Strategic defaults on mortgage rising steadily

Studies reveal that strategic defaults on mortgages are on the rise. Strategic default is when a homeowner chooses to walk away from his home even if he is able to make payments for the mortgage. However, he selects this option as the equity in his property has nosedived by at least 15%. In other words it can be said that when you owe more on the mortgage than the value of your home, you choose to strategically default and walk away from your home.

The mortgage market is in doldrums ever since subprime mortgage crisis eroded the economy. The Obama administration has intervened to bail out homeowners so that their mortgage payments were made affordable but the Mortgage Bailout programs failed to address the problem of negative equity. During 1990-1991, when the economy was facing recession, there was a tendency among homeowners to strategically default on their mortgages but it wasn't pronounced.

However, with the current recession, the incidence of strategic defaults is on the rise at an alarming rate.

How do social factors affect strategic defaults on mortgages?

There are many homeowners that consider strategic defaults to be immoral. However, there are many aspects that can help in predicting strategic defaults on mortgages. It has been observed that a homeowner residing in an area where there is high frequency of foreclosures, bankruptcies or properties losing equity is more likely to default strategically. People who are below 35 and above 65 will tend to avoid strategic defaults on their mortgage loans.

Statistical data indicating incidence of strategic defaults on mortgages

A recent survey indicated the following facts related to strategic defaults on mortgages.

• The number of homeowners that defaulted strategically in 2008 is 588,000

• Homeowners that default on their mortgages strategically are current with their payments initially but abruptly make no further payments for their mortgage loan.

• Homeowners with large outstanding balances on their mortgage are more likely to walk away as compared to homeowners that owe less.

So, strategic defaults are nothing but carefully planned out delinquencies as a result of which homeowners walk away or "abandon" their homes when the equity in the property drops and when the value of the mortgage exceeds the value of the home.