With more than 500,000 households in Michigan owing more on their mortgages than the homes are worth, thousands of Michigan residents are choosing to abandon their homes and walk away, even if they can afford to continue making payments.
The number of people who have engaged in such strategic defaults more than tripled between 2005 and 2008 -- from 5,100 to 17,250, according to a report by Experian-Oliver Wyman, a credit reporting and consulting firm.
Mark Zandi, chief economist for Moody's Economy.com, said he expects the problem to get worse this year and next. "As people struggle to make ends meet, they will say this just doesn't make sense" about continuing to make payments, he said.
The trend is being fueled by the large number of underwater mortgages -- those where the bank is owed more than what a sale might net a homeowner. Michigan is fourth in the nation in underwater mortgages, with 38.5% of homes -- or 532,774 -- underwater.
Those who walk away often do so after failing to negotiate a loan modification or a short sale. Sometimes they need to move out of state for a better-paying job, but they can't sell their house.
"The good, straight people of the world will feel, 'How can I walk away?' " said Southfield real estate attorney John E. Jacobs. But with an economy still struggling, he and other experts said, the stigma of defaulting on a mortgage even if one can still pay is disappearing.
Posted by Economic Analyst
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