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Friday, September 07, 2012 1:52 AM

Baby Boomers and Strategic Defaults - a Demographic Study: Why Did People Walk Away? Did They Struggle With Morality? Would they Recommend Walking Away to Others?

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Jon Maddux, CEO of You Walk Away, sent me a slide show of their recent Baby Boomer Strategic Default Survey.

I asked Jon to post it online so others could see the graphs. Here is an excerpt of the study.

Survey study of YouWalkAway Clients in Relation to Retirement & Foreclosure

Baby boomers, generally considered those born between 1946 and 1964, face a myriad of issues as the larger-than-average generation ages. The cohort that demanded an increase in the production of consumer goods – homes included – is now hitting retirement age. This means fixed incomes and reduction in living space requirements. While this is to be expected for anyone hitting the retirement milestone, this has been an especially difficult transition for the boomers due to the reduction in value of dream homes purchased at the peak of the market to house their entire families. Facing high mortgage payments, increased maintenance, and a reduction in income, many of the boomers are choosing to walk away. Many others claim to have no choice.

Compared with their younger counterparts, baby boomers are generally more likely to have depleted their savings, retirement and other accounts prior to making a decision to strategically default, leaving them with little to no safety net keeping them above the poverty line during what should be their golden years. Many of the clients that You Walk Away works with on a daily basis are in their late 50s or 60s and during a time when they should be planning for a retirement of leisure and relaxation, they are instead consumed with debt, continued unemployment, and a looming fixed income.

You Walk Away Demographics

Key Findings

  • 48% depleted a good portion or all of their savings prior to making a decision to walk away. 
  • 68% cited property values as the key reason for walking away. Only 5% cited health issues and fewer still (4%) cited loss of income.
  • 53% said they would have walked away if they were 20 years younger while 23% said they would not have. The remaining 24% said the question was not applicable (they were not old enough to have a house).
  • 30% said retirement was a factor in their decision.
  • 22% made the mistake of tapping retirement accounts before walking away and another 16% considered doing so but decided against it. 63% never considered it.
  • 88% readily admitted they were "strategic defaulters". 12% said they were not. This result is consistent with the 9% citing health or loss of income as reasons for walking away. 
  • 75% struggled with the morality of walking away. 25% did not.
  • 97% said they would recommend walking away to family members if they were in the same situation. 

That last bullet point is an indication that having walked away, the struggle over morality quickly ended, most likely in relief.

Note the whopping 88% who admit they were "strategic defaulters". Banks never expected that.

I believe bank CEOs knew full well home prices would sink (not necessarily crash as I expected) but the lenders did not care because of their originate to securitize model. Of the loans that banks kept, the bankers probably hoped to make debt slaves for life.

Regardless of what the banks thought, the results were not pretty, either for the banks or those trapped. Moreover, a massive debt overhang still remains and the pending foreclosure pool is mammoth.

In case you missed it, please consider Foreclosure Stats From You Walk Away.

Housing will be impaired for the rest of the decade even if the bottom in price is close at hand.

Mike "Mish" Shedlock
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