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Note from the debtors’ rebellion

The debtors’ rebellion is still making itself felt in the mortgage industry as strategic defaults rise. This represents the most significant threat to the empire and to both Washington and Wall Street.

From thetruthaboutmortgage.com:

Strategic Default Accounted for 31 Percent of Foreclosures in First Quarter

Strategic default accounted for 31 percent of foreclosures during the first quarter of 2010, according to the Chicago Booth/Kellogg School Financial Trust Index.

That’s up from 22 percent a year ago, and significantly higher than the 12 percent figure Morgan Stanley attributed to strategic default in February.

The Kellogg School researchers believe part of the rise has to do with the increased perception that fewer banks and mortgage lenders will come after borrowers who don’t pay their mortgages.

“With more and more homeowners believing that lenders are failing to pursue those who default on their mortgages, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford monthly payments.” said researcher Paola Sapienza in the report.

The results also indicate that strategic default increases by 29 percent if the homeowner is able to find an alternate way to finance a new home.

And if the homeowner learns they have a neighbor with negative equity that received a partial loan for forgiveness, the likelihood of strategic default rises 23 percent.

The article points out that most underwater homeowners will not default on their mortgage if they think it will hurt the credit score.

“A key deterrent to strategic default is the fear of losing a good credit score,” said researcher Luigi Zingales. “Approximately 74 percent of homeowners in our survey believe it is very important to maintain good credit and this can be a factor in encouraging them not to walk away.”

Of course, credit scores seem to be negatively impacted via loan modifications as well, so some borrowers may opt to walk regardless.

Fico’s latest stance on loan modifications and credit score is that they won’t hurt borrowers at the moment, but could once more data is compiled.

That type of uncertainty doesn’t bode well for those hanging on based on credit score alone.

It is not clear what impact negative credit scores will have on this rebellion, since a readily available pool of individuals able to take on ever increasing amounts of debt is of absolute necessity to the continuation of Washington’s Ponzi scheme.

Frankly folks, threats from FICO  and the financial industry are impotent and deserving only of contempt. If you don’t take on more debt, the system crashes. So, as much as they threaten to cut FICO scores, that threat will just blow up in their face. Any hope of renewed conomic growth depends on you going deeper into debt. If you are underwater, do what the big boys do: STOP PAYING.

(Always consult a lawyer to figure out the best route.)

Most of all, do not put your family in jeopardy to service debt you can no longer afford, or, on a home that is no longer worth it.

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