Survey Suggests More Homeowners Are Open to Strategic Default
03/21/2012 By: Carrie Bay 
Alarming number of homeowners see strategic default as a viable option should their home continue to depreciate. 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.
Five years into the housing downturn, and Housing Predictor found that 47 percent of those surveyed would intentionally stop making their mortgage payments even if they could afford to in order to get out from under the sinking investment of home-sweet-home.
The number of mortgage borrowers open to strategic default has risen sharply since Housing Predictor last surveyed public opinion on the issue roughly a year-and-a-half ago. In October 2010, 36 percent of homeowners participating in the poll said they would throw in the towel should housing prices continue to drop.
Housing Predictor says the foreclosure crisis, falling home prices, and lingering doubts that the value of homes will increase over most homeowners’ lifetimes are contributing to the increase in mortgage holders who say they will walk away.
Five years into the housing downturn, and Housing Predictor found that 47 percent of those surveyed would intentionally stop making their mortgage payments even if they could afford to in order to get out from under the sinking investment of home-sweet-home.
The number of mortgage borrowers open to strategic default has risen sharply since Housing Predictor last surveyed public opinion on the issue roughly a year-and-a-half ago. In October 2010, 36 percent of homeowners participating in the poll said they would throw in the towel should housing prices continue to drop.
Housing Predictor says the foreclosure crisis, falling home prices, and lingering doubts that the value of homes will increase over most homeowners’ lifetimes are contributing to the increase in mortgage holders who say they will walk away.
Housing Predictor’s results are based on responses provided by 1,000 visitors to the company’s website.
A recent study commissioned by the Mortgage Bankers Association called attention to the fact that the vast amount of media coverage dedicated to the financial crisis and the persistent woes of the housing market has made homeowners take note of their equity position.
For those who owe a great deal more on the mortgage than the home is now worth, the idea of simply walking away before the situation worsens has its allure. A market report issued by Moody’s Analytics last July warned of the growing risk of strategic default among loans that have always performed, meaning the borrower has remained current since taking out the loan.
Moody’s analysts explained that as home prices fell over the previous year, the loan-to-value ratios (LTVs) of these always-performing loans began to approach, and in many cases surpass, average LTVs for loans that have defaulted since 2009. They point out that this is a departure from what they’d seen up until the middle of 2010, during which LTVs for always-performing loans had stayed flat or even decreased slightly.
Back in July, Moody’s analysts identified between 12 percent and 24 percent (depending on the asset type) of always-performing loans with LTVs that were higher and had risen more steeply than those of defaulted loans.
“Rapid rates of LTV increases may themselves be a factor in a borrower’s decision to strategically default, since they may quickly erode any remaining confidence in borrowers that they could ever restore positive equity in their property,” Moody’s said in its report.
FICO estimates strategic defaults to be more than a $20 billion problem annually.
A recent study commissioned by the Mortgage Bankers Association called attention to the fact that the vast amount of media coverage dedicated to the financial crisis and the persistent woes of the housing market has made homeowners take note of their equity position.
For those who owe a great deal more on the mortgage than the home is now worth, the idea of simply walking away before the situation worsens has its allure. A market report issued by Moody’s Analytics last July warned of the growing risk of strategic default among loans that have always performed, meaning the borrower has remained current since taking out the loan.
Moody’s analysts explained that as home prices fell over the previous year, the loan-to-value ratios (LTVs) of these always-performing loans began to approach, and in many cases surpass, average LTVs for loans that have defaulted since 2009. They point out that this is a departure from what they’d seen up until the middle of 2010, during which LTVs for always-performing loans had stayed flat or even decreased slightly.
Back in July, Moody’s analysts identified between 12 percent and 24 percent (depending on the asset type) of always-performing loans with LTVs that were higher and had risen more steeply than those of defaulted loans.
“Rapid rates of LTV increases may themselves be a factor in a borrower’s decision to strategically default, since they may quickly erode any remaining confidence in borrowers that they could ever restore positive equity in their property,” Moody’s said in its report.
FICO estimates strategic defaults to be more than a $20 billion problem annually.
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