Strategic Default

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. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Lender

    Someone who makes funds available to another with the expectation ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Debit Card

    An electronic card issued by a bank which allows bank clients ...
  6. Credit Union

    Member-owned financial co-operative. These institutions are created ...
Related Articles
  1. Insurance

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  2. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  3. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  4. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Retirement

    Too Much Debt For A Mortgage?

    Just because a lender is willing to offer you a loan doesn't mean you should take it.
  7. Term

    How Time Deposits Work

    A time deposit is an interest-bearing bank deposit that has a specific maturity date.
  8. Term

    Who Benefits from Microfinance?

    Microfinance describes banking services provided to low-income people or groups. Specific services offered by microfinance institutions include microloans, micro-savings and micro-insurance products.
  9. Saving and Spending

    This Big Expense Can Ruin a Retirement

    One of the greatest joys of retirement is being able to relax, knowing that one of your biggest expenses — your mortgage — has finally been paid off.
  10. Stock Analysis

    3 Popular Financials Stocks in 2015 (WFC, COF)

    Find out about some of the popular financials stocks in 2015, why they have become popular and whether they will remain popular going forward.
RELATED FAQS
  1. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  2. Do banks have working capital?

    The concept of working capital does not apply to banks since financial institutions do not have typical current assets and ... Read Full Answer >>
  3. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  4. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Full Answer >>
  5. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  6. What role does a correspondent bank play in an international transaction?

    A correspondent bank is most typically used in international buy, sell or money transfer transactions to facilitate foreign ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center