Strategic Default Could Cost You Eight Years
June 8, 2010 by Tom Schieber
Filed under Blog, Featured Posts, Foreclosures
According to the Mortgage Bankers Association, lenders could soon begin to enforce guidelines that would keep buyers who engaged in a “strategic default” out of the market for seven to eight years. That can be twice as long as the current Fannie Mae or Freddie Mac guidelines.
With home prices having continued to slide now for the third year in a row, more and more homeowners are considering taking their lumps and either facing foreclosure or participating in a short sale to get out of underwater mortgages. The logic, labeled “strategic default” by the real estate industry, says that it’s better to get out from under that bad debt now and start rebuilding your credit before the market turns around. Play the system and become a buyer again in 3-5 years, at a time when most experts believe that housing prices will still be near the bottom.
If lenders begin to punish a borrower that they deem to have participated in a strategic default through a foreclosure or a short sale, the strategy could backfire.
The “strategic” part of the default comes from the fact that a borrower could have continued making payments – that they failed to demonstrate any real hardship and simply wanted to bail out of a bad investment.
Increasing numbers of foreclosures in Brentwood and Discovery Bay, along with prices that have already declined by fifty percent or more, will increase the trend of strategic defaults in Contra Costa County.
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