Report shows strategic defaults increasing

[Arraya]

http://blogs.reuters.com/rolfe-winkler/2010/03/26/report-shows-strategic-defaults-increasing/

How widespread are strategic defaults? Laurie Goodman and her team at Amherst Mortgage Insight yesterday released a report that shows they are indeed on the rise and for reasons we might suspect: negative equity and a more borrower-friendly environment.

The second reason should be kept in mind as we consider President Obama’s soon-to-be-announced plan to encourage principal reduction. If the plan is structured so that it gives incentives to default in order to secure principal forgiveness, well, expect defaults to spike.

Strategic default isn’t necessarily synonymous with mailing your keys to the bank and walking away. It may simply mean a borrower choosing to stop payments to the bank when economic incentives would have him do so. Amherst has come up with a novel metric to measure strategic default — the “default transition rate.” DTR looks at the percentage of borrowers who’ve never been more than one payment behind on their mortgage suddenly missing two payments in a row.

Lo and behold, negative equity leads more folks to strategically default, regardless of their credit score and whether they took out a liar loan:

[jpinpb]

I know a realtor who bought a house in 2005 for 800k. Right now he owes 1.2 million. I don’t know the details of the loan, if he did a re-fi and/or HELOC or if it’s an Option ARM. In any case, he is upside-down on it.

He tried to get the bank to do a loan modification on it. They didn’t give him the time of day. He heard that would be the case until he gets their attention by not paying. So he intentionally has not made a payment in 4 months. He has not received a NOD. At 51 years old, he says if the don’t work w/him, he will live there until they take it and then move in w/his parents.

I think we can expect anyone who is upside-down to strategically not pay so they can get loan mods and/or principle reduction. People will want to get theirs.

[jpinpb]

I know a realtor who bought a house in 2005 for 800k. Right now he owes 1.2 million. I don’t know the details of the loan, if he did a re-fi and/or HELOC or if it’s an Option ARM. In any case, he is upside-down on it.

He tried to get the bank to do a loan modification on it. They didn’t give him the time of day. He heard that would be the case until he gets their attention by not paying. So he intentionally has not made a payment in 4 months. He has not received a NOD. At 51 years old, he says if the don’t work w/him, he will live there until they take it and then move in w/his parents.

I think we can expect anyone who is upside-down to strategically not pay so they can get loan mods and/or principle reduction. People will want to get theirs.

[jpinpb]

I know a realtor who bought a house in 2005 for 800k. Right now he owes 1.2 million. I don’t know the details of the loan, if he did a re-fi and/or HELOC or if it’s an Option ARM. In any case, he is upside-down on it.

He tried to get the bank to do a loan modification on it. They didn’t give him the time of day. He heard that would be the case until he gets their attention by not paying. So he intentionally has not made a payment in 4 months. He has not received a NOD. At 51 years old, he says if the don’t work w/him, he will live there until they take it and then move in w/his parents.

I think we can expect anyone who is upside-down to strategically not pay so they can get loan mods and/or principle reduction. People will want to get theirs.

[jpinpb]

I know a realtor who bought a house in 2005 for 800k. Right now he owes 1.2 million. I don’t know the details of the loan, if he did a re-fi and/or HELOC or if it’s an Option ARM. In any case, he is upside-down on it.

He tried to get the bank to do a loan modification on it. They didn’t give him the time of day. He heard that would be the case until he gets their attention by not paying. So he intentionally has not made a payment in 4 months. He has not received a NOD. At 51 years old, he says if the don’t work w/him, he will live there until they take it and then move in w/his parents.

I think we can expect anyone who is upside-down to strategically not pay so they can get loan mods and/or principle reduction. People will want to get theirs.

[jpinpb]

I know a realtor who bought a house in 2005 for 800k. Right now he owes 1.2 million. I don’t know the details of the loan, if he did a re-fi and/or HELOC or if it’s an Option ARM. In any case, he is upside-down on it.

He tried to get the bank to do a loan modification on it. They didn’t give him the time of day. He heard that would be the case until he gets their attention by not paying. So he intentionally has not made a payment in 4 months. He has not received a NOD. At 51 years old, he says if the don’t work w/him, he will live there until they take it and then move in w/his parents.

I think we can expect anyone who is upside-down to strategically not pay so they can get loan mods and/or principle reduction. People will want to get theirs.

[NotCranky]

Dear Mr. Obama,

In 2006 I put a bunch of my own money down on a house and mortgaged a small fraction.It really is nothing at all to pay it even in this recession, I mean since we turned off the electricity and live on rice and beans. Things have been tight at times but we were proud of the blood sweat and tears we put into making a “home” we could afford. Someone I know got a 100% loan from Countrywide and a way better house. In the interim he has spent money like a fiend. He also has several other properties he is losing which fueled some of the spending with MEW.They are all maxed out! They have a lot of stuff and have had insane trips to almost any place you can think of. They got a built in pool last year. We had one of those blow up things.

Now these people are in deep trouble. They might lose their house, I mean houses.Please save them from this crisis!I think they hid a bunch of money and quit paying their mortgage.They need that money! I think it would be cool if you give them a lot of principal reduction to help them deal with the consequences of their American dreaming…After all, what better use of the nations capacity for charity could there be? Oh, and I think in the process you should make all rich people richer.Make sure they don’t lose any of that money they lent to over-spenders. That all would be a shame, since our economy depends on these kinds of things happening. Think of all the reasonable spenders,renters and owners alike… and the homeless schizophrenics living in American parks who would be screwed if you didn’t save the rich! Thanks for taking good care of us.

