I continue to see many blogs about strategic defaults. I am in agreement with the opinion that these are bad for many reasons, BUT what if the strategic defaulter is in their late 60s, 70s, or older?
My primary focus is Reverse Mortgages, and many clients call in desperation asking if we can help. Some are seniors who had a good amount of money to put down on a property maybe 4 to 7 years ago, and purchased their current home. Of course in South Florida, the value at which they purchased has dropped 40% to 60% since that time. So they feel as if they have not only lost what they felt was a solid investment in a rising market, but they also lost their large down payment. For some it was their life savings.
When I break the news to them that they can only pay off 50% to 70% of their current value with the Reverse Mortgage, and that its nowhere close to being enough, I can sense their despair through the phone. What advice do you give someone who is at the last stage of their life and cant see a way out of the hole this economy/down market has buried them in? Here are some answers:
- Keep paying for the next 25 years, and maybe by the time you are 80 or 90, you can get the Reverse Mortgage or pay off the property
- Work on a modification, but dont hold your breath
- Or save what is your current monthly payment for the next 2 years while you wait for foreclosure, and then rent something
- refinancing is not an option for many of them
I find myself giving them these otions and them saying #1 and #2 are not good enough. Then #3 scares them, and with good reason, but its make the most sense for someone in their position. Imagine if your life savings LOST, and you are on a fixed income. And I mean fixed because social security is NOT going up anymore. What you thought was a sound, long term financial investment in something that "always goes up in value," turned out to be the worst decision in your lifetime. You are in despair because your health is in decline, and your kids are out of work or struggling to make ends meet.
HOW IS STRATEGIC DEFAULT NOT THE BEST COURSE OF ACTION FOR THESE PEOPLE?
I am not talking about a 30 something couple who just doesn't see it as a sound investment to continue to pay into a depreciating asset whose value is already half of what you will pay, plus interest. No, these are people who cant make a future for themselves. This is it. And I have to give the bad news day in and day out, and feel the despair breathing down my neck.
So yes, strategic defaults are bad, but are they bad for everyone?