Strategic Defaults Becoming an Ever Bigger Problem

April 27th, 2011
in econ_news

foreclosed-mansion Econintersect:  Real estate expert Keith Jurow has conducted extensive research on the process of strategic default where mortgagors who have the resources to make mortgage payments simply chose not to do so and live rent free until their mortgage is foreclosed.  In some cases, Jurow says, it can mean tens of thousands of dollars in the defaulter's pocket compared to continuing to make payments.

Follow up:

Many strategic defaulters are well to do and have impeccable credit ratings.  But the lure of the easy money that comes from up to two years of free rent before the bank takes possession of the house and then the ability to rent very acceptable (and sometimes equivalent) lodgings for a fraction of the mortgage payment must seem sufficient compensation for these folks who may see their credit score drop by 21% (Jurow reports that as the average).  After all, they can establish whatever credit they need before default and a FICO in the high 500's or around 600 after default is certainly more than good enough for phone, TV, internet and other services, and for car loans as well as for renting with a big security deposit.

And, using an estimate that Jurow provided, the typical strategic defaulter has something of the order $40,000 to $60,000 in his pocket to tide him over.

The concept of mortgage obligation is not one that is universally accepted anymore in the "best" circles.

Keith Jurow is author of the  MVP Housing Market, a subscription publication with actionable data, charts, in-depth analysis and specific advice to help investors, home buyers and seller make better property decisions.

Source:  GEI Analysis 

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