial enterprise or establishment: bought his uncle's business.

Volume or amount of commercial trade: Business had fallen off.

Commercial dealings; patronage: took her business to a trustworthy salesperson.


One's rightful or proper concern or interest: "The business of America is business(Calvin Coolidge).
b. Something involving one personally: It's none of my business.

It's not until you get to definition# 6 that it actually becomes personal. There are five other more relevant definitions that describe the word business. That's a lot. So using the word "business" as a personal description of an action, or DECISION, is weak at best.

Here is the dictionary's definitions for the word "decision":


1. The passing of judgment on an issue under consideration.

2. The act of reaching a conclusion or making up one's mind.

3. A conclusion or judgment reached or pronounced; a verdict.

4. Firmness of character or action; determination.

5. Sports A victory won on points in boxing when no knockout has occurred or in wrestling when no fall has occurred.

6. Baseball A win or loss accorded to a pitcher: has four wins in six decisions.

However - the use of the word "decision" does make sense. People are deciding to default on their loans. But this has nothing to do with business. It's a personal decision.

Using the phrase "Business Decision" sounds much better than "default decision" or "foreclosure decision" or "failure to pay your contractual obligation decision". We do this to lessen the blow, to ease the mental picture of shirking responsibility, and to allow ourselves to do what we know is not right.

Throughout human history, man has used alternative words or phrases to ease his mind of guilt, and to allow the unthinkable or the absurd to take place, simply because they changed what the act was called.

Calling Strategic Default a "business decision" is no different.

Unless you are in the business of buying and selling homes, commonly known as an "investor", your primary dwelling is not part of a business. A person does not buy their home with the idea they are going to treat it like a business, at least not normally. Buyers purchase homes out of sheer passion, or emotion. That's why people who have a family which consist of a father, a mother and one child will purchase a 5,000 square foot home, even though a 1,500 square foot home would serve all of their needs. Unless their building and selling furniture out of their garage, the house purchase has nothing to do with business.

I personally have lost at least 30% in equity in my own home. And I am one of the lucky ones, because I still have 25% or 30% in equity remaining. The reason: I have lived in my current home for the past 17 years. Think of my neighbors that purchased in my area in 2005. They are drowning.

There are currently 3 - 5 foreclosures in my subdivision of 200+ homes. I can't keep up with how many there are, because it seems to change almost every day.

My point is this - if 30% of the defaults are strategic "business decisions", then 1 or 2 of the current foreclosures in my subdivision is due to some homeowner just walking away. Does that hurt ? You darn right it does. Instead of the appraiser having to go outside of my neighborhood to get a more decent comp, he's going to count that strategic default and it's going to keep my appraised value down. It's going to hurt...

People are going to say what they want to say and do what they want to do, and that is their right, it's their prerogative. This is America. But that does not change the fact that when you perform an act such as a Strategic Default, it damages the bank that lent you the money, your neighbors, your community, your state and your country.

And calling it another name does not lessen the infliction of pain we all are feeling now...

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