Decline in Strategic Defaults

The phenomenon of strategic default has become a growing concern for the industry, but a new “Market Insight Snapshot” released by Experian Thursday suggests the percentage of mortgage defaults involving borrowers who decided to simply throw in the towel is trending down.

Strategic defaults in the U.S. peaked during the fourth quarter of 2008, accounting for 20 percent of all mortgage defaults 60-plus days delinquent, according to the study conducted jointly by Experian and the international consulting firm Oliver Wyman.

Since that time, though, the companies’ analysis found that strategic defaults have fallen below the 20 percent mark every quarter through mid-2010, when the share of intentional walk-aways came in at 17 percent.

Though at below-peak levels, Experian says strategic defaults “remain high” and the numbers “are not likely to decline unless housing prices increase.”

According to Charles Chung, Experian’s president of decision analytics, about 90 percent of strategic defaulters are continuing to stay current on their other obligations – even a year after they’ve gone delinquent on their mortgage.

Chung says it’s important for lenders to understand these findings. “Knowing more about these behaviors helps lenders personalize strategies for consumers who have defaulted on their loans,” he said.

The report also shows that consumers with higher origination balances are more likely to strategically default.

Of defaulted borrowers with origination balances of less than $50,000, only 6 percent were strategic defaulters while 38 percent were distressed defaulters.

For those with loan origination balances of more than $1 million, one-third had strategically defaulted while only 20 percent had defaulted under distress.

This article is from “Market ‘Snapshot’ Reveals Decline in Strategic Defaults.”

Facebook Twitter Email Linkedin Stumbleupon Digg Delicious Yelp

Leave a Reply