More Borrowers Walk Away from Homes, Mortgages

The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they’re able to pay the mortgage.

Palm Coast, FL – November 4, 2009

By Stephanie Armour, USA TODAY
When Sharon Sakson was laid off recently from her job as a television writer and producer, she burned through her savings to pay the $2,400 monthly mortgage on her home. But she soon decided it didn’t make sense: Her home was worth thousands less than the mortgage she carried on it.
What Sakson did is called a strategic default, or a voluntary foreclosure, and it’s fast becoming a major challenge to the government’s $75 billion effort to keep distressed borrowers in their homes. Walking away from a mortgage is serious business — it can knock 100 points off your credit score and make you ineligible for a new mortgage for seven years. Yet, about 588,000 borrowers walked away from homes last year, double the number in 2007, according to a recent study by credit-scoring firm Experian and management consultants Oliver Wyman. While home prices are rising, the increases pale compared with overall drops in home prices since 2005 that threaten to push millions more homeowners into Sakson’s predicament, owing more than their homes are worth and seeing little chance of rebuilding equity soon.
The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they’re able to pay the mortgage. "It’s a very large number, and it’s a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed.
Toby’s Commentary:  With so many borrowers defaulting, how much will their credit rating suffer in the future. Afterall, they will have lots of company.
3 replies
  1. Lew
    Lew says:

    Regulation is clearly needed.

    Yeah, we need to protect the taxpayers rescued banks from the taxpayers who are making strategical decisions to protect themselves from the banks.

  2. George Meegan
    George Meegan says:

    Banks don’t care

    That’s because they get bailed out,or taken over. Many,that walk away, move to states with jobs, and rent. If they stopped bailing out banks and corporations, and bailed out workers, they could end the problem.

  3. Denis Logan
    Denis Logan says:

    What ‘s Right?

    Intelligent people that understood the terms of the mortgage, and signed their names. Gave their word to repay the money lent so they could buy a house, then they walk away from their responsibility. There is a lot of rhetoric about people being responsible for their own actions. They say that the Government does not owe it to people to take care of them. That the Government should not provide for people, it just creates a nation of slackers. Now, I don’t hear so much about that, everyone wants help. I really am in the middle; I don’t see what the real answer is. I just know a lot people say they don’t want the Government in their lives, then something like this happens and everyone wants the Government to do something. There are lots of places to lay the blame, and lots of places to look for help?

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