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Woman Walks Away from the Home She Can Afford

By Sally Maison
Published: Thursday, December 31st, 2009

Many homeowners who have their homes underwater have decided it is not worth paying for a property which has a value lesser than the amount they owe on its mortgage. Some, who can still afford to pay, have decided to walk anyway even if it would hurt their credit score. Heather Baker, who lives in a Washington, D.C., suburb, is one of them. Last month, she decided to stop paying mortgages for her four-bedroom house.

Woman Walks Away from the Home She Can AffordBaker no longer believes that the American dream has to include a home with a white picket fence. However, three years ago, when she bought that same home she is now letting go, something else was on her mind. About to turn 40 at that time, she felt a need to buy a home and did so August of that year. Her birthday is in September.

With current housing conditions, she estimates that the home she bought for $465,000 will not sell anywhere above $225,000 today. That was about the amount that the house down her street sold for during a foreclosure auction.

Like many people few years ago, Baker bought the house with no down payment at all. The mortgage broker who worked with her told her that her credit score alone was enough for her to qualify for a loan. In fact, she was given an option to choose anyone who she liked—which is exactly what she did, a decision she regrets now.

Unlike most people who walk away from their mortgage, Baker has a good income which could allow her to keep up with her mortgage payments. However, now she plans to live in the house without paying for the next several months with her two daughters. Before she is evicted, she will willingly move into a townhouse that is as big as her present home.

What Baker is planning to do is called a strategic default. She is defaulting on her mortgage not because she has to, but as a part of a business decision. Since many homeowners in her street have already undergone foreclosure, the decision was not so hard for her.

Specialists explained that people who intentionally walk away from their mortgages do so despite its effects on their credit ratings because it will give them a better outcome, financially.

However, finance expert Guy Cecala, warns homeowners about the consequences of a strategic default, reminding them that mortgage is not merely an economic decision. More importantly, it is a contract. Because of its effects on a credit score, a default could hinder a homeowner from getting a loan for up to ten years.

Many homeowners who have their homes underwater have decided it is not worth paying for a property which has a value lesser than the amount they owe on its mortgage. Some, who can still afford to pay, have decided to walk anyway even if it would hurt their credit score. Heather Baker, who lives in a Washington, D.C., suburb, is one of them. Last month, she decided to stop paying mortgages for her four-bedroom house.

Baker no longer believes that the American dream has to include a home with a white picket fence. However, three years ago, when she bought that same home she is now letting go, something else was on her mind. About to turn 40 at that time, she felt a need to buy a home and did so August of that year. Her birthday is in September.

With current housing conditions, she estimates that the home she bought for $465,000 will not sell anywhere above $225,000 today. That was about the amount that the house down her street sold for during a foreclosure auction.

Like many people few years ago, Baker bought the house with no down payment at all. The mortgage broker who worked with her told her that her credit score alone was enough for her to qualify for a loan. In fact, she was given an option to choose anyone who she liked—which is exactly what she did, a decision she regrets now.

Unlike most people who walk away from their mortgage, Baker has a good income which could allow her to keep up with her mortgage payments. However, now she plans to live in the house without paying for the next several months with her two daughters. Before she is evicted, she will willingly move into a townhouse that is as big as her present home.

What Baker is planning to do is called a strategic default. She is defaulting on her mortgage not because she has to, but as a part of a business decision. Since many homeowners in her street have already undergone foreclosure, the decision was not so hard for her.

Specialists explained that people who intentionally walk away from their mortgages do so despite its effects on their credit ratings because it will give them a better outcome, financially.

However, finance expert Guy Cecala, warns homeowners about the consequences of a strategic default, reminding them that mortgage is not merely an economic decision. More importantly, it is a contract. Because of its effects on a credit score, a default could hinder a homeowner from getting a loan for up to ten years.

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