If banks can’t rely on homeowners to meet their mortgage obligation, interest rates will rise substantially to make up for the increased risk banks assume on every loan. Loans will become more expensive, and less accessible.
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Scottsdale, AZ (PRWEB) February 10, 2010
Strategic mortgage default. It's a term few had heard until recently. A homeowner who can afford to pay his mortgage decides to walk away, often because he owes more than his home is worth.
With more than 50% of homeowners underwater, the Phoenix Arizona real estate market has become an epicenter for the strategic mortgage default controversy. Phoenix and Scottsdale Realtor Bob Stahl has been blogging about the issue long before it was popular - he wrote his first post on the topic, "Forget saving money, is walking away the right thing to do?" http://www.myphoenixmls.com/forget-saving-money-is-walking-away-the-right-thing-to-do/ on April 24, 2008 and has written nine additional posts http://www.myphoenixmls.com/phoenix-real-estate-strategic-mortgage-defaults/ on the topic since then. He's been quoted by AOL Real Estate News and the Arizona Republic.
"There is certainly a moral component to the decision to walk away from a mortgage obligation," Stahl said. "Strategic defaults damage the mutual sense of trust and confidence between parties in a business transaction. If banks can't rely on homeowners to meet their mortgage obligation, interest rates will rise substantially to make up for the increased risk banks assume on every loan. Loans will become more expensive, and less accessible."
"I don't think we should be encouraging people to walk away from their mortgage obligations," Stahl said. Yet Stahl understands that in some cases it makes financial sense for a homeowner to default on his mortgage, even if he can afford to continue paying. "When homeowners tell me that is a choice they're considering, I advise them to be well aware of the consequences." Consequences might include:
- A mortgage default has a significantly negative effect on a homeowner's credit score. A person with a foreclosure on his record should expect to wait at least 3-4 years to purchase another home.
- In some states, homeowners can be held liable for the difference between what the bank sold the home for and what was owed on the mortgage. That's not the case in Arizona, where two anti-deficiency statutes protect the homeowner as long as the mortgage was used to purchase the home.
- Depending on how long the homeowner lived in the home and whether the mortgage was used exclusively as purchase money, the homeowner could owe tax on the difference between what the bank sells the home for and what the was owed.
In the Phoenix real estate market and real estate markets across the country (especially in the other hard-hit real estate bust states like Florida, Nevada, and California), foreclosures are likely to increase before they start to decline. Real estate agent Bob Stahl, for one, is looking to higher-end foreclosures as the next wave. "The issue of strategic mortgage defaults is not going to go away," he said.
About Bob Stahl and http://www.MyPhoenixMLS.com
Bob Stahl is a Phoenix and Scottsdale Arizona real estate agent. He blogs about strategic defaults and other real estate topics on his blog at http://www.MyPhoenixMLS.com. The website is also a one-stop resource for other real estate information such as instant home evaluations, a list of foreclosed properties and free insider reports for buyers and sellers.