May 6, 2010, 1:12 PM ET

Freddie to Strategic Defaulters: Please Don’t Do It

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By Nick Timiraos

Freddie Mac has a message for any homeowners who are thinking about are thinking about walking away from their homes even though they can afford to pay the mortgage: Please don’t do it.

The problem for mortgage investors like Freddie Mac is that most mortgages in the country are non-recourse loans. Borrowers can’t be held liable for the debt if they default.

But Donald Bisenius, who heads Freddie Mac’s single-family credit-guarantee business, makes a valiant effort in a recent post on Freddie Mac’s website. He leads with this argument: strategic defaulters risk undermining their own neighborhoods:

We know from experience that foreclosures and vacancies drive down the property values of everyone else in the neighborhood. Thus, strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical mass of strategic defaults, and broader communities and regions become affected. Indeed, Economy.com, the analytic firm, recently said that more strategic defaults could tip a fragile housing market back into one of further price declines. Even more families harmed.

Mr. Bisenius also notes that mortgages may become more expensive in the future (perhaps especially so in those non-recourse states). That means housing costs will become expensive for more homeowners in the future.

The implicit concession in this argument: There isn’t a whole lot that banks can do to change borrower behavior. Over the past year, banks and investors became more sensitive to the fact that strategic defaults are happening, particularly among homeowners who owe far more than their homes are worth and where they see little chance that home values will ever recover (we’re looking at you, Las Vegas and Phoenix).

A report from mortgage analysts at Morgan Stanley last week noted that strategic default is highest among borrowers with higher credit scores, those with loans from 2006 or 2007 and those with prime-jumbo loans. Strategic defaults could account for as many as 40% of defaults from the 2006 and 2007 vintages of prime jumbo loans, analysts estimate.

Another study shows that 56% of all borrowers believe that lenders aren’t going to pursue them if they do default, a slight increase from the 54% of one year ago. The same study, from researchers at the University of Chicago and Northwestern University, finds that the share of defaults that were “strategicâ€