According to a study by Experian, 20 percent of mortgage delinquencies are strategic default situations[1]. And that number is skyrocketing particularly in hard-hit areas like California and Florida, where the numbers of strategic defaults are estimated to be much higher. Experian identified strategic defaults by defining a specific set of characteristics that make foreclosure situations likely to be strategic defaults. These included individuals with high numbers of first mortgages (often investors), high VantageScores ® (between 901 and 990, or an A rating), High origination mortgage balances and “counterintuitive home-equity line default behavior, meaning that defaulters were likely to stay current on their home-equity lines of credit prior to default, whereas the overall population tend to let their home-equity lines slide first[2].
FICO is attempting to help lenders better identify potential strategic defaulters through a predictive method that researchers estimate could save lenders $2 billion in the first year[3]. Presently, however, it is unclear how this identification technology would be used, other than that lenders could use it to “identify borrowers who are most at risk and minimize related losses.” Do you think it is possible to identify strategic defaulters before they default? Should they face more serious penalties than other people who enter foreclosure?
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[1] http://www.mainstreet.com/article/real-estate/foreclosure/zombie-debt-makes-strategic-default-less-strategic
[2] http://www.oliverwyman.com/pdf_files/OW_EN_FS_2010_Press_ExperianOW_Strategic_Defaults.pdf
[3] http://www.marketwatch.com/story/fico-helps-top-mortgage-servicers-combat-strategic-defaults-2011-10-10
Both David Salcido & Richard Case, are on the right track. First, Dodd & Frank did push for eased
lending back during the Clinton administration. Then years later, during the GW administration, they forced their initiatives on banks, even using smear tactics and sit-ins by way of the ACORN organizations. Bankers resisted for quite a few years but gave in to the unprecedented pressure once it became easier to foist their loans onto Fannie & Freddie… thanks Chris & Barney. Up to this point the majority of blame belonged directly in Washington D.C. but the Wall Street gangs had a great idea, an idea born out of excessive intrusion by the government, these guys cooked up the scheme to take mortgages, bundle them into neat packages called “structured investment vehicles” and sold these mortgage backed securities around the world. This might have worked but greed took over and they secretly mixed prime with sub-prime and the unsuspecting investors scooped them up like candy. And why not, after all the ratings agencies had given them their stamp of approval. Once the facts came to light and the SIVs true content was exposed, they suddenly became toxic assets. No one wanted an SIV because no one knew the percentage of prime vs. sub-prime. Prices plummeted on these mortgage backed investments and housing prices were dragged down with them. This resulted in freezing the real estate market. Sales plummeted, banks failed, lending stopped, housing prices fell, foreclosures rose, recession hit. One of the few things that went up during this time was the rate of unemployment. The good news is Chris Dodd is retiring on your dime, Barney Frank was reelected by his brilliant constituency and the national debt has increased $4.2 TRILLION since January 2009. Corruption & Greed.
GQ
And don’t forget that they paid off the ratings companies to rate these bundled loans as AAA investments.
So to answer the question-no, I don’t think strategic defaulters should face more severe penalties. Why should anyone be forced to hang on to a house thats over 150K underwater? The banks created this mess, not the homeowners. There are plenty of people who put fat down payments down and got conventional loans who are now underwater.