Recently, the CEO of HomeFlux.com and 1-800-CashOffer was interviewed by FOX News about the rise in “Strategic Mortgage Defaults” – or those home owners who walk away from their mortgage – even though they can afford to pay it – simply because they are underwater.
Strategic defaults are a growing trend in the United States as they gain media attention. Many home owners who “walk away” from their mortgage never attempt to work things out with their bank first -either through a mortgage modification or a short sale.
At HomeFlux.com and 1-800-CashOffer, we help thousands of home sellers every month find an experienced, reputable, and ethical real estate professional who can help them sell their house quickly via a short sale or other method.
Here is the full video from FOX News entitled “Rise in ‘Strategic’ Mortgage Defaults“.
Strategic Mortgage Defaults
STUART VARNEY, GUEST HOST: All right, we told you stocks were diving today. So was something else, interest rates. Investors, jittery about stocks, are snapping up government bonds. That sent the yield on the 10- year treasury falling below 3 percent for the first time in than a year.
Everything from consumer loans to mortgage rates are pegged to that 10-year yield. That means those rates could be headed even lower soon.
Speaking of loans, a new report showing nearly 20 percent of mortgage defaults are done on purpose. They call it strategic defaults. My next guest sees this happen every day.
Jeremy Brandt is with us. He’s the CEO of 1-800-CashOffer.
Jeremy, explain this one to me. People default on purpose? Why?
JEREMY BRANDT, CEO, 1-800-CASHOFFER: We’re seeing this happen more and more when people contact us at 1-800-CashOffer, people that are able to make their house payments, people that have good jobs, can afford to stay in their House, but simply walk away because the value of the house is less than their mortgage balance. So, if the balance is $300,000 and their house is worth $250,000, they feel that it’s OK to just walk away and let the house go into foreclosure, even though they could keep paying on it, because it lets them out of that $50,000 in debt and they can go buy another house.
VARNEY: You know, there’s a moral component to this, isn’t there? Because if you’re one guy on one side of the fence and you’re scrimping and save to pay the bill, and the other guy on the other side of the fence just walks away because he didn’t feel like paying that mortgage any longer, even though he can, but my question is, is the taxpayer footing the bill for that person who walks away?
BRANDT: Well, it remains to be seen who foots the bill. What’s happening is, all of these banks and all of these houses end up going back to the bank. So the bank’s inventory of houses that they own is increasing.
And it remains to be seen if there’s going to have to be another banking bailout or we’re going to have bail out Freddie or Fannie or one of these other institutions to pay for all these foreclosures that maybe don’t need to happen.
VARNEY: So, what proportion of people who call you every month, what proportion are these strategic defaults, walking away when they don’t have to?
BRANDT: Well, we have about 10,000 a month that contact 1-800-CashOffer that are mostly distressed sellers. So, not all of them are underwater and not all of them are behind in their payments.
BRANDT: A lot of people maybe have inherited property or are going through a divorce.
And out of those, about 3,500 or so are headed towards foreclosure. They’re behind in their payments or their property values are underwater. And, of those, between 5 percent and maybe 7 percent of those people have told us that they’re just going to walk away from the house if they can’t sell it.
VARNEY: But, if you do that, you walk away, even though you could pay, there are consequences, I believe. You are locked out of any other government-backed mortgage for seven years. So, it’s not like you walk away scot-free and hand the bill to somebody else. You do pay a small price yourself.
BRANDT: Well, and that’s a recent change really as a result of this kind of just-walk-away phenomenon, because, really, most people are driven by incentives, and if you walk away from your home, and you can buy a house two or three years down the road, there’s not much of a negative impact on your lifestyle for walking away from a home.
So, one of the recent changes is, yes, to extend that limit to seven years for people that are using government-backed loans, so that they can’t get another of those loans for seven years if they have walked away from their house.
Now, if they have tried to work with their lender, if they have tried to do a short sale, if they have tried to do a mortgage modification with their lender, and for some reason that hasn’t worked out, that’s a different story. But people that can afford to pay and simply just walk away because it’s the easy thing to do, they’re really trying to bring the hammer down on those people.
VARNEY: All right, Jeremy Brandt, we appreciate you being with us. Thanks for good information, sir. Appreciate it.
BRANDT: My pleasure.
You may also view the story here: Rise in Strategic Mortgage Defaults – FOX News