On the subject of "strategic default"

[-M-]

Has this development been discussed? From "Mortgage cops taking tough stance: Office of Inspector General on the prowl for strategic defaulters" (Chicago Tribune, September 13):

 

Investigators are searching not only for lenders who have sold materially deficient loans to Fannie and Freddie, but also individuals, including those who reneged on their promises to repay their mortgages. So if you are a "strategic defaulter" who decided it was better to walk away from your obligation than to keep paying for a house that was worth substantially less than you owed, it's time to start looking over your shoulder.

 

 

 

 

 

No one knows for certain how many borrowers fit the rather amorphous strategic defaulter mold. But credit repository Experian estimates that 20 percent of all foreclosures are the result of walkaways, people who could afford to make their payments but who decided not to.

 

 

 

 

 

These are not just borrowers who made a personal, strategic financial decision not to pay. In some cases, they remained in their houses for months or even years, living free on the government's dime — and yours and mine — before moving on. In other instances, they profited handsomely by renting their properties to unsuspecting tenants, collecting rent for many months but never paying lenders.

 

[-M-]

I checked back to see what folks had to say and was, well, surprised since the subject of strategic default has been debated here (hotly, as I recall). This development could prove rather disastrous.

[Scarlett]

I checked back to see what folks had to say and was, well, surprised since the subject of strategic default has been debated here (hotly, as I recall). This development could prove rather disastrous.

 

Lots of this stuff going on. Sadly it is another example of lack of personal responsibility. When I listen to my dh tell how he eventually lost his house after his first wife divorced him I am sad. He had a set of circumstances thrown at him---none of which were his fault--that no one could reasonably be expected to overcome.

 

I imagine these strategic defaulters are also the ones buying above their means to begin with.

[Joker]

Lots of this stuff going on. Sadly it is another example of lack of personal responsibility. When I listen to my dh tell how he eventually lost his house after his first wife divorced him I am sad. He had a set of circumstances thrown at him---none of which were his fault--that no one could reasonably be expected to overcome.

 

I imagine these strategic defaulters are also the ones buying above their means to begin with.

 

Not all defaulters bought above their means, though. Our house was inexpensive and is only 1000 sq ft. We didn't buy above our means, but we owe about $50K more than it's worth right now. Full disclosure ~ we paid $150K and the same houses are on the market/have sold for $95K or less. A few in our area have walked away, and we've thought about it. Dh was offered a job back home, but we knew we couldn't get out from under our mortgage. We feel stuck, and it's a horrible feeling since we've done nothing wrong. If anything happens with dh's job, we probably would end up walking away. We were moved here by his company for this job, and there's not much else here for what he does.

[Scarlett]

Not all defaulters bought above their means, though. Our house was inexpensive and is only 1000 sq ft. We didn't buy above our means, but we owe about $50K more than it's worth right now. Full disclosure ~ we paid $150K and the same houses are on the market/have sold for $95K or less. A few in our area have walked away, and we've thought about it. Dh was offered a job back home, but we knew we couldn't get out from under our mortgage. We feel stuck, and it's a horrible feeling since we've done nothing wrong. If anything happens with dh's job, we probably would end up walking away. We were moved here by his company for this job, and there's not much else here for what he does.

 

I notice that you haven't defaulted though. :)

 

If your dh lost his job and couldn't find another in the area and your only option was to move then I can see that you might not have a choice. You would not be in the strategic default camp though.

[Sneezyone]

Has this development been discussed? From "Mortgage cops taking tough stance: Office of Inspector General on the prowl for strategic defaulters" (Chicago Tribune, September 13):

Investigators are searching not only for lenders who have sold materially deficient loans to Fannie and Freddie, but also individuals, including those who reneged on their promises to repay their mortgages. So if you are a "strategic defaulter" who decided it was better to walk away from your obligation than to keep paying for a house that was worth substantially less than you owed, it's time to start looking over your shoulder.

 

 

No one knows for certain how many borrowers fit the rather amorphous strategic defaulter mold. But credit repository Experian estimates that 20 percent of all foreclosures are the result of walkaways, people who could afford to make their payments but who decided not to.

 

 

These are not just borrowers who made a personal, strategic financial decision not to pay. In some cases, they remained in their houses for months or even years, living free on the government's dime — and yours and mine — before moving on. In other instances, they profited handsomely by renting their properties to unsuspecting tenants, collecting rent for many months but never paying lenders.

 

The house is the collateral for the loan. Unless you live in a state where the bank can come after you for a deficiency judgement (which may be the case in IL) there's nothing they can do. Similaryly, OIG can do nothing about loans that aren't federally backed. Many of the people strategically defaulting had exotic ARM loans and non VA/FHA conventional loans.

[Barb_]

We've considered strategic default. We bought our house for $479k back in 2006 because that is what houses were going for back then. Dh lost his job in the Spring of 2010 and moved to Chicago for work. He took a 25% paycut and added the costs of an apartment in the city as well as plane fares. We've been separated for over two years, but technically any default would be strategic because we can afford the payment. At the bottom, our house was worth s little over $200k. Most of our neighbors have walked away and I totally understand why. It is not a moral decision, but a financial one. We've decided to stick it out because it turns out we all get along better long distance for the time being. Shrug. It just isn't something you can possibly understand unless you are in the middle of the worst of it.

 

Even though there is limited or no recourse in our state, I'm glad we've decided to hold our ground because I really don't want to start over.

[abacus2]

Sounds like they aren't (can't?) going after strategic defaulters, but rather are going after people who lied on mortgage applications after a strategic default. People are not allowed to commit fraud, but they are allowed to make business decisions just like mortgage companies do all the time. I wonder how many of these "strategic defaulters" can really afford to pay, because I'm guessing they don't have excess money just sitting in their bank accounts that could have paid off their mortgage.