FICO helps mortgage servicers combat strategic defaults
Florida Realtor Magazine reports FICO announced that it has agreements with four of the nation’s top 10 U.S. mortgage servicers to try to identify the borrowers most likely to attempt a strategic default.In a strategic default, borrowers who can afford to make their mortgage payments choose instead to stop paying and go through foreclosure, generally because they’ve determined that the hit to their credit score is preferable to the cost of keeping the home. Roughly 35 percent of mortgage defaults are strategic, according to the University of Chicago Booth School of Business. FICO estimates the cost at more than $20 billion annually.
FICO uses an algorithm to analyze a lender’s pool of mortgage holders, and while it looks at a number of traits, it focuses largely on the six million U.S. homeowners with current-loan-to-value ratios of 120 or higher – a group considered twice a likely to consider a mortgage default.
A foreclosure or short sale does not always relieve the homeowner of a debt obligation, and lenders might not forgive an outstanding debt. While each lender handles strategic defaults in its own way, banks could use the new FICO information to take a hardline stance on owners who chose a strategic... ...read full post
