Way back in February of 2008 I wrote an article entitled "I'm Walkin, Not Payin." Back then that was a fairly new phenomenon. However as time has passed, it has managed to stick around, and now has a real chic label, Strategic Default.
It's basically the same concept as I'm Walkin and Not Payin because my house is worth a lot less $$$$$ than I paid for it, and my mortgage balance far exceeds the value.
I was directed to an article by Kenneth Harney, of the St. Petersburg Times, by Jeff Belonger (thanks Jeff), asking "Who is the most likely to walk away from a mortgage?" He gave a hint in the second paragraph. "It's not who you think."
Here's the result of the research he cited;
In a sample of 24 million individual credit files, homeowners with high credit scores when they applied for a loan are 50 per cent more likely to "strategically default"- abruptly and intentionally pull the plug and abandon the mortgage- compared with lower-scoring mortgage borrowers.
In contrast with most types of delinquencies they often go from perfect payment histories to no mortgage payments at all.
Very Interesting!
Okay is it just a business decision which only effects the existing borrower? Well I think we can rule that out. Defaults of any and all types are raising havoc in the marketplace and the "strategic defaulters" apparently have the ability to pay but choose not to.
Are they just being selfish? Do they not care about the outcome/impact on their own family, friends, neighbors, and you, and I. You need to draw your own conclusions.
There will be consequences for them; bad credit and deficiency balances possibly (they may owe the lender money after the foreclosure). There may be a need to file bankrupcy at a later date. The credit card companies will probably either cancel their cards, or substantially raise their rates. Access to new credit will be extremely costly or not available.
Do you think that they really take all of this into consideration or are they just locked in on their home?
Frankly, I don't know!
Well there may be a nice shiny new term for it, Strategic Default, but any way you cut this pie it still means;
"I'm Walkin, Not Payin!"
;)
;)
Jay - And this is a phenomenon that will probably only increase for another year or two as homeowners come to the realization that their home will not recover it's value for years. And my opinion of strategic default makes no difference, each individual will do what they perceive to be best for them.