Banks Watching For Strategic Defaults Carefully
Fred Weaver and Kevin Kauffman, Arizona’s best short sale group, is talking about a recent commentary on the topic of strategic defaults. Apparently Experian finds that 19% of mortgage defaults in the second quarter of 2009 were calculated. First, the statistics are fairly old. Also worth noting is the fact that there is no clear description of who is strategic defaulting and who is not. Apparently, they are defining strategic by looking at financial and credit reports and assuming that the property owner could have paid their mortgage. This is 80% more than 2005, which is kind of obvious, isn’t it.
Kevin’s estimates are that present short sales that are strategic defaulters is around 50%. Fanniemae has a distinctive reaction to strategic defaulters which will be discussed tomorrow. However, before we do that, we ought to fill you in on something that you may not be aware of. A lot of of your lender servicers are pulling credit on your borrowers and you will possibly have several conversations with negotiators regarding strategic defaults. The strategic default is no surprise now. So, naturally, it is being scrutinized even more.
Kevin and Fred were first discussing the strategic default in early 2008. There were a lot less people doing it then than there are in the present day. We noticed it and thought it was very fascinating. In Arizona, people are realizing that the market has done nothing but get worse. The solutions that the gov’t and lenders have put out there have basically been political stunts.
At the end of the day home owners still own houses that are worth $200,000 that used to be worth $500,000. We are not saying that everyone should do it. However, everyone should mull over it because it is a prudent business choice. Defaulting is a contractual choice.
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