Underwater homeowners – what keeps them in their homes?

by Guest Contributor 2 min read May 27, 2010

By: Staci Baker

As more people have become underwater on their mortgage, the decision to stay or not stay in their home has evolved to consider a number of influences that impact consumer credit decisions. Research is revealing that much of an individual’s decision to meet his credit obligations is based on his trust in the economy, moral obligation, and his attitude about delinquency and the effect it will have on his credit score.

Recent findings suggest that moral obligation keeps the majority of homeowners from walking away from their homes. According to the 2009 Fannie Mae National Housing Survey (i) – “Nearly nine in ten Americans (88%), including seven in ten who are delinquent on their own mortgages, do not believe it is acceptable for people to stop making payments on an underwater mortgage, while 8% believe it is acceptable.” It appears that there is a sense of owning up to one’s responsibilities; having signed a contract and the presumed stigma of walking away from that obligation.

Maintaining strong creditworthiness by continuing to make payments on an underwater mortgage is motivation to sustain mortgage payments. “Approximately 74% of homeowners believe it is very important to maintain good credit and this can be a factor in encouraging them not to walk away (ii).” Once a homeowner defaults on their mortgage, their credit score can drop 150 to 250 points (iii), and the cost of credit in the future becomes much higher via increased interest rates once credit scores trend down.

Although consumers expect to keep investing in the housing market (70% said buying a home continues to be one of the safest investments available (iv)) they will surely continue optimizing decisions that consider both the moral and credit implications of their decisions.
i December, 2009, Fannie Mae National Housing Survey
ii 4/30/10, Financial Trust Index at 23% While Strategic Defaults Continue to Rise, The Chicago Booth/Kellogg School Financial Trust Index
iii http://www.creditcards.com/credit-card-news/mortgage-default-credit-scores-1270.php
iv December, 2009, Fannie Mae National Housing Survey

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