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