News Now

Consumer
More consumers consider strategic default viable
MADISON, Wis. (12/13/10)--More and more consumers are thinking the previously unthinkable: that a strategic default--when a borrower who can afford to pay walks away from an underwater mortgage--is a viable tactic. In a survey of 2,034 homeowners and renters conducted in November, RealtyTrac and Trulia found that 48% of homeowners with a mortgage said a strategic default is an option they would consider if they owned more on their home than what it was worth (The Palm Beach Post Dec. 7). That was a seven percentage point increase from a study earlier this year. That backs up results of a study by researchers from the European University Institute, Northwestern University, and the University of Chicago in July that reported the strategic default trend among homeowners with an equity shortfall of at least $100,000 was “large and rising.” As of March 2010, the study concluded, strategic defaults accounted for 35.6% of all foreclosures, compared with 23.6% in 2009 (The New York Times Dec. 2). “It’s one thing when consumers default because they lost their jobs or suffered some other hardship and could not afford to make their payments,” notes Jim Hanson, of the Credit Union National Association's center for personal finance. But The New York Times reported that affluent homeowners have been walking away from second homes and investment properties even though they can afford to make their payments. “Some money advisers say this is just good business strategy. And there has also been speculation that more consumers are reacting to the robosigning underwriting that went on among many mortgage lenders,” Hanson continued. “These individuals are saying, 'If banks don’t have to play by the rules, why should I?' “What’s that old adage, two wrongs don’t make a right?” Hanson said. “Keep in mind the effect a strategic default will have on your credit rating and your ability to get credit in the future.” Such a move may make short-term economic sense but likely will keep you from getting a loan of any other kind for seven to 10 years. In June, Fannie Mae announced several new penalties for strategic defaults, including a ban for at least seven years from qualifying for a Fannie Mae loan. And walking away doesn’t mean lenders have no recourse. In some states, lenders can sue borrowers who had the capacity to pay and did not complete a workout agreement with their lender. In nonrecourse states, lenders can sometimes go after borrowers who strategically default on a previously refinanced property if the mortgage was not for a first purchase. For help managing a problematic mortgage, read “New Hope and Help for Struggling Homeowners,” and listen to “Home Foreclosures Continue to Soar: What to Do if You Are at Risk,” in the Home & Family Finance Resource Center.


RSS print
News Now LiveWire
The Hill reports House Republicans plan to delay Aug. recess to stay in D.C. until they have enough votes to pass bill on border crisis.
1 hours ago
The FHLBs of Des Moines and Seattle announce they have entered into an exclusivity arrangement regarding potential merger of the 2 entities.
2 hours ago
SunCorp and @AlloyaCorp have announced their intent to merge.
4 hours ago
.@TheNCUA bars former employee of Southwest Communities FCU,Melissa Rosing,from work at any federally insured FI. http://t.co/owtVnPxVZT
4 hours ago
Fryzel added @TheNCUA is fed. governmt, thereby will B criticized, but always tried 2 do what is right. McWatters still 2 B sworn in.2of2
7 hours ago
150x172_Annual Report 2013Unite for Good Share your StoriesData-Breach-150x172.jpg