Q. I have heard underwater homeowners who can still afford their loans have stopped making mortgage payments because of advice from their financial planners. Is this true?

A. True. This new class of borrowers is called strategic defaulters. They are believed to comprise 50% of all homeowners behind on their payments. The following is a simple scenario. Joe Smith is 55 years old. His 401k is dust and his social security check at 65 will be peanuts, his biggest investment in his life was the house he bought for $600,000 in 2005. That house is now worth $350,000. He has 25 more years of payments on a loan which may never equal the value of his home during his lifetime. His kids have left the nest and he and his wife no longer need 3500 square feet of housework.

Joe knows from every lawyer and legal network in town that he may be able to live in this house for two years without making a single payment before someone will come knocking at his door. Joe does the math, $3000 per month x 24 months = (OMG) $72,000!!! Joe has found his lost 401k.

Profiles of strategic defaulters are median to high income, 40-50 years old with college degrees. Their homes average value is $300,000-$400,000.They are making a financial decision which will impact their credit for years but makes sense on paper.

This does create an ethical dilemma with most borrowers but there is security in numbers, most are able to justify their actions (the bank screwed us, we didn’t know what we were signing, we were promised property values would increase forever, I don’t speak English). Agree or not this is the newest wave of foreclosures, the light at the end of the tunnel is dim.

Please email any real estate related questions to cyoung@saccityre.com.