DEFINITION of 'Strategic Default'

A deliberate default by a borrower. As the name implies, a strategic default is done as a financial strategy and not involuntarily. Strategic defaults are commonly employed by mortgageholders of residential and commercial property who have analyzed the costs and benefits of defaulting rather than continuing to make payments and found it more beneficial to default.

BREAKING DOWN 'Strategic Default'

Strategic defaults are often employed by borrowers when the value of their property has dropped substantially within a fairly short time. If the value of the property dips below the mortgage balance then a strategic default provides a way to minimize the property owner's loss. Owners who use this strategy have been assigned the nickname "walkaways".

RELATED TERMS
  1. Credit Default Contract

    Security with a risk level and pricing based on the risk of credit ...
  2. Temporary Default

    A bond rating that suggests the issuer might not make all of ...
  3. Default Premium

    The additional amount a borrower must pay to compensate the lender ...
  4. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Constant Default Rate - CDR

    An annualized rate of default on a group of mortgages, typically ...
Related Articles
  1. Insights

    Why and When Do Countries Default?

    Countries can default on their debt. This happens when the government is either unable or unwilling to make good on its fiscal promises.
  2. Personal Finance

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  3. Financial Advisor

    Emerging Market Defaults: Beware of Second Wave

    Emerging market corporate defaults have the potential to be the biggest risk to global markets.
  4. Investing

    How Credit Rating Risk Affects Corporate Bonds

    Credit migration risk is a vital part of the credit risk assessment, specifically with regard to corporate bonds which underlie numerous rating changes.
  5. Investing

    2 ETFs That Will Hurt From Rising Default Rates (HYG, JNK)

    Learn about two high-yield bond ETFs that could be adversely affected if the trend of increasing corporate default rates continues.
  6. Investing

    Chesapeake’s Default Adds to Global Total (CHK)

    S&P downgrades Chesapeake Energy's senior notes to 'default' because of the company's debt for equity exchange—global default total grows as a result.
  7. Investing

    Junk Bonds’ Performance After the Financial Crisis

    How did higher-yielding bonds perform during and after the financial crisis of 2007-2009?
  8. Small Business

    Calculating (Small) Company Credit Risk

    Determining creditworthiness of smaller and medium-sized corporations isn't as easy as for larger companies, but these tips can help.
  9. Financial Advisor

    How Trump’s Debt Plan Would Hammer U.S. Savers

    Some experts say that Trump's economic proposals for the U.S. have the potential to send the markets into a deep tailspin. Here's why.
  10. Investing

    U.S. Oil Defaults Up Despite Stable Oil Price (USO, OIL)

    U.S. oil and gas default rates surpass last year's total despite oil price relief.
RELATED FAQS
  1. In the beginning of this year, the total par value of all CCC-rated bonds were $12 ...

    The correct answer is: d) (i) Default Loss Rate = [($1.3 billion - $625 million)/$1.3 billion] = 51.9% (ii) Dollar Default ... Read Answer >>
  2. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  3. In what types of financial situations would credit spread risk be applied instead ...

    Find out when credit risk is realized as spread risk and when it is realized as default risk, and learn why market participants ... Read Answer >>
  4. What special powers does the government have to collect student loans?

    Contact student loan companies before student loans default, as the government has the power to get its money. Prior to default, ... Read Answer >>
  5. What happens when a company defaults on its commercial paper obligations?

    Read about the possible consequences of a large corporation defaulting on its commercial paper obligations even though the ... Read Answer >>
  6. What is the difference between student loan default and delinquency?

    Learn the differences between simply becoming delinquent on your student loans vs. actually defaulting on your student loan ... Read Answer >>
Trading Center