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Tenpoundbass
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2012 Oct 30, 6:02am
People don't strategically default for the same reason that they vote for a democrat or a republican.
Path of least resistance, lack of knowledge, unwillingness to change. Actual answers from my under water friends and coworkers.
In times of crisis, people generally don't judge others with as much scrutiny as they would in good times. How ever when the worm turns, and better times are ahead, and people can breath again. That's when they start to think about the stuff they saw along the way. It's then they want to hold people for what they did back then.
Those people that didn't strategically default, will hold them selves morally above those that did. It's no different than a college kid that will hoot an holler and cheer some college girl on as she strips at a patio bar wet T-Shirt contest.
How ever 10-15 years down the road, that girl wont stand a chance getting a job, when she shows up at that same persons office for a job interview.
"Hey I know you! Did you ever enter a wet t-shirt contest at the Elbow room on Las Olas back in '89?"
rufita11
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2012 Oct 30, 6:06am
My parent's long time neighbor, got over 500K as a second on her house during the height of the bubble. She told my dad that she got her money, so the bank can have the house whenever they want it. She's been living rent free for over a year now. I double checked this on Zillow--she wasn't lying.
BayArea
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2012 Oct 30, 7:04am
How ever 10-15 years down the road, that girl wont stand a chance getting a job, when she shows up at that same persons office for a job interview.
I would expect that she would be the #1 candidate for the job, ahead of you and I.
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Why isn't everyone underwater on their mortgage strategically defaulting?
1. It takes the average foreclosure 600 days to complete. Rounding, lets call it 2 years. (Source: http://allfinancialmatters.com/2011/12/02/the-average-foreclosure-length-631-days/)
2. By definition of being underwater, the owners have no equity left.
3. Median price of a home in '07 was $247,900 (Source: http://www.census.gov/const/uspriceann.pdf).
4. Assume they had a prime loan, for some reason, @ 5% (Source: http://www.bankrate.com/funnel/graph/default.aspx?cat=2&ids=1,-1&state=zz&d=1825&t=MSLine&eco=-1) with 20% down ($49,580).
5. Their monthly mortgage payment is ~$1,0000.
6. After the 2 years, they would have accumulated $24,000 in cash savings. Not to mention not paying for insurance & maintenance. (I assume you have to pay taxes still or face prison time?)
Why the heck wouldn't you default and squat? Am I missing something?
#housing