Everywhere you look these days someone is talking about strategic default....more and more people are strategically discontinuing payments on their overleveraged homes and short selling or simply walking away.
I believe we have only seen the beginning of this.
Loan modifications do not address the real problem of heavy negative equity and are sure to fail most of the time. Even if the homeowner lowers their current payment they are left more trapped than ever. There will be no quick recovery this time. Years later when there is a need to HAVE TO move, the original problem of being upside down remains and the modified homeowner is left to short sell or foreclose once again.
Isn't it better to just cut the losses upfront ?
I know many will consider strategic default wrong or immoral, but as for me, I stopped passing judgment long ago.
In fact I am not sure there is any way to correct the market until we eliminate the massive overabundance of overleveraged homes out there. The only feasible way to have that happen is through foreclosures and short sales.
The real victims will be those who choose to stay and pay and are left holding the bag. I think perhaps every struggling American should be looking at their current situation and making some tough choices to benefit their own long term survival.
Is there a different solution to this problem? Sure there is - it's called principal reduction.
Call me crazy but I dont see the banks jumping on board with that anytime soon.
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Minna Reid is a full-time, full-service, Connecticut REALTOR®, specializing in short sales, serving Hartford, Tolland, Middlesex and New Haven Counties including, but not limited to; Andover, Avon, Berlin, Bloomfield, Bolton, Cheshire, Columbia, Coventry, Cromwell, Durham, East Hartford, East Hampton, East Windsor, Ellington, Enfield, Farmington, Glastonbury, Hebron, Lebanon, Manchester, Mansfield, Marlborough, Meriden, Middlefield, Middletown, Newington, Portland, Rocky Hill, Somers, South Windsor, Southington, Stafford, Tolland, Vernon, Wallingford, West Hartford, Wethersfield and Willington.
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There were a few programs in 2009 (like FHA short refi) that really never got off the ground because what bank wants to participate in principal reduction . . . Yes, strategic default will not have a good impract on our economy.