In the past, the prospect of foreclosures was a remote possibility- a nightmare for those who had taken out mortgages to pay for their property. But a two year old recession has changed the situation and has caused the burgeoning of foreclosure properties in the nation at a record level. In the case of many families whose homes are worth much less than that which they owe, they are forced by financial and emotional pressure to walk away from their homes.
Mostly in regions affected by falling real estate values like San Joaquin Valley, most people who cannot afford their mortgage are walking away from their homes and allowing banks to repossess their homes. This point is called as “Strategic Default”. It stems from desperation because of plunging home values since the buyers invested in these properties during the real estate boom and banks are reluctant to offer loan modification schemes that can help to avoid foreclosures.
For example there is a home owner who has a mortgage of $400,000 and the homes around him are selling for $120,000. The only sound option for him is to walk away and let his home be foreclosed. A property broker points out that walking away is the best solution when you find that your neighbor is renting for $1500 per month and your mortgage is worth $3000. There are few findings on what caused foreclosures- choice or crisis. But a University of Chicago survey pointed out that ‘strategic’ defaults occur in one third of mortgage defaults in the US.
Foreclosure is no longer an F word, there is less stigma attached to it now. Mortgage delinquency rates and Foreclosures are among the highest in San Joaquin Valley. There is also great confusion about the recovery of the Real estate market. As such experts believe that strategic defaults in this area are bound to increase.
According to Walter Dees, Los Angeles based real estate counselor, people are walking away from their homes in every county in California. This is because they don’t see a point to hold onto a home that is worth lesser than that they owe and which will take ten or more years to recover its value. According to Dee many people caught in this situation are not getting help from their lenders. People try to modify their loans and if they do not succeed, they eventually walk away from their homes.
Experts calculate that over 25% of US mortgage payers are ‘under water’, in which they owe more on their loan than what their home is worth. Foreclosures are thus no longer a bad word but a viable option for those under strategic default.
