What are strategic defaults on mortgages?

Of late a trend is being observed in the mortgage market referred to as "strategic defaults" on mortgages. When you strategically default on a mortgage, it means that although you have the ability to make payments, you don't want to do so since the value of your property has nosedived. In other words, when the value of your mortgage far exceeds the value of the property (by at least 15%), you tend to default on your mortgage strategically.

Studies reveal that approximately 26% of the mortgage defaults are due to strategic defaults. The mortgage bailout programs that were introduced by the Obama Administration aimed at making the monthly mortgage payments affordable. But it failed to address the needs of the underwater homeowners.

Reports also suggest that strategic defaults were there even during the recession that occurred during 1990 to 1991, but the number of homeowners defaulting strategically on their mortgages now is even more pronounced.

Why are homeowners defaulting strategically on their mortgages?
Underwater homeowners that are defaulting strategically on their mortgages are doing so because they are of the opinion that they don't want to waste good money for a property that is no longer an asset but a liability.

There is also a moral and social side of strategic defaults. There are many homeowners that are aware that this may not be the right way of getting rid of mortgage payments (although majority of them can afford but they no longer want to do so since they are underwater). But it has been observed that those areas where cases of strategic defaults are more pronounced, homeowners residing in and around the area are more likely to join the bandwagon.

A survey conducted suggests that at least 77% of the homeowners may not declare that they intend to default strategically. But if homeowners living in an area where incidence of strategically defaulting on mortgages is high, approximately 82% of the homeowners residing in the same area may declare their intention of strategically defaulting on their mortgages.

Get the highest possible value while selling your home

Today I will discuss about one of the major challenges that most of the home owners do face today and that is putting the right price tag price to the property. Have you ever thought that when you put a very high value to your property then you might be the ultimate looser for that, because a prospective buyer will be really scared of that price which you will put against your house? It might be otherwise too, because it might happen that the tag price that you have set against your house is too low compared to the market price.

In order to maintain a proper balance between these two factors you need to take care of few things while putting a tag price against your home. Those points have been mentioned bellow:

1) The first thing that you need to do is to sense the local real estate industry. For this you might need to ask for help from a professional real estate agent. But there are certain things that you might learn on your own. For example there might be a price that you think to be right from your point of view and there might be another price that is right from the point of view of buyer. But if there will be a huge difference between these two prices then it might not fulfill your target. So you and the prospective buyer can negotiate regarding this and fix the matter so that the result may turn out in sale.

2) Another point that might work in your favor is the location of your home. It works just like the law of supply and demand. For example, if your home is located near a special economic zone then you might set a higher value to your house. Because here the location will work in your favor and it will be a correct decision to set a higher value.

3) There are some other factors also that may affect the sell price. For example, if as a property owner you are trying to sell your home very quickly then you might have to compromise with a lower price. But if you will think from the point of view of a buyer then the buyer will definitely think why you have set such a lower price when he will notice other houses in your area having much higher price. It might affect the total selling process.

At the end I will suggest you to be practical while setting your sell price. It would really be a very challenging job as you need to take whole lot of things into consideration. So take decision wisely.