Mortgage Fraud & Default Up
Declining home values have caused many homeowners to stop making payments on their mortgages, despite having the financial capacity to do so. The process is called strategic default, and FICO estimates that it’s a $20 billion problem for mortgage lenders that will likely get worse before it gets better.
As MainStreet has reported, a study from the University of Chicago School of Business said that 35% of mortgage defaults in September 2010 were strategic defaults. In March 2009, that number was just 26%.
“Too many homeowners are walking away or not paying their mortgage just because the value went down and they are under water, yet that was their contractual obligation,” says certified financial planner Laura Scharr-Bykowsky of Ascend Financial Planning. “If everyone just decided to walk away just because they were under water, the downward spiral would continue. This is a huge risk to the system.”
What’s also worrisome is the uptick in mortgage fraud cases. According to the Financial Crimes Enforcement Network’s Mortgage Loan Fraud Update, there was an 88% increase in U.S. mortgage fraud cases in the second quarter of 2011 from the same period a year ago. The types of fraud that turned up the most included debt-elimination scams, false mortgage applications and identity theft – revealing the drastic measures people will take in these trying economic times to purchase or keep a home.