Even as mortgage lenders and real estate agents nationwide have shared positive anecdotes about the housing market's recovery, we're learning more about some of the situations that caused the home loan industry to spiral in 2008 and 2009. In Nevada, reports indicate that as many as one in four homeowners who faced foreclosure over the past few years used "strategic default," meaning they decided to stop making payments on their debt despite having the financial ability to pay.
According to a survey released in late January by the Nevada Association of Realtors, three out of five Nevada residents behind on their mortgage payments didn't know about government programs and other opportunities to qualify for loan modifications or refinance deals.
In fact, many of the Nevada residents who ultimately lost their homes blamed their financial situations on "life-altering" events, such as illness or job loss. Almost half of the survey's respondents said that they held banks and mortgage lenders responsible for their foreclosures.
Choosing strategic default
While Nevada residents searched for ways to cope with rapidly falling property values, the "strategic default" concept started showing up in more conversations between borrowers and their close friends. By the time CBS News' 60 Minutes made strategic default the focus of a feature investigation that aired in May of last year, a record number of Nevada homeowners had already made the difficult decision to let their home loans lapse.
For their part, Nevada real estate agents and mortgage lenders want to prevent even more borrowers from walking away from their home loans. The consequences of strategic default can hamper most consumers from qualifying for a new mortgage, at least for the seven to 10 years that a foreclosure's effects can linger on a credit report.
Investors step in
Even when banks have stepped up efforts to facilitate short sales on pre-foreclosure properties, many of those homes wind up in the portfolios of offshore investors. Repeated short sales and downward-trending appraisals can harm the resale value of neighboring homes, putting even more homeowners at risk.
The majority of American homeowners, without properties at risk, can take some solace that mortgage brokers and lenders have increased their capacity to handle mortgage quotes for refinance deals. It may take longer to find the best mortgage rates than it did at the peak of the refinancing boom, but the payoff can include the assurance that you won't have to consider strategic default or anything else that may damage your credit over the long haul.