Study Says Emotion Driving Mortgage Defaults for Many
A University of Arizona study released earlier this month says that many of the homeowners who are defaulting on their mortgages are doing so out of fear, anger or despair rather than making the decision based on their best financial interests.
From an article at wsj.com:
Though small—covering just 350 people—the study spotted a notable trend. Some of these people have stopped paying because they are anxious about their financial situation; others are furious that banks or the government won't help ease their load while other people are getting assistance. Hopelessness is a factor for others.
Brent White, an associate professor of law at the University of Arizona who ran the study, focused on "strategic defaults" in which a borrower who could afford to keep paying opted not to do so. That phenomenon is frequently described as a rational response by homeowners who are "underwater," owing far more than the current values of their homes.
But that isn't always the case. It depends on the cost of alternative housing and on future home-price movements, which are hard to predict. Also uncertain is how many years a borrower may need to repair a credit rating and whether the lender may try to collect any amount by which foreclosure-sale proceeds fall short of the loan balance.
Strategic defaults are becoming more common, various studies show—a Morgan Stanley report pegged them at 12% of all home-mortgage defaults in February, up from "insignificant levels" three years ago. Lenders fear borrowers who "walk away" will greatly increase the industry's foreclosure-related losses, which already total in the hundreds of billions of dollars.
If you are a Florida homeowner facing possible foreclosure and need to know about all your legal options, contact our Jacksonville, Florida foreclosure law firm.
Greg Gilbert
Keith Maynard
