A new study suggests that at least one type of foreclosure may be losing some of its stigma.
According to the 2012 Face of Foreclosure report, 45 percent of those surveyed felt that walking away from an underwater mortgage, or “strategic default,” is OK, while 45 percent thought homeowners should honor their financial obligations.
“The trend is that its more socially acceptable now to make a business decision that it is no longer worth holding on to the property, and to go ahead and let that go back to the bank,” says Blane Johnson, president of the Nevada Realtors Association. “You just hand over the keys and walk away.”
According to the report, there’s been an uptick in homeowners who are behind on their payments and are going the strategic default route. Johnson says that taking this path is viewed as a business decision similar to moving on after losing money on any other bad investment.
Another factor in favor of the defaulting homeowner is something the report refers to as the “plus one factor.” This means that the homeowner experienced a setback in addition to a foreclosure, such as a job loss or a medical bill.
“There are two events collaborated to cause a strain on you where a lot of people unfortunately lost their homes,” says Johnson. “So some peoples’ credit score, while it was damaged, are going to be able to recoup more quickly.”
The public perception of foreclosure may be changing, but public attitudes toward home ownership are not, according to Johnson. Even people who have gone through the painful process of losing a home are eager to get back into the market.
“A huge majority said they’d go buy a house again,” he says. “People love the idea of home ownership. They like buying into their community.”
And once and future homeowners who have gone through the foreclosure process may find lenders surprisingly forgiving.
“Lenders are starting to understand that a lot of people went through a short sale or a foreclosure, and they take that into consideration,” says Johnson. “Hopefully there’s going to be some sort of leeway with these fico scores going forward.”