Underwater homeowners defaulting strategically on their mortgages

Anomalies have increased in the real estate sector following subprime mortgage crisis that has given rise to recession. The fact that the real estate market forms an important part of the economy, deviations or upheavals in the real estate or the mortgage market cause a lot of inconvenience. As a result the economy was badly hurt and is still fragile. An extensive research on consumer attitudes was conducted recently. The findings are amazing. Reports furnished reveal that majority of the homeowners that have a mortgage loan whose balance is more than the value of the property is choosing to “walk away” from their homes. This is referred to as "strategic default on a mortgage".

It has been observed that homeowners that can afford to pay for their monthly mortgage usually stay current with their payments. However, in case they fall behind on payments and become underwater (when the value of the property is lower than mortgage balance owed) he chooses not to make payments any further. Instead they walk away or abandon the property.

var mf_ticker_style="wide"; Strategic default on a mortgage is different from a "forced default". In this case you simply cannot make payments for the mortgage. The incidence of strategic default on mortgage has escalated noticeably. It is more pronounced in those areas where majority of the homeowners is either facing foreclosure or has walked away. The morality factor or the social stigma associated with strategic defaults in such cases gets diluted. This is because if more number of homeowners intends to strategically walk away from their homes and you happen to stay in the neighborhood, you will have a strong urge to do the same if you are underwater too.

Why are homeowners strategically defaulting on their mortgages?
Following the subprime mortgage crisis, when the number of foreclosures increased manifold and the mortgage market was in doldrums, the Obama administration stepped in to rescue the mortgage market. The mortgage bailout plans were able to help homeowners manage their monthly mortgage payments but it failed to help homeowners that were underwater. So, these homeowners that are strategically defaulting are of the opinion that they will not "throw good money after bad".