Strategic Default: The Facts About Walking Away

By
Real Estate Agent with Starlight Realty Certified REO & Short Sale Specialist

Should you keep paying your mortgage on a home that's dwindling in value?

No way, say an increasing number of underwater homeowners who are voluntarily choosing to "walk away" from their home loans, a practice known as "strategic default."

* And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that's up from 15% last year.

* In an early 2010 report, Morgan Stanley (MS, Fortune 500) researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks.

* The profile of a typical strategic defaulter is not what you'd expect. Most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.

* "Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios - in a financially ruthless manner."

Should you keep paying your mortgage on a home that's dwindling in value?

No way, say an increasing number of underwater homeowners who are voluntarily choosing to "walk away" from their home loans, a practice known as "strategic default."

* And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that's up from 15% last year.

* In an early 2010 report, Morgan Stanley (MS, Fortune 500) researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks.

* The profile of a typical strategic defaulter is not what you'd expect. Most are good credit risks with high FICO scores, according to Andrew Jennings, chief analytics officer at Fair Isaac (FICO), the company behind FICO.

* "Strategic default can be a financially sophisticated thing to do," said Mark Fleming, chief economist for CoreLogic, the financial analytics company. "And it makes sense that more financially savvy people do it. They may treat their mortgages like they would their investment portfolios - in a financially ruthless manner."

Comments (2)

Sarasota & Manatee Counties FL
SaraMana Properties - QuickFreeMLS.com - Bradenton, FL
QuickFreeMLS.com - Listings In Paradise

It is information that everyone involved in real estate should always keep in mind.

Jun 13, 2011 09:58 AM
Daniel H. Fisher
www.FisherHermanRealty.com (704) 617-3544 - Charlotte, NC
MCRP - Charlotte Real Estate, NC or SC

There are long term consequenses for intentionally defaulting on a loan and allowing a foreclosure.  One must also keep in mind the fact that with every gain, somone else has a loss; while it may be financially savvy, one must also question the ethics of forcing a loss on another individual or corporation.

Jun 13, 2011 10:04 AM