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Strategic Defaults Hitting Prime Mortgages

By: Happ Lamm

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Bankers have at least two policies regarding loans - one for them and one for the customers.

I abhor having to be in the fool category.

When it comes to strategic default, financial institutions and politicians and even ministers beg you to pay your mortgage at all cost.

Your children need shoes? Keep your mortgage paid. Wife in the hospital? Pay your mortgage. House valued at $200,000 less than you owe the bank, give up your summer vacation, wolf down some cat food, and pay it nevertheless.

Foreclosure is dire for youLarge employers often check credit reports before making a hiring choice. If you need a loan, a foreclosure is a huge negative. Major apartment complexes, and even some low rent ones, will deny you a rental unit or charge more if your credit is blemished by a foreclosure.
Why do financial institutions and investors fail to pay loans when the underlying asset (office building or shopping center, for instance) is valued at 25% less than the loan amount?

Responsible business.

In relation to underwater mortgages (home is worth less than what is due on the loan), our tribe numbers 11 million families in the United States alone.

More than 5 million homeowners are severely underwater. Many will not live long enough for house prices to get better.

Real estate professionals guess that it will take about 14 years for California homes to return to 2007 values. How many people even stay in the same house for 7 years, much less 14.
People are angry. banks accepted applications from mortgage brokers they knew or should have known were fraudulent. Financial values were discarded. Middle class Americans were purchasing 5,000 square foot McMansions as fast as they could be built.

Your banker made a business decision when he granted the loan. He knew the risks and rewards (interest/profits).

Just what is a strategic default? Strategic default occurs when the homeowner has the ability to repay his mortgage but chooses not to for financial reasons.

Walking away is not trouble-free. You have to bear foreclosure proceedings and eviction. You have to find a new house to inhabit. Moving is a inconvenience, but is it any less trouble than giving the financial institutions hundreds of thousands of extra dollars for a house not worth the amount owed.

More than one-third of all foreclosures are now due to strategic mortgage default. I expect that number to rise when more rounds of Adjustable Rate Mortgages reset in late 2010, this time in the prime market, not subprime.

Keep in mind, it's a house, a piece of real estate. Don't obsess over a house. It's your loved ones that count - your spouse, your kids, your extended family.

If it is in your family's best interest to strategically fail to pay, get all set:

- if you intend to move into an apartment, uncover one at this time before your credit takes a slap

- if you want to submit an application for a new job, do so at once

- if you need a new car, buy it now

If you are about to to deploy the strategic default line of attack, check with your local attorney to see if you reside in a recourse or non-recourse state. If the bank can pursue a deficiency judgment against you for their deficits, you need to be advised on all solutions available to you - up to and including bankruptcy.

Consult your attorney and accountant, then make your best move.

Article Source: http://depositarticles.com/

Strategic default may be your best strategy for navigating the housing crisis. For more contrarian/alternative financial strategies, visit Burn Down the Freaking Mission. Charles Lamm is a retired attorney now serving as a legal/technical consultant for Accessible Communication for the Deaf (ACD) in South Florida.

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