Best wishes to Michelle, who looks great in Narcisco and yourself, for all the hope you bring.

[NotCranky]

Dear Mr. Obama,

In 2006 I put a bunch of my own money down on a house and mortgaged a small fraction.It really is nothing at all to pay it even in this recession, I mean since we turned off the electricity and live on rice and beans. Things have been tight at times but we were proud of the blood sweat and tears we put into making a “home” we could afford. Someone I know got a 100% loan from Countrywide and a way better house. In the interim he has spent money like a fiend. He also has several other properties he is losing which fueled some of the spending with MEW.They are all maxed out! They have a lot of stuff and have had insane trips to almost any place you can think of. They got a built in pool last year. We had one of those blow up things.

Now these people are in deep trouble. They might lose their house, I mean houses.Please save them from this crisis!I think they hid a bunch of money and quit paying their mortgage.They need that money! I think it would be cool if you give them a lot of principal reduction to help them deal with the consequences of their American dreaming…After all, what better use of the nations capacity for charity could there be? Oh, and I think in the process you should make all rich people richer.Make sure they don’t lose any of that money they lent to over-spenders. That all would be a shame, since our economy depends on these kinds of things happening. Think of all the reasonable spenders,renters and owners alike… and the homeless schizophrenics living in American parks who would be screwed if you didn’t save the rich! Thanks for taking good care of us.

Best wishes to Michelle, who looks great in Narcisco and yourself, for all the hope you bring.

[NotCranky]

Dear Mr. Obama,

In 2006 I put a bunch of my own money down on a house and mortgaged a small fraction.It really is nothing at all to pay it even in this recession, I mean since we turned off the electricity and live on rice and beans. Things have been tight at times but we were proud of the blood sweat and tears we put into making a “home” we could afford. Someone I know got a 100% loan from Countrywide and a way better house. In the interim he has spent money like a fiend. He also has several other properties he is losing which fueled some of the spending with MEW.They are all maxed out! They have a lot of stuff and have had insane trips to almost any place you can think of. They got a built in pool last year. We had one of those blow up things.

Now these people are in deep trouble. They might lose their house, I mean houses.Please save them from this crisis!I think they hid a bunch of money and quit paying their mortgage.They need that money! I think it would be cool if you give them a lot of principal reduction to help them deal with the consequences of their American dreaming…After all, what better use of the nations capacity for charity could there be? Oh, and I think in the process you should make all rich people richer.Make sure they don’t lose any of that money they lent to over-spenders. That all would be a shame, since our economy depends on these kinds of things happening. Think of all the reasonable spenders,renters and owners alike… and the homeless schizophrenics living in American parks who would be screwed if you didn’t save the rich! Thanks for taking good care of us.

Best wishes to Michelle, who looks great in Narcisco and yourself, for all the hope you bring.

[NotCranky]

Dear Mr. Obama,

In 2006 I put a bunch of my own money down on a house and mortgaged a small fraction.It really is nothing at all to pay it even in this recession, I mean since we turned off the electricity and live on rice and beans. Things have been tight at times but we were proud of the blood sweat and tears we put into making a “home” we could afford. Someone I know got a 100% loan from Countrywide and a way better house. In the interim he has spent money like a fiend. He also has several other properties he is losing which fueled some of the spending with MEW.They are all maxed out! They have a lot of stuff and have had insane trips to almost any place you can think of. They got a built in pool last year. We had one of those blow up things.

Now these people are in deep trouble. They might lose their house, I mean houses.Please save them from this crisis!I think they hid a bunch of money and quit paying their mortgage.They need that money! I think it would be cool if you give them a lot of principal reduction to help them deal with the consequences of their American dreaming…After all, what better use of the nations capacity for charity could there be? Oh, and I think in the process you should make all rich people richer.Make sure they don’t lose any of that money they lent to over-spenders. That all would be a shame, since our economy depends on these kinds of things happening. Think of all the reasonable spenders,renters and owners alike… and the homeless schizophrenics living in American parks who would be screwed if you didn’t save the rich! Thanks for taking good care of us.

Best wishes to Michelle, who looks great in Narcisco and yourself, for all the hope you bring.

[NotCranky]

Dear Mr. Obama,

In 2006 I put a bunch of my own money down on a house and mortgaged a small fraction.It really is nothing at all to pay it even in this recession, I mean since we turned off the electricity and live on rice and beans. Things have been tight at times but we were proud of the blood sweat and tears we put into making a “home” we could afford. Someone I know got a 100% loan from Countrywide and a way better house. In the interim he has spent money like a fiend. He also has several other properties he is losing which fueled some of the spending with MEW.They are all maxed out! They have a lot of stuff and have had insane trips to almost any place you can think of. They got a built in pool last year. We had one of those blow up things.

Now these people are in deep trouble. They might lose their house, I mean houses.Please save them from this crisis!I think they hid a bunch of money and quit paying their mortgage.They need that money! I think it would be cool if you give them a lot of principal reduction to help them deal with the consequences of their American dreaming…After all, what better use of the nations capacity for charity could there be? Oh, and I think in the process you should make all rich people richer.Make sure they don’t lose any of that money they lent to over-spenders. That all would be a shame, since our economy depends on these kinds of things happening. Think of all the reasonable spenders,renters and owners alike… and the homeless schizophrenics living in American parks who would be screwed if you didn’t save the rich! Thanks for taking good care of us.

Best wishes to Michelle, who looks great in Narcisco and yourself, for all the hope you bring.

[Arraya]

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