From dsnews.com:
An alarming number of homeowners see strategic default as a viable option should their home continue to depreciate. Almost half of the homeowners participating in an online poll from Housing Predictor say they will walk away from their mortgage obligation if falling home values persist.
Five years into the housing downturn, and Housing Predictor found that 47 percent of those surveyed would intentionally stop making their mortgage payments even if they could afford to in order to get out from under the sinking investment of home-sweet-home.
The number of mortgage borrowers open to strategic default has risen sharply since Housing Predictor last surveyed public opinion on the issue roughly a year-and-a-half ago. In October 2010, 36 percent of homeowners participating in the poll said they would throw in the towel should housing prices continue to drop.
Housing Predictor says the foreclosure crisis, falling home prices, and lingering doubts that the value of homes will increase over most homeowners’ lifetimes are contributing to the increase in mortgage holders who say they will walk away.
FICO estimates strategic defaults to be more than a $20 billion problem annually.
Does an ‘online poll’ really mean anything? A few months ago, every ‘online poll’ indicated Ron Paul would be our next president.
I guess we need a new government program to prevent home prices from falling then.
Well I’m wondering what all this inflation is doing to the market. Ideally you want inflation so your hard-assets appreciate in value, but if PPP is diminished then its a wash.
FICO estimates strategic defaults to be more than a $20 billion problem annually.
It’s only a problem for the banks that made the bad loans in the first place.
I think we learned that when the banks have a problem, we all have a problem, no?
I would think that all you would need to do to prevent the majority of strategic defaults is stop waiving the taxes on the forgiven mortgage balance. Am I wrong?
It might slow’em down a bit, but not stop them. You’d still be cutting your losses, just not by as much.
I business types strategically default why should ordinary people not do so? (Sauce for Goose sauce for Gander…). You see defaults (chapter 11…) in business real estate all the time, and because the way the deal is structured the rest of the business persons assets are protected. (Each property is likely a distinct legal entity). To hold individuals to a higher standard that business real estate types is just plain being a hypocrite.
Actually if you wanted to beat your taxes, if you filed for BK, and could show yourself to be insolvent at the time, then even under the old rules no tax would be due. (I suspect most underwater home ownerers might well be insolvent also)
The banks have done a first rate job of encouraging strategic defaults by their own unpunished criminal behavior.
Deadbeats all love free money
File this under the musings of Captain Obvious.
Reducing principal to current market values and then allowing refinance at the lowest current rate is the ONLY way we’re going to get out of this epic, criminal housing Ponzi scheme with maybe half a shirt on.
The concept of “strategic default” is really pretty subjective. When one begins to get into the details of an underwater borrower’s situation, and considers the long term effects on finances and the family, the case for “hardship” is a lot more evident than one might think, even if the borrower can afford this month’s mortgage payment.
Strategic Default is one of those judgmental terms bandied about in the media that is really not defined. The concept is usually prospective and associated with someone who has not defaulted yet but is considering doing so.
Once the decision has been made to dispose of the property, it is not usually that hard to make a case for “hardship”. “Strategic Default” statistics really don’t mean anything IMO. The concept is just an assesment of a borrower based on incomplete assumptions at a specific point in time, kind of like a credit score.
10. Deadbeats all love free money
shadash | April 6th, 2012 at 8:59 pm
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Come on Shadash haven’t you heard… it’s now considered “hip” to be a deadbeat. Get with the times brother! -lol
“I would think that all you would need to do to prevent the majority of strategic defaults is stop waiving the taxes on the forgiven mortgage balance. Am I wrong?”
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There is no tax on cancellation of non-recourse debt. There is also no tax on the insolvent, which many will pencil out to be when factoring in how far upside down they are. Only those with recourse loans who have some net worth will be impacted if the mortgage loan forgiveness acts are allowed to expire.
I think once the market stabilizes and stops dropping sharply, or better yet starts to go up even very slowly, that will stop the defaults in their tracks other than worst case scenarios (job loss, medical problems). People who have hung in this long don’t seem likely to bail right at the moment the market will swing the other way, in my opinion (having seen this many times in the stock market). To me the key to this is price stability, not trying to avoid strategic defaults. Fix one, and you likely will fix the other.
@ just sayin’
Bingo. Too bad it looks like we’re in for another foreclosure storm.