Buyers' Revenge: Trash the House After Foreclosure

In today's Wall Street Journal, an article pertaining to loss severity: Buyers' Revenge: Trash the House After Foreclosure.

Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child's room once carefully decorated with a floral wallpaper stripe. It's damage that Mr. Carver described as "a vengeance-type thing."

This is a phenomenon that we first observed a year ago. Another important principle regarding loss severity: default rates and recovery rates are inversely correlated.