Reuters blogger Felix Salmon believes that if more and more struggling homeowners continue walking away from their homes, U.S. banks could be "toast."
As strategically defaults continue to rise, some homeowners are using their inability to pay their mortgage to live rent free -- often for more than a year, the New York Times reported.
"Trying to renegotiate your mortgage is not a morally reprehensible thing to do," Salmon said, pointing out that mainstream media organization's like the New York Times magazine has been publishing columns about this trend and how it makes so much "financial sense." Corporations walk away from commercial mortgages, Salmon said. "It's not clear to me why an individual should behave any different," Salmon said.
Wells Fargo is most exposed to the trend, affecting the bank's livelihood. "Sand state" banks such as those in Florida and California are also far more exposed. Here's more from Salmon:
"From the bank's point of view, if this catches on, there's a very large number of banks in this country who are just toast. And in hindsight they were just much better off dealing in a realistic way with these borrowers a year ago or two years ago when the problem first reeled its head instead of extending and pretending. Now they are in a pickle."
"If this trend continues, then the banking system is probably insolvent," he said.
WATCH the interview:
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