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Survey: 1/3 of Americans Say Strategic Default 'Acceptable'

Sorohan, Mike
Nearly one-third of more than 1,000 adults surveyed by ID Analytics, San Diego, said homeowners should be able to strategically default on their mortgages, without any consequences.

The survey of 1,026 U.S. adults, conducted online by JZ Analytics last month for ID Analytics, also reported 13 percent would likely strategically default on a mortgage and 17 percent know someone who has strategically defaulted on a mortgage.

"What jumped out is how many Americans feel it is acceptable for homeowners to walk away from a mortgage and go into foreclosure,” said John Zogby, senior analyst with JZ Analytics. “If Americans carry on with that mindset, it will continue to cause problems as the economy undergoes a slow recovery."

A strategic default is when a homeowner, who has the financial ability to make the payment on a house that is worth less than is owed on the mortgage, decides to walk away and let the house go to foreclosure.

A 2011 study by Research Institute for Housing America, the research arm of the Mortgage Bankers Association, reported that current economic conditions and social networks have influenced homeowners’ decision to strategically default on their mortgages, with “deleterious consequences” in some markets.

The study, Strategic Default in the Context of a Social Network: An Epidemiological Approach (www.housingamerica.org.) noted unemployment and other factors have caused many homeowners to involuntarily default on their mortgages. At the same time, falling home prices, the possibility of being underwater for many years and advice from certain influencers, or “mavens,” might have encouraged others to simply stop paying.

“Recently, the overwhelming media coverage of the current financial crisis has made homeowners aware--or at least alerted them to become aware--of their equity position in their home,” said Michael Seiler of Old Dominion University, a co-author of the study. “While the merits of such a choice can and will continue to be debated, what is indisputable is that the possibility to strategically default has certainly been brought to the attention of current homeowners like never before, with potentially negative consequences for housing markets.”

The ID Analytics survey said many survey respondents believe homeowners should be able to strategically default on mortgages because they believe the mortgage market has “been a scam for many years, built on false promises that took advantage of people that didn't understand what was happening and they never had a chance of paying the mortgage off.”

Other findings of the ID Analytics survey:
• 17 percent of respondents said they would “exaggerate personal information” to obtain credit.

• 36 percent of respondents believe it's “socially acceptable” to have a poor credit score.

• 35 percent of respondents said they are “more afraid” of becoming an identity theft victim than five years ago.