FICO Says it Figured Out Strategic Defaulters

FICO the credit analyst famous (or infamous) for its scores says it can help mortgage lenders figure out who intends to walk away from their underwater loan instead of keep paying it. From their press release of April 21, 2011 “Strategic default is the phenomenon whereby borrowers who have the capacity to make their mortgage payments choose instead to default, often because the property value is less than the mortgage’s outstanding principal. Lenders have traditionally used the degree of home price depreciation as a basis for predicting strategic defaults; however, new FICO Labs research indicates that borrowers whose houses have lost the most value are only twice as likely to default as those whose houses have lost the least value. Through the use of custom analytic models, FICO Labs researchers have demonstrated the ability to identify borrowers who are over 100 times more likely to default strategically than others.”

It looks like to me lenders are not going to stand by and wait for people to default but start letting borrowers who look likely to walk away, that they will chase them for deficiencies and the cost of walking away will go up. The lending industry, fueled by greed since time immemorial and reaching it’s to date height in 2006, has been trying to make strategic default a moral issue. This from the lending industry that took billions upon billions of taxpayer bailouts, paid huge bonuses to morally bankrupt executives and now want to crucify borrowers who make a business decision. I guess it makes sense to announce this tool on Good Friday.

More from the press release. “Mortgage payment patterns have shifted, and some borrowers are intentionally defaulting on their mortgages because they believe it is in their best financial interest, and because they believe the consequences will be minimal,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Before mortgage servicers can work effectively with potential strategic defaulters, they must first be able to identify them. Our new research shows it is possible for servicers to find those at greatest risk of strategic default, both to prevent losses and to prevent borrowers from making a decision that will damage their credit future.” Sounds like a not so thinly veiled threat, doesn’t it?

Once again, the lending industry does not want the same rules to apply to borrowers as it does to lenders. And the public thinks that Congress is looking out for the consumers interest. Not when it comes to the big money lenders.

If you are considering strategic default, research, research and research, then hire a good real estate lawyer to help you in your decision. For some people the cost of strategic default will just be too high.