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Home | News | Foreclosure | Survey: More Underwater Homeowners Open to Strategic Default
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Survey: More Underwater Homeowners Open to Strategic Default

Nearly twice as many underwater borrowers think it is okay to walk away from a mortgage if they face financial distress than harbored this sentiment a year ago, according to a survey conducted by ""Fannie Mae"":http://www.fanniemae.com.
[IMAGE] The GSE found that because of feelings that they are less financially secure, 27 percent of homeowners with negative equity would consider strategic default as a viable option. That stat is based on a nationwide poll taken during the first three months of this year, and is up from 15 percent who answered so in the January 2010 survey.

While more homeowners may be leaning toward strategic default should they find themselves in financial distress, the ""Chicago Booth/Kellogg School Financial Trust Index"":http://www.financialtrustindex.org/index.htm, which regularly assesses Americans' trust in various aspects of the nation's financial system, found that the number of strategic defaulters appears to be trending down, at least based on the perceptions of their fellow homeowners.

The index recorded a decrease in strategic defaults among all states to 30 percent in March 2011from 37 percent in December 2010.

Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago Booth School of Business and

[COLUMN_BREAK]

co-author of the survey, explained that these figures are based on the number of actual strategic defaults in the eyes of the neighbors.

According to Paola Sapienza, survey co-author and professor of finance at the Kellogg School of Management at Northwestern University, the decline in the number of apparent walk-aways ""might be due to the increase in the perceived probability that a lender will go after a strategic defaulter.""

Respondents to the academia poll said they believe homeowners are choosing not to pay their mortgages because they are unemployed or underemployed (46 percent) or because they over-borrowed (35 percent) due to the state of the economy.

The researchers also asked participants about their feelings toward recent news that some banks conducted foreclosures using flawed documentation.

They found that 97 percent of respondents believe banks should pay a fine for their actions. More than half of respondents preferred that fines paid by banks be given to struggling homeowners.

""People are sympathetic to the plight of the American homeowner - on why homeowners are struggling to pay their mortgages and why they would choose to walk away from their loan,"" said Sapienza.

""Our report indicates that Americans believe accountability lies with lenders and financial institutions,"" Sapienza continued. ""For example, for homeowners who were victims of deceptive lending practices, respondents were more likely to say that bank fines should help those individuals.""

On the other hand, survey participants said they were less in favor of bank fines being used to help homeowners who over-borrowed.

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About Author: Carrie Bay

Carrie Bay
Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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