Homeowners who 'strategically default' on loans a growing problem

[FarCenter]

Reporting from Washington - Who is more likely to walk away from a house and a mortgage -- a person with super-prime credit scores or someone with lower scores?

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers.

<SNIP>
* The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year's fourth quarter.

* Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they've fallen behind on other accounts.

* Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.

<SNIP>
Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: "Well, I'm $200,000 in the hole on my house, and yes, I'll damage my credit," he said of defaulters. But they see it as the most practical solution under the circumstances.

<SNIP>
http://www.latimes.com/classified/realestate/news/la-fi-harney20-2009sep20,0,2560658.story

[xchrom]

1. don't tell DUERS this who like to blame this crisis in part on

irresposible borrowers -- even though that argument looks suspiciously like a republican argument -- you're gonna give them a headache.

[MrModerate]

3. Prime credit ratings notwithstanding, these "strategic" defaulters are still irresponsible . . .

In that even if their houses are now under water, pricewise, they'll find it very difficult to reenter the market in something at today's prices if no one will lend them any money precisely because they've walked away.

I think a lot of these folks are just like sub-prime defaulters: their financial situation has turned down along with everyone else's and they can't afford their homes anymore. Instead of struggling with the problem for months, they cut and run as soon as they come to that conclusion.

[Fumesucker]

6. Yeah, but if they "struggle" for too long..

They may end up not being to get into any sort of housing at all.

Even renting an apartment can cost a few thousand dollars to start, if you don't have that few thousand you could be living on the street.

[Jim Sagle]

5. DLC hogwash dispensers don't get headaches - they get five bucks an hour.

[Mind_your_head]

2. It's the lead story on DU's homepage

not necessary to start a second thread. :eyes:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4068452

[BlooInBloo]

4. Ah, so THAT'S the euphemism we use for the well-off who over-extended.

[Mind_your_head]

7. Bank of America, AIG, Chrysler, Ford. Enron, Arthur Ande.....THEY'VE ALL STRATEGICALLY DEFAULTED!!!!

I'm RICH b/c I know how to default with the best-of-'em!

:woohoo:

the robot says: "take me to your leader."

[BlooInBloo]

8. (snarfle)

[Mind_your_head]

9. Have you 'caught a cold', Bloo??? n/t

[BlooInBloo]

10. It's a cross between a snort and a laugh.

:P

I don't get sick, actually.

[Mind_your_head]

11. "I don't get sick, actually."

says you.

Sometimes people are sick and don't even recognize their own disease.

Peace,
M_Y-H

[BlooInBloo]

12. Fair enough.

[Warren DeMontague]

13. I didn't shit in my pants, I "strategically mis-directed my defecation!"

TYVM.

[no_hypocrisy]

14. Walking away from a fiduciary obligations also shows that the "homeowner"

looks at the house and property as an investment, not a home where one seeks sanctuary from the world, where one raises a family, where one would like to stay as long as possible -- perhaps even die there, to leave to one's children. A home where you are identified, in a community in which you feel privileged and grateful to reside, to build your life.

No, this is an investment where you are detached from what you bought like a CD or a share of stock. Get rid of it and cut your losses. Screw everyone else. You got yours and can start again somewhere else.

[Buns_of_Fire]

15. Back in the early 1980s, I participated in a focus group

that rated the satisfaction of home owners with their home builders. Everyone went through their stories, and noted how they considered their homes an "investment" and figured it would appreciate through the years.

When my turn came up, and I said that while the appreciation was nice, we bought the house to be a HOME, with not much consideration on whether or not it was a good INVESTMENT. All the good yuppies looked at me like I was from another planet.

Thinking back, they all looked like Eric Cantor, too.

[no_hypocrisy]

16. +1

Regarding your home as an investment more or less means you will not have roots in any particular place as you don't want to get emotionally attached to something you will discard one day.

[SoCalDem]

17. If you are young and "well-employed", you could survive this

stay put until thrown out-and just bank the money not being paid for mortgage.
When finally forced out, there would be a substantial wad of cash, and plenty of time to find a different place. A person with some family-money could be sitting pretty in a paid-for home, down the line..even though their credit score would take a hit.

About 15 years ago, friends of ours bought a house, and long after they moved in, their realtor kept asking them for more and more paperwork, and certain paperwork they needed back from the sale never got forwarded to the,/ They got a lawyer, because the deal looked hinkier and hinkier to them. The rral estate lawyer determined that there were some forged documents somewhere along the line, that had come from the "seller" as well as from the realtor. He advised them to stop paying the mortgage, because it looked like the deal would end up in court. he told them to just stay put until it all got sorted out.

The court ruled that the realtor and current owner (not them) had to make payments, and our friends ended up staying there for almost 11 months before they finally tired of the drama, and moved out. The court forced the realty agency to refund their down payment, and they had a tidy sum that they had put in a separate account, in case the thing settled in their favor.

Basically they had "free rent" for those 11 months.

A year later they bought a different house with that sizable "down payment".