The dilemma today for many considering loan modifications or even considering whether to move from the trial to the permanent phase of the process is whether it is worth it in the long run. Current programs lower interest rates and make the payback longer but do not address the loan’s principle. With many homes worth less than the principle or “under water,” some owners feel negative about paying for a home that could not command the price they paid.
This is encouraging some homeowners to strategically default on their loan before they are even delinquent. Knowing that delinquency might affect their ability to apply for a new loan or even to get a decent rental, they are getting their next step in place before they make a move. Even if they can pay the loan, the decision to strategically default may be based on the math of it all. They determine that over the life of the loan, they will pay 10’s of thousands of dollars more for their property than it is worth. They know their credit score will take a hit, but they anticipate that by the time their credit rebounds they will have saved a bundle.
This is a new variation on what some homeowners do out of frustration: walk away from a house they are delinquent on and mail the keys back to the bank. Banks hate this “jingle mail.” While it may seemingly solve a problem for someone already deep in debt, they may well receive a double whammy: they now have bad credit AND a bank may be coming after them. The bank may come after the first group too, but the strategic defaulters are betting this won’t happen.
According to a new study by credit bureau Experian and Oliver Wyman Consulting, twice the number of people who did this in 2007 did so in 2008. Based on their evaluation of 24 million credit files, strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and nosedived since 2006. The study found a 68% increase in strategic defaults in California, compared to a 9% increase elsewhere.
Not surprisingly, banks are less enthusiastic about strategic defaulters than regular walkways. The major credit bureaus are developing tools to identify strategic defaulters and refuse loan modifications to this group, as they are likely to strategically default even after the modification.
All of this lends some background to what can be a more personal problem: the need to sell your house, fast. If that is the case, contact us at Express Homebuyers. We buy houses, no matter what the condition. We’ll give you a fair shake and you can sell your house for cash, fast. Check out our website for some useful secrets to selling your home fast, then give us a call at (877) 804-5252.