Foreclosures – Strategic Defaults Double

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