Many U.S. homeowners choose to default on mortgages out of anger, fear and despair rather than because they have made a purely rational decision about their best financial interests, a new study says.The study by Brent White, an associate professor of law at the University of Arizona, focuses on “strategic defaults,” those in which a borrower who could afford to keep paying chooses not to do so. That phenomenon is frequently described as a rational response by homeowners who are “underwater,” owing far more than the current values of their homes…Strategic defaults are becoming more common, various studies show, and mortgage lenders fear that borrowers who “walk away” will greatly increase the industry’s foreclosure-related losses, which already total in the hundreds of billions of dollars. Strategic defaults accounted for 12% of all home-mortgage defaults in February, up from “insignificant levels” three years ago, Vishwanath Tirupattur and other analysts at Morgan Stanley & Co. estimated in a recent report.
By James Hagerty, May 11, 2010 WSJ

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