This is particularly associated with residential and commercial mortgages, in which case it usually occurs after a substantial drop in the house's price such that the debt owed is (considerably) greater than the value of the property—the property has negative equity or is underwater—and is expected to remain so for the foreseeable future, such as following the bursting of a real estate bubble.
An alternative is called extend and pretend: The terms of the mortgage are modified to keep the borrower temporarily in the home, in the hope that the market price will improve, and that the house can be sold for the full loan amount at that later date.
[2] Economists Paul Krugman and Hal Varian argued that strategic default would be an inevitable result of the collapse of the finance and property bubble of the era following 2006.
[3] A study in September 2009 from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that 38% of U.S. involved borrowers were strategically defaulting.
[4] Some argue further that there is a moral duty to strategically default,[6] and that one should make such decisions based on one's financial interest "unclouded by unnecessary guilt or shame", as lenders who do not modify mortgages do the same, "seek[ing] to maximize profits or minimize losses irrespective of concerns of morality or social responsibility,"[7] or more bluntly stating that "The economy is fundamentally amoral.