Most media coverage of home mortgage defaults has focused on homeowners who can’t afford to pay their mortgages.
But some who can afford to pay are simply walking away. They are making a strategic decision based concern that their homes are now worth less than the loans themselves and won’t catch up for years.
Such “strategic defaults,” in which homeowners cease mortgage payments while remaining current on other financial obligations, jumped 128 percent to 588,000 last year, according to Experian, a Dublin-based credit-checking company, and New York consulting firm Oliver Wyman.
About 67 percent of the strategic defaults came on homeowners’ primary residences.
“You’re looking at an extremely long horizon in order to see a return of home values to where they were at their peak,” Stan Humphries, chief economist for real estate research firm Zillow.com, told Bloomberg News.
“It could be 15 to 20 years in some markets.”
Across the country 26 percent of homeowners owe more for mortgages than their homes are worth, Karen Weaver, head of securitization research for Deutsche Bank Securities, told Bloomberg.
So strategic defaults may continue to rise, depressing the housing sector and economic recovery.
While home prices have risen three straight months according the S&P Case-Shiller Index, the index’s co-founder Robert Shiller remains cautious.
“The most likely scenario is that it (the index). . . will neither go down a lot, nor up a lot” in the next five years, he told The Wall Street Journal.
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