Interesting article in today's L.A. Times shows that having have high credit score are 50% more likely to bail out of their mortgages without any warning, this compare to lower-scoring homeowners.
These people are up-to-date and have never been late on their payments. The total of defaults in this category in 2008 was 588,000, accounting for 18% of total delinquencies lasting over 60 days in the 4th quarter.
Most distressed borrowers try and make their payments at the expense of other accounts, but these 'strategic' defaulters just stop paying.
These defaults usually take place in negative-equity markets in boom and bust areas such as California where it was 68 times higher than in 2005 and Florida 46 times higher. Two-thirds of these defaulters are walking away from their primary home and have high mortgage balances and are in the highest two credit score categories.
These "strategic" defaulters are extremely deliberate in their thinking. They wait until they have defaulted on their mortgages before they back out of their home equity line of credit, thus drawing more cash on the equity line. They area aware of the damage to their credit, but weigh that against how much they owe on a home that is worth much less.
This is a difficult situation for lenders. If they offer a loan modification, these borrowers may default again. But how on earth do you guard against it?
Jane Peters, connecting you to the L.A. real estate scene
Buying or selling real estate in Los Angeles can be an overwhelming process. Contact Jane Peters, Los Angeles realtor specializing in absentee owners, out of town buyers, and those who need that extra attention, in order to make the transaction a smooth, trouble-free, and fun experience.
Search Homes for Sale in Los Angeles
Los Angeles Lifestyle Home Search
Search Homes for Sale in Beverly Hills|
Search Homes for Sale in Brentwood
Search Homes for Sale in Culver City
Search Homes for Sale in Silver Lake-Echo Park
Search Homes for Sale in Santa Monica
Search Homes for Sale in Venice CA
Search Homes for Sale in Westwood-Century City
Other Los Angeles Communities
WOW! Jane, this is surprising to me. Perhaps I am simply naive. It just wouldn't occur to me to do this
I thought it was pretty amazing too. Even if the house is worth less than you owe it will eventually come back and it is your home, after all.
BTW, I am off to the Hollywood Bowl tonight - Ravi Shankar and Bhangra :)
Let few lenders go after them with a deficiency judgment and many will not do it.
Good idea, Moshe.
Jane that was very interesting. I do believe there are people in that category doing just that in Florida. Haven't heard of it yet. We do have people renting there homes out collecting rent and not paying there mortgage.
Actually, Cynthia, there was a whole discussion about this on NPR today. They were talking exactly about that. People walk away from their homes and then rent them out for about the 9 months it takes to get them out.