Strategic Default: Walking Away from Mortgages
(CBS) Despite some indications that the economy is recovering, the housing market remains a disaster area. Currently, about seven million homeowners are behind on their mortgages and that number is only getting worse.
Banks, with the help of the government, are offering some relief to homeowners who’ve lost jobs and just can’t meet their payments.
But there’s a growing number who can pay but are simply walking away from houses that are now worth as little as half of what they paid for them.
It’s called “strategic default.” People have done the math and decided making those monthly payments is just throwing money away, leaving the mortgage holders – the banks – as zookeepers of an ever-growing parade of white elephants.
In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away.
Among them Chris Deaner and his wife Dana of Sun City, Ariz.
West Foothill Drive has become a street of shattered dreams. “Amazingly, 16 out of the 44 houses on this street have foreclosed over the last year,” Deaner told “60 Minutes” correspondent Morley Safer.
Deaner says his own home will become number 17 on that foreclosure list.
When Deaner, an auditor for a local university, bought his three bedroom house in 2006 for $262,000, he thought he got a bargain.
“You know, first time homebuyers, we don’t know houses are overvalued. We just know we need to get in before it keeps going up, and up, and up,” he explained.
But then the balloon burst. So how much does he think he could get for that $262,000 house today?
“Right now, about $142,000,” Deaner said. “Big drop, over 43 percent.”
Deaner and his house were, as they say, “underwater.” With a mortgage of about a quarter of a million dollars on a home worth less than $150,000, he has one very expensive lemon. He says he tried to talk his bank into renegotiating his mortgage, but because he earns enough to keep paying, the bank said no deal.
“They refused to. They said it was gonna affect my credit, and they were gonna take my house. And I pretty much said, ‘Go for it,'” Deaner told Safer.
Deaner said he could afford to stay in the home. But he chose not to. He is walking away. That lemon of a house is now the bank’s problem.
“It’s almost like the ‘in thing’ to do right now, it seems like,” he said.
And because Deaner, like many Americans, only made a 10 percent down payment on his home, “taking a hike” is a lot easier. By law in Arizona and nine other states, the bank cannot go after any of his other assets. But his credit rating will suffer.
“Aren’t you fearful that you’re gonna get a reputation as being a deadbeat?” Safer asked.
“Yeah. But with the money savings that I will have in four to six years, I’m confident I’ll have money to buy my way into a house if I want to,” he replied.
Asked if he doesn’t even feel a twinge of guilt, Deaner told Safer, “No, especially after dealing with my lender, trying to contact them. None at all.