Are Strategic Defaults a Moral Issue?

Reblogger Fernando Herboso - Broker for Maxus Realty Group
Real Estate Broker/Owner with Maxus Realty Group - Broker 301-246-0001 Broker - Realtor - CEO


Another great post that outlines the reasons why people may walk away . . 


In a short sale , you sell your house

In a foreclosure, you lose it


Original content by Fran Gatti OR#200608197

questions, I have questionsAccording to the Washington Post:

  • 24% of all U.S. homeowners are underwater with their home loan, meaning they owe more than their home is worth.

  • New foreclosures are far outpacing loan modifications.

  • Economic weakness and government debt is what is really ailing the housing market.

And, strategic defaults are on the rise. These are homeowner's who still have the capability to pay their mortgage, but for one reason or another, maybe that Joe who purchased a foreclosure three months ago for the exact same home next door owes $200,000 on the same house you paid (and owe) $400,000 for in 2005.

Nothing I have read expects prices to go back up to 2005 values for at least 5 to 10 years, maybe more and maybe never.

I read a blog post yesterday here on AR where the writer believes if you have the capability to keep paying on your loan and don't, that you are cheating and stealing.  Quite a few readers agreed with her comments and a few, including me, did not.

First of all, I'm giving you my opinion, which may change as the economy continues to evolve and banks get their heads out of their b*//s and do more for their customers. However, until that happens...

I do not believe that most people still have the same situation they did when they purchased their home even if they still have the capability to make the payment.  I know in our county, the state and federal government are the largest employers. The state and county have cut wages by way of furlough days.  A great concept for someone who makes more money than they need and wants more time off, but who exactly fits into that category?

Many of these folks can still make their house payment, but it ain't easy and now that the economy is sucking so bad, their kids needs help making their rent, paying for day care, food and gas have gone up, utilities have gone up, heck what hasn't gone up?  So, yep, you can still make your payment, but barely and you have no reason to believe your home will ever be worth the price you paid for it, but you are honorable and scrape by for the next 5 to 10 years.  The bank gets all their interest because they load their loans up front to make sure they do, plus they got the hefty fees they charged you for borrowing their money in the first place (fiat money that doesn't really exist by the way), and 10 years from now, when you go to move to take a really great job, you can't sell your home for enough to buy another. 

However, you are moral and upright and signed your name and will stick by that no matter.  You tried to get a loan modification along the way to help you with the interest rate or maybe have the one or two payments you were behind added on to the end of your loan so the bank would quit charging you the late fee every month, but no one would return your calls and after one year of waiting to hear on the loan modification you gave up.  You figure you paid about $1,500 in late fees for the year you waited for the loan modification to come through.  You begin to wonder why you're playing by a set of rules (the high road and doing the right thing) when banks are playing by another? 

You remember that your mortgage is with the same bank who tripled your interest rate on your credit card to 33% for one late payment (not missed, just late) a year ago.  Since then, some regulatory agency told them they can't do that anymore and they refunded you about 1/4 of the interest they sucked out of you before you finally took what money you had in your savings to pay off the card before the interest killed you. Yep, the banks definitely play by the rule book of greed, manipulation and fear. Maybe the phenomenon of strategic defaults are happening because people are fed up and don't want to take it anymore...yah think?!

I am one of these homeowners by the way.  I have not tried to get a loan modification as yet because I know several people who are one year into theirs and are still waiting.  What is the point?  The Treasury Department's Home Affordable Modification Program (HAMP), provided permanent payment relief to only 116,000 of 1.7 million potentially eligible cases through January 2010 or less than 7%. 

I am hanging in there for now, watching, waiting, reading, watching, waiting and keeping an open mind.  However, if I keep paying my mortgage for another five years and need to relocate for any reason, the chances are against me that I will be "above water" in my mortgage at that time and able to sell.  I don't see this as a moral issue at all but as an economic issue that has far reaching consequences for homeowners, our economy, our government, our children, for everyone. 

In my opinion, banks could turn the tide in strategic defaults by being helpful, speeding up the loan mod process, doing more to identify customers who would benefit from a loan mod and acting like they care even a little bit.  Until then, foreclosures, whether strategic or not will continue to rise and prices will continue to fall because of those very homes hitting the market at below market prices. 

What say you?

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Thank you for stopping by. Your comments on this post are welcomed and appreciated.
No one sold more homes in Del Norte County in 2009--*both in number and volume--than Fran Gatti. Put Fran to work for you!

 Fran Gatti Del Norte County Real Estate Agent

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Barbara Kornegay
REMAX Essential - Wilmington, NC
Wilmington NC Real Estate, Homes

Well this is a wonderful and infromative article...  So many folks waiting on Loan Modification - I can't simply understand why it is taking so long!

May 10, 2010 11:29 PM #1
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Fernando Herboso - Broker for Maxus Realty Group

301-246-0001 Serving Maryland, DC and Northern VA
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