Monday, September 21, 2009

Homeowners who 'strategically default' on loans a growing problem

By Kenneth R. Harney

Who is more likely to walk away from a house and a mortgage -- a person with super-prime credit scores or someone with lower scores?

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers.

National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.

With foreclosures, delinquencies and loan losses at record levels, strategic defaults and walkaways are among the hottest subjects in residential real estate finance. Unlike in earlier academic studies, Experian and Wyman could tap into credit files over extended periods to identify patterns associated with strategic defaults.

Homeowners who 'strategically default' on loans a growing problem

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