‘Walking Away’ and Coming Back: Strategic Defaulters Eye Homeownership Again

‘Walking Away’ and Coming Back: Strategic Defaulters Eye Homeownership AgainNearly three years ago, a segment of the popular CBS news magazine 60 Minutes put the national spotlight on “strategic defaults”, or cases of homeowners who walk away from “underwater” mortgages and into foreclosure, despite being able to make their payments.
Correspondent Morley Safer interviewed homeowners mired in negative equity, or owing more in mortgages than a home’s value. An “epidemic,” Safer called it.
Fast forward to 2013 and the housing market is firmly entrenched in a recovery phase, with home prices seeing double-digit growth in some areas compared to a year ago, and with sales holding steady or increasing as inventories tighten. The National Association of Realtors is even calling the recovery a developing “seller’s market.”
Those who walked away two, three or four years ago, now are looking to return to homeownership as interest rates remain near historic lows, reports CNBC.
A new survey of past clients by YouWalkAway.com, a website that assists homeowners in strategic defaults, found that nearly 80 percent said they wanted to buy a home again within the next 12 months. The survey also points to data from Moody’s analytics that projects there will be 1.5 million eligible home buyers who have had a previous foreclosure by the first quarter of 2014.
When 60 Minutes focused on strategic defaults in 2010, proponents of the trend contended that major real estate developers and financial institutions had made similar decisions to walk away from projects that they had heavily invested in, but had lost significant value from the residential and commercial market collapse of 2008-2009.
Walking back into homeownership for strategic defaulters may not be as difficult as it seems. Consumers who only defaulted on their mortgage during the recent recession were far better risks than those who went delinquent on multiple credit accounts, such as credit cards and auto loans, according to a 2011 study by TransUnion.
Now, YouWalkAway.com has launched the “AfterForeclosure.com/pass-fail-widget/,” which claims to tell potential borrowers if they can buy a home after a foreclosure or short sale. The site also provides credit score guidance for those who have gone through foreclosures.
However, mortgage underwriting is far more strict today as a result of the post-crisis regulations being finalized by the Consumer Financial Protection Bureau, which was created under Wall Street reform laws to prevent another housing-fueled economic meltdown.
There are also different waiting periods before former homeowners who went through foreclosure can qualify for a new loan. The Federal Housing Administration (FHA), the government insurer of more than 20 percent of new loan originations, requires a three-year wait.
Fannie Mae and Freddie Mac, the government-subsidized financing agencies which own or guarantee more than 60 percent of U.S. mortgages, require up to seven years for a strategic defaulter to qualify again for a mortgage.
Also read: Negative Equity: 2M Homeowners Out from ‘Underwater’, But 27% Remain

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