Mar 26, 2012
Can we please shut up about "strategic default" already?
26 Mar 2012
Posted by Andrew Kantor
There’s yet another sky-is-falling article about the dangers of gobs of homeowners that will stop paying their mortgages if property values continue to drop. This one’s from DSNews.com, and is based on an online poll (!).
“An alarming number of homeowners see strategic default as a viable option should their home continue to depreciate,” says the article. “Almost half of the homeowners participating in an online poll from Housing Predictor say they will walk away from their mortgage obligation if falling home values persist.”
We’re not talking about people who can’t afford their mortgages. This is supposedly people who can afford to pay, but will suddenly opt for foreclosure rather than send a check.
Does that make any sense?
Yes, if you have to move and can’t sell your home, I can see strategic default looking like an option. But most people don’t have to move. So the fear is that — although they’re happy where they live, plan to say, and can afford it — people are suddenly going to stop making payments.
“Hey, honey, stop painting the baby’s room. I just got the house appraised, and it’s worth less than we paid for it. Let’s let the bank take it from us. We should be able to find some other home, and in seven years our credit will recover.”
People will grumble that their property values have gone down. They certainly worry about what they’d do if they had to sell. But let’s be real: No one who is happy where they live is suddenly going to abandon their home (and take the huge financial and credit hit) simply because the value has dropped.
Or will they? Discuss.