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.
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.
