In the conference call this morning, BofA's credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."
Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that's an optimistic assessment), and so there's over a year of free rent. While the banks are trying to improve the time, they're just not there yet.31 percent of foreclosures in March were deemed to be "strategic default" by researchers at University of Chicago and Northwestern University. That's up from 22 percent in March of 2009. We already know that mortgage walkaways are more prevalent among borrowers whose neighbors or friends have done the same thing. We also learn from those same researchers that the likelihood of walking away increases by 23 percent when homeowners learn that a neighbor got some principal forgiveness.