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!
Strategic defaults … financially it’s a logical, legal, defensive decision to make. Why throw good money after bad? No more property maintenance, taxes, insurance, etc. With rent prices falling and rental vacancies rising, it makes perfect sense to bail out and have more disposable income at the end of the month. Survival is the name of the game. Plus, when done correctly (one would be a total fool to even consider this without first consulting a real estate attorney) it’s one of the most savvy financial moves a person can make. In fact, your credit score ought to go up just for having the common sense to do it.
There will always be those that make their decisions based on a “consequences be damned” mentality. Unfortunately, the foxes guarding the hen-house had that same mind set. That’s part of the reason why we are where we are.        La Jolla real estate
Comments are closed.
“In fact, your credit score ought to go up just for having the common sense to do it.”
This is one of the best quotes I have seen in a long time. Imagine being in my shoes… I put $0 down and owe $250,000 more than my house is currently worth. I also have a balloon payment coming up in a few years which I’d never be able to make anyway. If you are going to do it best time is at the end of the year (like I did) in my opinion. You want your full tax write of for the last year you were paying the mortgage. If you live in a hard hit area like me it will take at least 1 year to get through the foreclosure process possibly 18 months. If you are paying $3000 a month on your mortage like me thats 36-50k in your pocket by the time the process finishes. I may be a jerk, but I’m a jerk who will surive this recession and hopefully come out financially stronger.
You can take advantage of foreclosed homes for sale by getting maximum bargains on your dream home. Foreclosures are an absolute steal at this time and the choice foreclosed homes are selling almost as quickly as they come on the market.
I think we will continue to see more people walking away over the next year as the economy worsens.
And I would suggest that they are going to increase to an even higher rate because of the unemployment rates that continue to rise across the country. Remember the “good news†that the gov keeps feeding is us that less people were laid off, not that more people were hired. So the job loss is increasing not decreasing.
Add to all this a dollar that continues to bleed and inflation is not far behind as gold – an inflationary leading indicator – shows us.
Consider too how banks are leveraged.