How to cut the number of strategic defaults?

How to cut the number of strategic defaults?


DSnews reported – An alarming number of homeowners see strategic default as a viable option should their home continue to depreciate. Almost half of the homeowners participating in an online poll from Housing Predictor say they will walk away from their mortgage obligation if falling home values persist.  See Full Story

I have a theory.  The current model of doing loan modifications for people that are behind is fine.  HOWEVER, the banks are rewarding the people who are NOT making their mortgage payments while the ones that are diligently continuing to pay their mortgage are pretty much getting forgotten or given short shrift.  Homeowners that are current see the inequity of this. They think “To get any help I must give in and go delinquent”.

So the result is MORE people in default.  The situation of defaults only worsens.

Banks should be courting those people whose mortgages are current and who have a high interest rate on their loan(s).  It would be an act of good will and excellent public relations for the banks.  The homeowners who get the refinance into a better mortgage would become more of a loyal customer and they would be saving thousands per year on interest payments.

An example:  Take someone with a $400,000 loan at 6%.  Their payment would be approx $2400/mo.  Now refinance that party into a new 4% loan and they would be saving $500/mo or $6000/yr.

Sure banks might consider principal reductions as well and that is another topic for later.

I recognize that saying this might seem simple and for the banks it is an accounting nightmare BUT the more you reward bad behavior the more you get bad behavior.  The more you reward good actions, the more others will do good actions.

What do you think?

Pat Chadwell, Broker
Certified Distressed Property Expert
Realty World – Residential Specialists
408.927.6565 ext 11

Enhanced by Zemanta