Strategic Default

It is estimated that 26 percent of those who default on their mortgage fall into the category of “strategic default”. Those who engage in the practice can in fact afford the mortgage payments but because they owe more on their homes than the market value they decide to walk away.

Who Is Most Likely to Strategically Default

According to FICO Labs “The strategic default borrower is someone with a good credit score,  low levels of revolving credit, little retail balance and a short occupancy in their current residence. By these characteristics, the strategic borrower is money conscious, has a low probability of past defaults and has little attachment to their property.”

FICO reports that borrowers whose homes lost the most value are only twice as likely to default as those who lost the least value. Through its custom analytics, FICO is able to identify the riskiest borrowers, who are 110 times more likely to default than the average homeowner.

New Technology to Predict a Strategic Default

To help lenders identify these borrowers, FICO Labs is releasing technology that will examine credit scores of those who fall into this category. Some borrowers are intentionally defaulting on their mortgages because they believe it is in their best financial interest, and are unconcerned with the consequences. The consequences may be more than the borrower bargained for if in fact the lenders determine the default was not due to a hardship.

Where the laws permit lenders are trying to recoup money lost due to foreclosure and anyone who they believe could have paid their mortgage but chose not to are the first on the list.

About Linda Urbick Linda

has written 261 articles on this blog.

Filed under: Real Estate

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