I read an alarming statistic today that “walking away” from one’s mortgage, an option to foreclosure that was popular in 2008, is now no longer viewed as morally reprehensible. In fact, a Fannie Mae survey of underwater homeowners (those with negative equity) found that 27% of them consider walking away – which today is called a strategic default – as a viable option to foreclosure.
Back in 2008 when I wrote my book, “Mortgage Walkaway Options,” the key focus was on options to foreclosure, with walking away as a last resort. My co-author and I urged homeowners to get educated and learn about other possible options before they walked away. At that time companies promising a bright future to homeowners who paid a fee to walk away were gaining deep pockets. They did not tell troubled borrowers that walking away was actually an intentional foreclosure, and many unknowing borrowers ended up with a foreclosure on their credit record when they may have been able to salvage it.
Most homeowners used to feel walking away was morally reprehensible, irresponsible. But even though strategic defaults have gone down the new study shows that this may no longer be the case. It is worrisome for several reasons, but what effect might it have on the housing market and on your property values?
The housing market will not come into a complete recovery until we clear out all the distressed property. If homeowners start walking away in large numbers this will take even longer. Obviously this will effect property values for a longer period of time.
More importantly, we need to find alternative ways to help struggling homeowners. People should not feel it is ok to turn their backs on an obligation to which they have committed. States are doing their part to help, organizations are fighting to get government help. We all need to seek the assistance available and try to find other ways to stay in our homes before resorting to walking away.