Tuesday, May 11, 2010

People Walking Away from the Their Homes at Record Rate

I think people need to stop all of the various plans to keep people in their homes and just let the market take its course. As more Americans in an underwater home start to realize they can just walk away and have the bank take it the more these "strategic defaults" are going to take their toll.

"Strategic" defaults accounted for at least 12 percent of all defaults in February, up from about 4 percent in mid-2007, according to a recent Morgan Stanley (NYSE:MS - News) report. Analysts led by Vishwanath Tirupattur classified a default as strategic when a homeowner who hadn't previously been delinquent made an on-time mortgage payment one month; skipped payments for the next three months; and stayed current on other consumer debt of $10,000 or more.

I mean many people are just not sure why they need to stay in a negative equity McMansion and pay $5000+ a month when they could just rent a similar place for like $3000. Then they can hopefully use that $2000 savings to pay down the rest of their debt.

You also couple this with the fact that the White House and Congress keeps painting the big banks as bad guys and people just think they are "sticking it to the evil banksters that blew up the economy" when they walk away from their mortgage. I guess all that overheated anti-bank rhetoric is going to have a boomerang effect after all.

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