A new survey out from real estate data trackers Trulia.com and RealtyTrac shows that the majority of American homeowners have a desire to hold on to their homes and make good on their financial promises, even if they go underwater on their mortgages.
The study found that 59 percent of borrowers said they would not consider walking away from their mortgages, even if they owed more on their home than it was worth. Only 39 percent said they would consider “strategic default,” stopping payments even though they could afford them, and just 1 percent said it would be their first option.
This is interesting news considering that 20 percent of homeowners around the country are estimated to already be underwater on their homes. And in strictly financial terms, many of them would save more money by defaulting and taking the credit hit. Yet the majority, according to this Harris Interactive survey of 2,600 people, say they wouldn’t even consider it.
“When was housing ever a rational market?” asks Pete Flint, Trulia’s founder and chief executive, as reported on Forbes.com. “There’s still a significant stigma attached to going into foreclosure.”
And Rich Sharga, executive with RealtyTrac says, “There’s a sanctity where our word is our bond and that’s always been part of our cultural heritage. There’s an aspect of honor that’s still very much part of the American culture.”
Still, there are people willing to break that bond and even this survey found that people’s honor was closely tied with how underwater their houses got. For example, less than one-third of borrowers would consider walking away if their homes were 20 percent underwater, but if that number rose to 30 percent, a full half of participants said they’d at least consider walking away from their mortgage.
Now the question becomes what is the right move for the whole market? Would it be a faster fix to have people foreclose on their inflated-value properties, and let the prices readjust to current market value? Or is it better for people to keep holding on to underwater properties with the result of 1)eventually pay them off, 2)wait for the rise in property value or 3) just drag out the foreclosure process? Hard to say, but I’m glad at least that most Americans still consider themselves true to their promises.