More homeowners choose to default on loans

Discussion in 'Economy' started by hvactec, May 27, 2010.

  1. hvactec
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    hvactec VIP Member

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    CHICAGO (MarketWatch) -- "Strategic defaults" are on the rise as more borrowers who are underwater on their home loans decide it's not worth it to stay current on their payments each month. That trend could have repercussions for the housing market, and for borrowers, in the future.

    Strategic defaults are when borrowers who owe more on their homes than they're currently worth choose to stop paying their mortgage but continue to meet other financial obligations, according to a definition by Morgan Stanley in a research report on the topic.

    In other words, these homeowners neglect their monthly principal and interest payments, but still pay other bills on time, including credit cards and auto loans.

    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.

    Growing social acceptance of this behavior could have ramifications not only for personal credit histories and the health of neighborhoods, but also for the future of mortgage lending, according to those studying the issue.

    For one, there's a contagion effect: As more people watch their friends or neighbors choose to default, the more it becomes a viable option for homeowners who may otherwise wait years just to return to a positive equity position in their properties, said Sam Khater, senior economist for CoreLogic, a provider of consumer, financial and property information. The volume of foreclosures on the market today is also chipping away at the stigma that used to come with defaulting on a home loan.

    full story More homeowners opt to quit paying mortgage Amy Hoak's Home Economics - MarketWatch
     
  2. manifold
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    manifold Diamond Member

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    :rofl:

    If you're wondering why I'm laughing, it's because of the serious fucking irony related to the fact that Morgan Stanley themselves, "strategically" defaulted on three high rise office buildings in Manhattan. :lol:

    Hey, if it's ok for corporations to do it, it's ok for Joe Public too. When you take out a loan to buy property, the property itself is the collateral. For people in this situation, it's not only ethically ok, it's prudent and sound business.
     
    Last edited: May 27, 2010
  3. Neubarth
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    Neubarth At the Ballpark July 30th

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    It is a rapidly growing trend. This depression is getting more and more frightening by the minute.
     
  4. Queecho Feecho
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    Queecho Feecho Rookie

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    The federal government is doing the public a massive disservice by claiming there is a recovery.
     
  5. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    This is what happens when the government declares that owning a home is a right, and funnels taxpayer money towards institutions and individuals to get people who cannot afford them into homes. The extreme housing inflation has put many home owners underwater who could pay their mortgages - but why should they when the government is bailing out their neighbors?

    The moral hazard of government interference in the markets always ends up costing more than the benefit being sought via the program.
     
  6. william the wie
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    william the wie Gold Member

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    The return to 1980s prices in real estate and China's labor pool forced decline due to the one child policy later this year is going to be interesting. Here in FL tax sales are picking up but there was a local news story about the lack of buyers. The lack of Chinese goods due to a lack of Chinese workers is another problem area that is developing.
     

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