Can Afford Mortgage Payments But Still Walking Away
Researchers at the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management recently found that 26 percent of mortgage defaults are the result of homeowners who can afford their mortgages but are simply walking away because they owe more than their homes are worth.
The study also finds that the higher the number of foreclosures in a given area, the higher the homeowners’ willingness to default.
26 percent is a pretty startling figure, especially since going into foreclosure stays on a credit history for up to seven years and can hinder an individual’s access to credit in the future.
I’m wondering how many of these homeowners were actually in the camp of buyers who came to the closing with little or nothing for a down payment. I’m guessing that homeowners who had invested in say a 10 or 20 percent down payment – which would translate into $30,000 or $60,000 for a $300,000 home – in addition to closing costs and attorney’s and inspection fees, would be reluctant to purposefully default.
It’s a lot tougher to simply turn over the keys and walk away when one has invested thousands of dollars of hard-earned savings in a property.
But then again, that’s one of the problems with this whole housing market collapse. Too many homeowners were able to purchase a property with no money down, giving them little incentive to stick around when the housing market turned nasty.