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Wealthy but 'underwater' homeowners are giving up on paying their mortgages as a financial tactic, a study finds. Those with smaller loans are less likely to do so.

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Increasingly, homeowners with good credit and no late payments are making what appears to be a strategic decision to walk away when their home's value falls below what's owed.

"The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," concludes a report on research by Experian, the credit agency, and Oliver Wyman, a management consultant company.

The better their credit rating, the more likely homeowners were to default. The trend is most pronounced where prices have fallen furthest: Florida and the West, especially California.

The finding -- that 588,000 borrowers appear to have strategically defaulted in 2008, a 128% increase from the year before -- surprised the researchers. Piyush Tantia, who conducted the research for Oliver Wyman, and Charles Chung of Experian spotted the trend while analyzing 24 million credit files to see what they could learn about mortgage delinquency.

Foreclosure as a financial strategy

Strategic defaulters stand out among the 14 million to 15 million "underwater" mortgages, the researchers said, because they:

  • Pay all their bills consistently and on time until abruptly stopping mortgage payments with no attempt to get current again.
  • Keep current on other debts after defaulting on the mortgage.
  • Keep up payments on home equity lines of credit, sometimes drawing out cash, before defaulting on both the first mortgage and credit line.

This "sophisticated" combination of moves and timing suggests borrowers are employing foreclosure as a calculated financial strategy, said Tantia and Chung. complete story

Source: MSN Money - Marilyn Lewis

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Posted by Real Estate - Associates on October 8th, 2009 9:28 PMPost a Comment (0)
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