Strategic-Default Risk Grows Among Underwater Borrowers

Posted by Orb Staff on December 08, 2010 No Comments
Categories : Mortgage Servicing

The percentage of U.S. borrowers who would consider strategically defaulting if their mortgage is underwater increased seven percentage points from May, according to the results of a survey conducted recently by Harris Interactive on behalf of Trulia and RealtyTrac. Nearly half (48%) of homeowners with a mortgage admitted that they would consider walking away if they were in a negative-equity position – an increase from 41% in May.

If they became unable to pay the mortgage payments on their current primary residence, two-thirds of U.S. adults with mortgages said they would consider calling the lender and trying to modify the terms of the loan as their first option. The next most popular solution was to have a tenant move in to contribute to the mortgage, but only 10% of U.S. adults would do this.

The Harris Interactive survey, which was conducted in early November and covers an array of housing topics, also shows that 58% of U.S. adults expect the housing market to recover after 2012.

As a result of the recent robo-signing debacle, half of U.S. adults expressed that they now have less faith in mortgage lenders, banks and the government. Another 35% believe the robo-signing issue will delay the housing market's recovery, while only 6% of U.S. adults think the robo-signing issue will have no effect on the recovery of the housing market.

"Government incentives have come and gone, and historic lows in interest rates have done little to spur recovery,’ explains Pete Flint, co-founder and CEO of Trulia. ‘Then, as if prospective buyers and sellers needed more to be concerned about, the robo-signing issue caused a "what's next?' fear to surface in the minds of consumers who, frankly, have lost faith in banks and their government to make good decisions."

The survey also queried respondents on their attitudes toward purchasing foreclosed properties. Forty-nine percent described themselves as ‘at least somewhat likely’ to consider buying a foreclosed property, up from 45% in May.

Despite the rising interest in buying a foreclosed home, an increasing number of U.S. adults also recognize negative aspects to buying a foreclosed property, Trulia and RealtyTrac say. Over the past six months, the number of U.S. adults who believe there are downsides to buying foreclosed properties has increased to 81%, up from 78% in May. Among those who think there are negative aspects to purchasing a foreclosed home, the top concerns relate to hidden costs, risk in the home-buying process and declining home values.

Two-thirds (67%) of U.S. adults say they expect to pay at least 30% less for a foreclosed home than a similar home that was not in foreclosure, and one-third of U.S. adults (35%) would expect to pay at least 50% less for a foreclosed home. Overall, 97% of U.S. adults would expect at least some discount on a foreclosed home.

RealtyTrac recently reported that foreclosure homes sold for an average of 32% less than homes not in foreclosure during the third quarter.

‘It's also not surprising that we've seen an increase in negative sentiment toward foreclosure purchases, where the recent robo-signing controversy has added more confusion to an already complicated process,’ says Rick Shargo, senior vice president of RealtyTrac.

SOURCE: Trulia

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