Strategic Defaults On the Rise

When the going gets tough, walking away may be the option for some.

Strategic defaults are rising, not only among deadbeat homeowners, but also among the credit savvy borrowers, Jon Maddux, CEO of YouWalkAway, wrote in the December 2011 issue of the Foreclosure News Report, a monthly newsletter published by RealtyTrac.

“I don’t feel strategic default should be someone’s first choice, however for some it may be their only one,” Maddux said.

Maddux added, “People are coming to the conclusion that they made a bad financial decision in buying their home during the boom, and that they have been financially derailed from their goals. Looking at a trajectory, they realize they have to make a choice now to make sure they can get back on track for their future.”

RealtyTrac reported that the pool of potential strategic defaulters is massive.  As of January 2012, based on the data of RealtyTrac, out of the 45 million outstanding mortgage loans nationwide, 12.5 million mortgage loans were in a negative equity position or underwater.

A loan is considered underwater when the loan amount is at 25% higher than the estimated value of the property securing the loan.

In the white paper entitled “The U.S. Housing Market: Current Conditions and Policy Considerations”,  Federal Reserve Board wrote, “For many homeowners, the steep drop in house prices was more than enough to push their mortgages underwater–that is, to reduce the values of their homes below their mortgage balances (a situation also referred to as negative equity). This situation is widespread among borrowers who purchased homes in the years leading up to the house price peak, as well as those who extracted equity through cash-out refinancing.”

Whether you are a first time buyer, first time seller, empty nester, thinking about selling or buying a home, do contact the Guldi Real Estate Group. In Southern Maryland, the Guldi Real Estate Group is the number one real estate team.