House Refinance Center
Strategic Default Helps You Reclaim Your Life
Strategic Default Will Continue
To Kill Housing Recovery

There is a fundamental difference between regular default and strategic default.
Regular default is what we are accustomed to. We can't afford to keep the house.
The mortgage payments, the upkeep, the property taxes, the insurance; the whole
mountain of debt becomes unmanageable. So we default on the loan. Zillow
estimated that 1 in 5 houses with a mortgage has negative equity.

With a strategic default, we can afford the house, but we have loss so much equity,
it doesn't make financial sense to keep the house.

Three years ago strategic default was rare. Now it is an every day occurrence. It is
getting bolder and is being planned like a military operation. Before, the
homeowner would simply stop paying the mortgage and voluntarily move out of the
house. Today, he stops paying and waits for the bank to get him out of the house.
This process can take 15 months or longer to work itself through the legal maze.
For a  homeowner paying $3,000 a month in mortgage payments, he can
accumulate  $45,000 to start all over again.

Banks have to identify potential defaulters and have a plan in place to prevent this
action. No one wants a default of any kind. Every homeowner would like to hold onto
his or her house. So the question becomes, when does a person default? How
much loss in equity can a homeowner take before the towel is thrown in? Many
people default because they know someone who has defaulted.

For homeowner over 60 years old, a 15% loss is when he should start discussions
with the lender. Time is the enemy. It would take another 7 or 8 years to recoup the
loss equity. If he was counting on doing a reverse mortgage to supplement his
income, he might want to have that discussion sooner.

Strategic defaults will continue to increase and slow the recovery process.
According to a study by Experian and Oliver Wyman Consulting, 19% of all
mortgage defaults in 2009 were strategic. Geographic markets are also a factor in
determining the likelihood of strategic defaults. Markets like California and Florida
are prone to walkaways. These markets have high increases in house values, as
well as sharp declines.


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Strategic Default: No
Stigma

It seems that strategic defaults are good for business in
commercial mortgages but they carry a stigma in the
residential market. Tishman Speyer and Blackrock walks
away from Stuyvesant Town and Peter Cooper Village in
Manhattan. This is a 11,200 apartment complex. The project
was bought for $5.4 billion. It is now worth $2 billion. They
were unable to refinance $4.4 billion.

Also, Morgan Stanley walks away from its commercial
mortgage commitments on five buildings in San Francisco.
The properties were purchased from Metlife in 2006, and they
have since dropped 50% in value.

If a titan like Morgan Stanley can walk away from an
obligation, why can't the average borrower?
Private Company Helps
Homeowners Facing
Strategic Default






The Loan Value Group is paying homeowners cash to stay in
their homes and continue to make their mortgage payments.
The company has paid out over $90 million to date. The
Responsible Homeowner Reward was launched last winter.

The program doesn't cost the homeowner any money. Those
selected will receive credits to their accounts as long as they
stay current with their mortgage.

Loan Value Group has arranged with lenders holding the
mortgages to write down part of the principal.

This program gives a new twist to the normal loan
modification. The borrower receives the full amount in the
credit account when the house is sold or when the mortgage
is paid off.

Another difference from a regular loan modification is that the
principal reduction is given at the end, not upfront.

This program targets homeowners who are likely to walk
away from their mortgages.
Walk Away: Lender May Sue Or Sell Loan
Strategic default might carry some consequences. After the lender
has auctioned the house, you might still be liable for the short fall.
Generally, lenders do not pursue the homeowners. They reason
that if the borrower can't pay the mortgage, why waste good money
trying to pursue the debtor. Instead many banks will sell the loan for
the deficiency amount to a collection agency. Watch the above
video.
Strategic Default: No Problem
Many home owners now decide to default. The mortgage payments can go
towards the children's education or deposited into a retirement plan to assist
them in their golden years. The embarrassment of default is no longer an issue.
Watch the above video.
Strategic Default: When It's Time
Why stay in a house that is only worth half of what you paid for it?
Your money should be put to better use. Watch the above video.
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