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Banks Watching For Strategic Defaults Closely
By Vic Hurlstorm | August 22, 2010
Fred Weaver and Kevin Kauffman, Arizona’s best short sale squad, is talking about a recent article on the topic of strategic defaults. Apparently Experian finds that 19% of mortgage defaults in the second quarter of 2009 were calculated. First of all, the data are fairly old. Also worth noting is the reality that there is no lucid definition of who is strategic defaulting and who is not. Apparently, they are defining strategic by looking at financial and credit reports and assuming that the home owner could have paid their mortgage. This is 80% more than 2005, which is kind of obvious, isn’t it.
Kevin’s estimates are that current short sales that are strategic defaulters is around 50%. Fanniemae has a unique reaction to strategic defaulters which will be discussed tomorrow. However, before we do that, we should fill you in on something that you might not be aware of. Lots of of your bank servicers are pulling credit on your borrowers and you will possibly have some discussions with negotiators regarding strategic defaults. The strategic default is no secret now. So, obviously, it is being scrutinized even more.
Kevin and Fred were first discussing the strategic default in early 2008. There were a lot less people doing it then than there are nowadays. We noticed it and thought it was extremely interesting. In Arizona, people are realizing that the market has done nothing but get worse. The solutions that the administration and lenders have put out there have essentially been political stunts.
At the end of the day home owners still own houses that are worth $200,000 that used to be worth $500,000. We are not saying that everybody should do it. However, everybody should think about it because it is a wise business decision. Defaulting is a contractual option.
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