When asked if financial distress makes stopping payments on an underwater mortgage acceptable, 15 percent of respondents said yes in Fannie Mae’s National Housing Survey, a remarkable level of public acceptance for homeowners who walk away from their mortgages in light of the growing number of defaults in Fannie Mae’s portfolio.
Both delinquent mortgage borrowers and those current on their mortgage payments are more than twice as likely to have seriously considered stopping their payments if they know someone who has already defaulted, according to the survey released today.
Underwater borrowers were more than twice as likely to be behind on their mortgage payments and were more than twice as likely to believe stopping payments was acceptable than borrowers who were not underwater. Only 33 percent of respondents cited their moral qualms as a factor motivating them to pay their mortgage.
The number of “strategic defaults” may far exceed most industry estimates. As many as 588,000 homeowners walked away from their mortgages and their homes in 2008, more than double the total in 2007, according to a study last fall by Experian and the Oliver Wyman consulting company. Strategic defaulters represented 18 percent of all serious delinquencies that extended for more than 60 days in last year’s fourth quarter.
The study found that strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they’ve fallen behind on other accounts.
Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.
A study by Amherst Mortgage Insight in March found that the strategic default rate is actually higher for owner-occupied homes than non-owner occupied because, they argue, owner-occupieds are eligible for modification under HAMP whereas non-owner occupieds are not. And the difference appears to be more pronounced above a debt to income ratio of 31 percent.
The Fannie Mae survey also found that that homeowners and renters alike are taking a more cautious approach to homeownership. Nearly a quarter of renters polled (23 percent) say they will buy a home later than once planned. In addition, Americans with traditional, fixed-rate mortgages with predictable payments are significantly more satisfied than those with other types of mortgages. Respondents cited non-financial reasons such as safety (43 percent) and quality of local schools (33 percent) as driving factors in wanting to own a home, ahead of financial considerations.