A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.
The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.
But the silver lining here is that it suggests a rather high threshold for borrowers to walk away.
Tuesday, June 29, 2010
When do underwater borrowers walk away?
Apparently, the typical borrower has to be deep underwater before deciding to strategically default: