Strategic Defaults Increase

HAFA Short Sale Help for Homeowners, Buyers Can Help Also

The increase in strategic defaults will have a huge impact on the recovery of the housing markets. "Strategic defaults", the intentional non-payment on the borrower's behalf to avoid making payment on a home that has an upside down mortgage, but still makes the credit card payments and auto loan payments on time.

The Morgan Stanley report estimates that 12% of mortgage defaults in February were strategic. Other reports estimate an even higher proportion of this type of loan default.

The problem with with strategic defaults is that is causes a contagion effect. According to Sam Khater, senior economist for CoreLogic, a provider of consumer, financial and property information, as more and more homeowners watch friends and neighbors walk away from their homes, it becomes more socially acceptable to do so. The result? Serious ramifications on personal credit histories, the health of neighborhoods, and the entire future of mortgage lending.

"If you know someone who has defaulted strategically, you're more likely to declare you're willing to do it," said Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago's Booth School of Business.

There are many options available to avoid foreclosure. We have put together a number of guides with information on seller options to include:

Avoiding Loan Modification Disasters and a HAFA short sale guide on the new government short sale program. It includes information on relocation assistance money and lease-purchase home options.