Many homeowners whose loans are underwater have considered strategically defaulting on their homes. Of course, underwater loans are when a borrower owes more on their loan than their home is worth. This means that many of these homeowners are discouraged and don’t see the point in continuing to pay for a loan that is far greater than the value of their homes.
In a report by Fannie Mae, numbers show that homeowners are more likely to consider a strategic default if they know someone who has already walked away from their home. Is this so hard to believe when you see a friend get out from under their loan with (relatively) few consequences while you struggle to pay for your underwater home? Additionally, 24% of surveyed homeowners believe that their homes are underwater.
However, even though these homeowners have considered defaulting, the large majority do not see it as an acceptable solution to their financial situations. In another poll, Fannie found that seven of ten delinquent homeowners believe they need to live up to their financial agreements and that defaulting on purpose is not an option. Most of these homeowners decided that if there was a way to stay in their homes, they would.
In a corresponding study by Fannie Mae, it was found that homeowners who are underwater were more likely to be delinquent on their payments and more likely to consider walking away from their homes. When a home is underwater, it can be very difficult, if not impossible, to qualify for any kind of loan modification or refinance program. Again, when your home is worth half of what you owe on the loan, it is easy to see why some people may think about defaulting.
Of course, if at all possible, borrowers need to live up to their commitments. Defaults and foreclosures not only hurt the neighborhood they occur in, but the housing economy in general. Lower home values and an excess in available homes will only further serve to delay the recovery of the housing market, whose recovery is vital to the overall economic progress.
Comments(4)