The Real Deal Miami

Strategic defaults losing stigma

February 23, 2010 05:53PM

Delinquencies on so-called jumbo mortgages are on the rise, and not just in the epicenters of the housing market crash. In states like New York, New Jersey and Florida, wealthy people with good credit histories are increasingly defaulting on their mortgages — Fitch Ratings reported that jumbo mortgage delinquencies rose to 9.6 percent in January — and that’s leading some analysts to believe many of these are strategic defaults. “These are all states where many of the mortgage holders are educated people and it is easy to connect the dots and conclude that these people are deciding it is no longer worth paying a mortgage if they are underwater,” said Ivy Zelman, a housing market analyst, who is predicting another 10 percent drop in housing prices nationwide. Negative equity appears to be one driving force: it’s directly correlated with default rates. Almost 40 percent of homeowners with no equity are delinquent on their loans, twice the rate of those with a stake in their homes. Strategic defaults have become so common that legal consulting companies like You Walk Away have sprouted up to help people through the process. The company charges a flat fee of approximately $1,000 to analyze how much time clients can get away with not making mortgage payments before they’ll be evicted. [Financial Times]