Defaulting On A Home Loan By Walking Away–How Strategic Defaults Are Being Viewed And Alternatives For Distressed Homeowners

Homeowners who have chosen to strategically default on their mortgage are usually in different positions as to why they have elected to take this route, but there are some men and women who feel that defaulting on a home loan where severe negative equity is in place has become a more viable option despite the fact that it is viewed in a very negative light by some. Also, when it comes to defaulting by walking away, homeowners may not have explored all alternatives that are available, particularly for those who are in a distressed financial situation, which could lead to more affordability on their mortgage payments.

Yet, many who are strategically defaulting are in a position where they feel their home to be an investment and they have walked away as a result of not wanting to continue to fund what they feel to be a losing investment, which would in other cases have been a profitable venture in the future. Simply put, homeowners who have a home that has seen a drastic decrease in its value are of the mind that they cannot sell their home for a profit later in life, relocate to a more affordable living arrangement, and use profits from the sale to meet their personal financial needs.

Arguments continue to arise though, that homeowners who do strategically default may not be looking at the big picture, are obviously doing a great deal of damage to their credit score, and should look for opportunities that may be available for principal forgiveness, underwater home loan refinancing, or other options that may be available when it comes to dealing with severe cases of negative equity. Again, some homeowners are not in a position where cost is a factor but they see their home as an investment, so for these men and women, it has become more apparent that even a hit to their credit score will not stop them from walking away from their mortgage commitment.

The problem that has been seen though, is that many of these men and women are still viewed as a relatively safe credit risk and there have been reports in the early parts of June which state that homeowners who have strategically defaulted are keeping other debts current, like credit cards or personal loans, but have simply chosen to stop paying on their mortgage commitment due to decreased equity.

It’s understandable that homeowners who are in a position where substantial devaluation has occurred are frustrated, but depending on how long a homeowner plans to stay in their home and for what reasons, there may be some solutions. There are homeowners who feel that they can walk away from their mortgage, repair their credit, and reenter the housing market at a more profitable time rather than simply waiting out the current decreases that are being seen in the hopes of regaining their property value back years down the road.

While strategic defaulters who see their home as an investment may be hard to convince to stay with their mortgage commitment, homeowners who are simply looking for a way to find more affordability in spite of the decreases in their home’s equity do still have extension plans from HAMP, like the Home Affordable Refinance Program and state-specific aid, which could be helpful when it comes to keeping their home.