Thursday, September 24, 2009
STRATEGIC DEADBEATS BEAT SUBPRIME BORROWERS
BANZAI7 NEWS--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.
The Los Angeles Times reports: 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, researchers were able to tap into credit files over extended periods to identify patterns associated with strategic defaults.
Among researchers' findings are these eye-openers:
* The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year's fourth quarter.
* Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they've fallen behind on other accounts.
* Many strategic defaulters are likely to be well to do bankers, mortgage handlers, real estate brokers and Congressional Committee Chairmen.
* Strategic defaulters are just doing what common sense dictates.
* Having the money and deciding to default on an underwater mortgage is much more acceptable than being unemployed, starving and homeless.
* "Strategic defaulter" is a euphemism for a well healed deadbeat.
And yes, this is swell news for the economy.