Reports filtering out of other states have people with underwater mortgages handing the keys back to the bank. These aren’t
folks who lost jobs or their health and can no longer make the payments; they can afford the payments.
Rather, they’ve decided the values of their houses have fallen so far that it no longer makes economic sense to keep paying off the mortgage. So they’re walking away.
The so-called strategic defaults are most common in markets where the housing boom was hottest—California, Florida, Nevada—although the once-unheard of phenomena is emerging in other places, too.
Jim Litten, president of F.C. Tucker Co., one of Indiana’s largest residential real estate brokerages, has yet to hear of a strategic default in the Indianapolis area, but he doubts it would become a big trend here. House values didn’t boom and then bust here to the extent they did in the most overheated markets. So there’s less economic incentive to look beyond ruining a credit score and quit.
Asked what he thinks of the trend, he laughs ruefully. People wouldn’t pull stunts like this on a stockbroker if a stock went south, he says, so why should they do it to a lender? After all, the homeowners signed a paper saying they would pay back the loan.
“There’s been a shift in values,” Litten says. “If they have the ability to pay, I don’t think that’s the right way out.”
What are your thoughts?