Strategic Default is Becoming More of a Trend
As reported by msnbc.com, strategic defaults are becoming much more common in today’s struggling housing market. In fact, according to one recent survey, approximately three out of 10 mortgage defaults in 2010 were done “strategically”. That’s an increase of 8% (up from 22%) in 2009.
So, what is a strategic default?
Simply put, a strategic default is when a borrower intentionally walks away from their mortgage loan. These borrowers are typically people who can afford to make their monthly payments; they just choose not to.
The reason they walk away is usually because they owe more on their mortgages than their homes are worth. Some borrowers see this as an opportunity to escape the “negative equity” in their homes, especially during a time when many industry analysts don’t anticipate homes’ values to recover for another decade or so.
Of course, strategic defaults do result in loan defaults, and ultimately, a negative impact on borrowers’ credit scores. Borrowers who opt for this strategy, however, see the credit hit as just a temporary consequence and feel it is worth the opportunity to get out from under their loans.
What’s your perspective?
As a lender, do strategic defaults have you concerned? Do you blame the borrowers for going this route? And what can be done to fix this problem?