Economists in Survey Oppose Strategic Default, Principal Forgiveness – Real Estate Matters
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Economists in Survey Oppose Strategic Default, Principal Forgiveness

The article below is by Esther Cho at  It points out that most economists surveyed would continue to make their mortgage payments even if their property was underwater.  Strategic default is the practice of walking away from a property that is underwater even though the borrower has the financial ability to continue making the payments. I find it interesting that in the commercial real estate, in many cases companies will use a strategic default as a business tactic with little stigma attached. For individuals, however, the situation is much different, the stigma associated from voluntarily walking away from a debt obligation is a major detriment.

Nearly three-quarters of economists surveyed said they would continue making their mortgage payments even if they were deeply underwater, Zillow reported Thursday.

Strategic default, which is when homeowners decide to stop paying their mortgage even though they can afford it, is oftentimes motivated by negative equity.

In Zillow’s Home Price Expectation survey for June, 71 percent of economists said they would not choose strategic default, even if they owed at least 40 percent more on their mortgage compared to the home’s current value.

The survey, which was conducted by Pulsenomics, included 114 responses from economists, real estate experts, and investment and market strategists.

The industry experts were also questioned on their position concerning a government-sponsored program to forgive principal for underwater homeowners.

Coming close to the percentage of those who said they would not strategically default, 72 percent said they opposed a principal reduction program, while 28 percent were in favor of one.

Read the entire article:


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