An unfortunate new trend has developed across the US – that of “strategic defaults” – homeowners walking away from their mortgage obligations.
60 Minutes did a story on this disturbing trend on Sunday.
Though I understand the thought and concern about the low prices in areas, but I don’t understand how people doing this don’t see the effect this trend will have on the entire US economic recovery if it gets more popular.
“Strategic Default” happens when a homeowner who can and is able to continue making payments on their mortgage makes the decision to stop and abandon their house because it is not worth what it was when they bought it. These homeowners are NOT distressed — have not lost their jobs and can afford their payments. They have decided that because their house is not worth what they are making payments for that they will just walk away and deal with the credit issues that foreclosure will cause for them.
Some banks and investors have walked away from places. They should not have done so either.
Though the people interviewed for the story feel that it is a “smart business decision”, I see this as a huge problem if the trend gets more popular. One stated that they “have been fulfilling their obligation to the bank.” This is simply not true if they choose to default on their loan. They are not fulfilling their obligation. The other one stopped making payments a month ago and is “living for free” until being foreclosed on in July. Then they will take their savings and rent a house while he rebuilds his credit. He does not feel any remorse over this decision and if it creates a bigger problem in the US, then “that’s for the professionals to figure out.”
I certainly hope that this does not become more of a trend in the US. If you are underwater in your mortgage and need help, please contact a professional. I can help you find one anywhere in the United States.
Contact me for Baltimore real estate help.
This is such a head-scratcher, Marney. I wouldn’t say that I endorse or support this practice, but part of me does understand it. There are lots of people who simply feel like they’re throwing good money after bad and that they’re never going to get out from under.
That said, I’m terrified about what this is going to do to the economy as a whole. I know that things have been going pretty well this Spring, but home values continued to decline, even WITH the tax credit in place. Now that it’s expired and with all of this shadow inventory pouring into the market, I’m nervous about what’s to happen once the summer doldrums hit. :-/
Melissa, I understand the logic behind it as well, but logic doesn’t make it right. It concerns me that many in our country don’t seem to care about the implications this could cause. It is bigger than the individuals involved, and it is this kind of self-thought that got the US in a lot of trouble with CEOs who felt it was OK to take bonuses when their companies were failing, taking corporate planes, spending money, etc. How is this much different? Those CEOs saw the chance to take advantage while they could, not caring what that meant for company…the individuals who can stay and want to stay in the area are taking advantage of a loophole for their personal short-term good without considering the consequences for themselves and others in general in the future…I don’t know. I could pontificate for a long time…
Right or wrong, the house was used as collateral by the bank(s) who loaned the money. If payments stop, the collateral is taken back. Why is this any different than a car repossession or other types of collateralized loans? While I fully understand the larger impact of this decision, everyone (the banks, the homeowners, etc…) are in “business” for themselves. Sometimes, business decisions are not popular… why aren’t people up-in-arms about individuals filing for bankruptcy? Same outcome (except ALL debts are wiped clean and the public suffers more), different tactic.
It’s not any different, and people filing for bankruptcy when they really don’t need to or should are a whole other problem!