Nearly 1 in 3 Foreclosures may be Strategic

Marcella S. Kreiter of United Press International posted the following story:

"The financial crisis and ensuing recession apparently changed the mindset of Americans toward their homes, turning what long has been the American Dream into just another financial investment. The result, strategic defaults – people walking away from the property and mortgages not because they have to, but because they can.

The key consideration is time, said Jon Maddux, of YouWalkAway.com, which helps people turn their properties back to their banks. Some experts estimate nearly a third of all mortgage defaults – 31 percent – are of the strategic variety.

RealtyTrac reported 2 million foreclosures in September and said one in 371 housing units received a foreclosure notice. Foreclosures are running 65 percent higher than last year in the third quarter.

“People who made the decision to buy at the wrong time got stuck in a house that may not recover (its value) for 10 to 15 years. Does it make sense to keep it as an asset? No. It’s throwing good money after bad when it takes so long to break even. So they decide to stop now. Their credit will recover in three or four years,” Maddux told UPI.

As the housing bubble burst, real estate values plummeted and homeowners found themselves “underwater” – owing more than their homes were worth.

Banks made the situation worse, giving people who wanted to refinance a hard time, even refusing to do anything for them at all – sometimes because the homeowners were still making payments.

The federal government has to take some of the blame. As Washington pushed banks to make homeownership easier, bankers heard “open the floodgates,” Maddux said. Banks started offering no-money- or little-money-down mortgages to people who wouldn’t be able to sustain the payments for the long-term, then bundled the mortgages into security instruments and sold them off."

The greed of these banks followed by their bailouts and subsequently their insane profits over the last year have made walking away all that much easier. But if the market is going to recover, Americans need to own up to their bad decisions and stay in their homes -- even if it's painful. (Keep in mind, I owe about $30,000 more than my townhouse is worth... and I'm still paying).