People Walking Out on the Mortgage

More and more people are simply walking away from their mortgage even though they still can make payments.

More will walk away, which will hamper the housing recovery, reinforce lenders' tight credit policies and drag on the economy's recovery, economists say.

"It's increasingly a more important factor driving the foreclosure crisis," says Mark Zandi, of Moody's "As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."

It's not just economists who are concerned about strategic defaults.

The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. "It's a very large number, and it's a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed.

They owe more than the house is worth and when they lose their jobs and things are tight, people are plain making strategic moves, primarily because their loan is larger than the home value.

Subject Meta: 

Forum Categories: 

I know its an ugly word but

debt forgiveness - reduction of principal would have gone a long way earlier on in this crisis and may help a little know. But it means haircuts for creditors and financial oligarchy. These loan modifications now are just rearranging the size of payments and not addressing the fundamental problem - negative equity.

It's time to look at change our entire home finance system. - Financial Information for the Rest of Us.