More US Homeowners are Opting for 'Strategic Defaults'
 Alana Semuels - Los Angeles Times
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March 22, 2010
| | Wynn Bloch bought her Palm Desert house for $385,000 in 2006. Now she says it will never be worth anywhere near the amount of her mortgage, so she stopped paying on her loan and moved out. (Bret Hartman/LATimes) | |
Underwater on their mortgages and angry at banks, more borrowers are choosing to hand over the keys, even if they can afford the payments.
Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.
Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she'd see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.
The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.
"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. "I haven't cheated or stolen."
Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.
Nearly one-quarter of U.S. mortgages, or about 11 million loans, are "underwater," i.e. the houses are worth less than the balance of their loans. While home values are regaining ground - median prices rose 10% in Southern California last month to $275,000 compared with a year earlier - they remain far below the July 2007 peak of $505,000.
Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.
Stuck with properties whose negative equity won't recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it's smarter to walk away than to stick it out.
"There is a growing sense of anger, a growing recognition that there is a double standard if it's OK for financial institutions to look after themselves but not OK for homeowners," said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.
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