Strategic Defaulters on the Rise

Strategic Defaulters on the Rise
When real estate is doing well and home equity is on the rise, home owners would never think about not paying their mortgage. After all, by doing so, a home owner is creating a huge blemish on their credit. The current real estate trends have changed the way people look at their mortgage bill and whether they should pay it or not. There is a lot of evidence and news about home owners who have opted to stop paying their mortgage bills.

This group of home owners are called "strategic defaulters". They are those who have decided, for one reason or another, to stop paying their mortgage. Many have chosen to walk away and let the bank take back ownership of the home.

There are several reasons why people do this. Many home owners paid much more for their home several years back than what the house is worth today. If the home has lost so much value in the current real estate market, a homeowner is no longer gaining equity in the home each month that the mortgage is paid. They feel that it will take too long for them to recoup the money that has been lost due to declining home values. Therefore, instead of holding on, they decide to walk away and figure that they will try to buy another home in a reasonable amount of time.

When this is the case, many home owners feel that they are just renting their home from the bank. They continue to make current payments on all of their other bills except the mortgage. If they try to sell the home, they will owe the bank the difference between the sales price and the outstanding mortgage. If they stop paying the mortgage, they can possibly modify their loan with the bank. Others are opting to just walk and leave the home to the bank.

Congress has suggested that these strategic defaulters be discouraged from this behavior by not allowing them to be approved for an FHA mortgage in the future. Although many may think that this is wrong considering the way the whole real estate industry broke down and the banks involvement in it, others who continue to struggle to make their mortgage payments are the ones who feel punished. Morally they are doing what they feel is the right thing but yet they are turned away from being helped by their lender.

Each day has a new turn of events in the real estate and mortgage industry. It will be interesting to see what develops with strategic defaulters and what the next big event will be.

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