12 Percent of Mortgage Defaults in February Strategic

April 29, 2010 No Comments »


More homeowners are walking away from their mortgages (and their homes) voluntarily, according to a new report from Morgan Stanley.

In February, the last month for which data was available, 12 percent of mortgage defaults were strategic, meaning they were for planned for and voluntary.

That’s up from just four percent in mid-2007, per the study led by Morgan Stanley analyst Vishwanath Tirupattur.

The findings also suggest borrowers with higher credit scores and larger loans, those in the jumbo mortgage realm, are more likely to stop paying their mortgages while staying current on other costly obligations.

Strategic defaults also seem to be driven by how deeply underwater borrowers are – the higher the negative equity, the better the chance they’ll walk away.

A research paper published last year suggested that more than a quarter of all mortgage defaults were strategic, especially when negative equity exceeds 15 percent.

That’s certainly not good news for residents of Sin City, where negative equity affects 70 percent of those with mortgages.

Oh, and the typical homeowner currently underwater on their mortgage won’t see positive equity until 2015, which explains why some may opt to throw in the towel.

In Vegas, underwater borrowers can expect 2020 home equity to average just $1,039; not much to look forward to.

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