A report by Morgan Stanley analysts says that 12 percent of all mortgage defaults in February were “strategic defaults” – where homeowners decided to walk away from their mortgages. This is up from 4 percent in 2007.
From the story in the San Francisco Chronicle:
Borrowers are more likely to stop paying their mortgages the higher their credit scores and the larger their loans, the report said.
Defaults by borrowers who owe more than their homes’ values are among the biggest risks for the housing market, according to analysts including Zelman & Associates’ Ivy Zelman and Amherst Securities Group LP’s Laurie Goodman. Last month, the Obama administration said it would adjust its anti-foreclosure program to encourage reductions to borrowers’ principal amounts, instead of just the payments they make, to address the issue.
That change “gives us hope that policy makers are serious about curbing future strategic defaults,” the Morgan Stanley mortgage-bond analysts wrote.
Strategic defaults also increase based on how much more borrowers owe in housing debt than their homes are worth, they said in the report, which made use of consumer credit data from Transunion LLC and Standard & Poor’s home-price indexes.
That finding concurred with reports by Goodman, a New York- based mortgage-bond analyst, who has said that there will be as many as 12 million foreclosures over the next few years unless lenders can effectively modify borrowers’ debt.