Homeowners With Good Credit Are More Likely To Strategically Default

Here’s an interesting discovery about mortgage defaults from the LA Times:

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.

These strategic defaulters tend to know the consequences of walking away, and they tend to live in “negative-equity markets where home values zoomed during the boom and have cratered since 2006.” To them, it’s a business decision and the best of a range of bad options. One consequence of the study, however, may be that lenders won’t be as willing to offer loan modifications to borrowers who fit the profile, as they’ll possibly still walk away at some later date.

“Homeowners who ‘strategically default’ on loans a growing problem” [LA Times]
(Photo: dingbat2005)