No one knows for certain the exact percentage of foreclosures that are the result of people’s decisions to walk away from underwater mortgages, but we do know those numbers are on the rise. Reports indicate that from 14{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} to 18{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of mortgage foreclosures are actually strategic defaults.
In other words, people who are choosing to default on their underwater mortgages while keeping up on their other bills.
What we do know for certain is that more homeowners are finally getting the message that it’s OK to save yourself and your family and strategically default if your mortgage is under water. In one survey, 31{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of people perceived their foreclosures to be strategic, up 9{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} from the year before.
And we also know that the more underwater a homeowner is, the more likely she or he is to think like an investor and be rational in making decisions about the mortgage. This makes sense—it’s a lot easier to be emotional when your mortgage is only 5{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} underwater and you love the house than when you’re 25{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} or more underwater and you’re seeing your retirement being swept away by the tide!
What we’re saying here is that people are finally getting the fact that a mortgage is a legal contract, not a moral obligation. Even the Mortgage Bankers Association, which wouldn’t hesitate to call any actual human being who defaulted irresponsible, defaulted on its mortgage on its own headquarters in February 2010!
So why are more people walking away from their underwater mortgages? We like to think it’s because we’re all getting wiser to the double standards being pushed by mortgage lenders and the banking industry.
When mortgage bankers walk away from their own underwater mortgages, why shouldn’t we?
Let’s take a look at who actually has something to lose here. If you’ve only been in your mortgage for a little while and it’s seriously underwater, you stand to lose tens of thousands or even hundreds of thousands of dollars if you stay in that mortgage. If you’re a lucky lottery winner and can afford that kind of a loss on a mortgage, more power to you.
But most of us have families and other responsibilities. Most of us realize that we’re going to be on our own in retirement. The mortgage lenders and government officials who are telling us to play “the rules”—their rules for us, not for themselves!—certainly aren’t going to be there when we’re trying to figure out how to live from one Social Security check (if that!) to another.
So why should anyone keep trying to swim underwater, so to speak, when we need our hard-earned money to get back to dry land?
We’re not arguing that walking away from your mortgage is a sound moral decision. We don’t think morality is involved here! You have a contract that’s not in your best interests to continue. Your mortgage is sufficiently underwater and you officially have a bad investment on your hands. What do businesses do with bad investments? They walk away from them!
We hope that what you’ve read here and what you’ll read elsewhere on our website will help you realize that walking away from your underwater mortgage may be a sound business decision. And morally, you’re not responsible to your mortgage lender—the lender gets your house, after all! But you are, ultimately, responsible for yourself and your family!
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