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Florida Mortgage Rescues Fail - "Rational Defaults"
February 15th, 2009 10:41 PM

Foreclosure Crisis - Mortgage Defaults Continue

The Obama Administration wants banks to offer loans with easier terms to more than 2 million borrowers in danger of defaulting on their mortgages, twice as many as 2008. That won’t stem the foreclosure crisis if prices keep falling.

A third of owners will walk away when the value of their homes drops 20 percent or more below what they owe, even if they can afford the payments, a situation known as “rational default,” said Norm Miller, director of real estate programs at the University of San Diego School of Business Administration.

“The biggest reason modifications end up re-defaulting is because they are in markets where prices have continued to go down,” Miller said in an interview. “When people are underwater and don’t see an end to it, a lot of them just walk away, even if they can make their payments, because they don’t want to be wiped out financially.”complete story 

Source: Bloomberg.com - Kathleen M. Howley

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Posted by Real Estate - Associates on February 15th, 2009 10:41 PMPost a Comment (0)

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