Strategic Foreclosures-Are Lenders Listening?

There is new term floating around the sagging housing market these days.

Strategic Foreclosure homeowner’s who can’t refinance due to lack of equity, have ARM’s scheduled to reset in the near future and who have assets in the bank. They don’t qualify for any government program, don’t qualify for a short sale and see no way out but to pack up their home and walk away.

These are not the typical homeowner’s lenders and the media have focused on but the homeowner’s who qualified for their home loan, put money down on their home and have been making their payments. A recent Wall Street Journal Blog found that once the value of a home fell by more than 15% the number of homeowners would simply “walk away” increased.

It becomes a financial choice to leave behind a home that will not regain it’s value in the next 7-10 years. They are aware of the impact on their future credit but when they weigh the impact of bad credit versus holding onto what is left in their retirement accounts the choice becomes clear.

Lenders (and the government) don’t seem to realize that these are the clients who are helping to add profit to the bottom line. These are the homeowners who if they were given an equal opportunity to adjust their mortgage and mortgage balance could afford to sell in a few years and have the money to buy a new home. Something our current market is missing, the move up buyer.

Keep an eye on the numbers over the next few quarters. Listen for the lenders to start talking about homeowners who are walking away not because they have to but because they can. This could be a far bigger tsunami than the initial wave of foreclosures in 2007.

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