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Homeowners Sacrifice Credit Score to Relieve Burden

By Sally Maison
Published: Saturday, December 5th, 2009

Millions of people have lost their job during recession, pushing them to a very deep quagmire of debts. Specialists say the recession has always been characterized by homeowners going behind their mortgage payment simply because they owe too much. But specialists also note that some people would choose to see their credit score suffer instead of continuing their mortgage payment simply because they are no longer capable of doing so.

Homeowners Sacrifice Credit Score to Relieve BurdenHousing experts say deliberately defaulting on mortgage payments has become part of the financial strategy of some people. The country’s economic climate and falling property value made some people decide that it is better to walk away. The move could greatly hurt a credit score, and continue to do so for several years, but it is the only option left for a number of homeowners. Specialists say people who see their homes go underwater feel discouraged to continue paying their mortgage lenders. A property goes underwater when an owner owes more on mortgages than the value of his home or other real estate properties.

Brent White, who is a professor at the University of Arizona Law School, recently published a paper suggesting that people who walk away from their mortgage obligations are simply doing what they perceive is best for their financial interests. But he notes that homeowners cannot simply default on their mortgages, explaining that if they can easily do so, they would have been walking away in droves. He says the financial consequences of a foreclosure or loan default outweighs its benefits by far. It severely hurts a credit score and limits a person’s ability to get any line of credit for years.

The mortgage industry opposes White’s views, but he maintains that some homeowners are very worried about the shame a mortgage default could bring on them. He says some people would sacrifice their financial interests just to avoid being foreclosed upon.

Whether they want to or not, some homeowners simply cannot hold on to their American dream. Recent statistics reveal an increased number of people who are on the verge of foreclosure amidst slight improvements in the United States economy. The Mortgage Bankers Association reports that the current mortgage delinquency rate is at 9.94 percent, which is higher than the record-setting statistics during the second quarter of this year.

Specialists say homeowners who lose their property because of foreclosure will see their credit rating suffer for up to ten years, making it very difficult for them to apply for credit cards, auto loans, or any line of credit.

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