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Posts tagged ‘strategic mortgage defaults’

9
Jul

Million Dollar Homeowners Stop Paying Their Mortgages

home mortgage defaults

home mortgage defaults

CoreLogic, a real estate analytics firm, reported that  more than 1 in 7 homeowners with mortgage loans in excess of a million dollars are seriously delinquent.  Whether it’s their residence, a second home or a house bought as an investment, the rich have stopped paying mortgages at a rate that greatly exceeds the rest of the population.  By contrast, homeowners with cheaper housing are much more likely to keep on top of their mortgage. Only about 1 in 12 mortgages below the million-dollar mark is delinquent.  CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. Read more »

23
Apr

Homeowners Who Don’t Pay Mortgages Create A Substantial Boost To Consumer Spending

California home mortgage defaults

It appears  the economy has received a boost from practices that let some homeowners stop paying their mortgages and use the ‘extra’ money elsewhere.

Almost everyone is aware of, or knows, someone living rent-free in their home for an extended period of time, having stopped paying their mortgage. Many of these free boarders are spending lavishly on non-essentials. Read more »

17
Dec

San Diego Real Estate 2010 Forecast

San Diego Real Estate 2010 Forecast

The year of the strategic mortgage default

 

2010 real estate outlook

2010 real estate outlook

 

It would be easy to write a 2010 real estate forecast by repeating the industry line that “the new year will mark a turnaround for real estate values; those who act fast will be able to get the best buys.” Real world facts, at least in San Diego, seem to indicate otherwise.

There are reasons why another, more vicious, down-leg may be in store for the San Diego real estate market in 2010. Remember, many of the adjustable home loans were designed with five and seven year interest adjustments. The top of the San Diego real estate market occurred in the summer of 2005, so a huge number of loans are set to adjust next year. The saving grace is that interest rates are near all-time lows and interest rate shock will not be a negative factor. The downbeat with these mortgage adjustments will be the ‘reality check’ factor. How many homeowners will suddenly wake up to the fact that their home is now worth tens of thousands of dollars less than their mortgage balance? Only the naive will believe that their San Diego home’s value will snap back soon.

A study by researchers at Northwestern University of Chicago found that as many as one in four defaults may be strategic.  Driving this phenomenon is the rising number of households that are deeply “under water,” owing much more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes’ value, and 2.2 million of those households are at least 50% under water. The problem is most severe in Arizona, California, Florida, Michigan and Nevada.

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11
Dec

Why Defaulting On Your Mortgage May Be Best

housing market

housing market

In an academic paper titled, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” written by Brent White, a law school professor at the University of Arizona argues that those who are underwater in their loans should just leave.

By leaving, it could potentially save them thousands and it won’t be long until they recuperate themselves. Defaulting “strategically” can pull more walkaways by buying all the major items they may need in the near future such as a car or even a house right before you take a hike. As long as you stay current with other mortgage lenders, one could potentially have a good credit standing in 2 years.

Also, many believe that signing a contract with your mortgage is for life, but contrary to popular belief, mortgage lenders have either no legal rights or limited rights to pursue walkaways.

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22
Sep

Foreclosures – Strategic Defaults Double

Home foreclosures

Home foreclosures

A new study from Experian and Oliver Wyman, looks at the prevalence of strategic mortgage defaults, ‘walking away’ from a home mortgage that is more than the current sales value of the home. According to the study,  there were 588,000 nationwide strategic defaults in 2008, more than double the total in 2007.

The best way to ensure a minimum of strategic defaults is to require a higher down payment on a loan. On a $100K house, a lender could require $20K to $30K down. This means that the home would have to first fall by 20% to 30% (and thereby “eat up” the owner’s equity) before a strategic default was logical. Here in San Diego, in this Great Recession, even the people who did put 20% down in 2003, 2004, and 2005 are now under water. Also, in the real-world, the down-side of this idea is that it would kill the housing market! Read more »