Strategic Defaulters - FICO Has Your Number

OK, so they don't have your actual (FICO Score) number, but they do have a profile of who is most likely to use strategic default as an exit strategy. You manage your credit better than the average consumer, have lower revolving balances and generally, you don't exceed your credit card balances.

Strategic default is generally accepted to mean default by a consumer that still has the ability to make payments. Often these folks are value-keyed, figuring that if they walk away from a home that isn't worth what they owe, perhaps they can also pick up another home at a cheaper price before the default impacts their credit.

If you are not facing an economic hardship, you will not be eligible for a short sale, which is the route many distressed homeowners first explore.  Since those considering a strategic default are not in a 'distressed' condition (other than overthinking the value of their homes against current market prices), strategic default often seems like a good idea to them. 

This 'profiling' could help servicers to reach those considering strategic default before they make that final decision. The analytics developed by FICO Labs indicate that the riskiest 20 percent of borrowers actually comprised 67 percent of consumers who later executed a strategic default. To me, that's an amazing number.

In this report from DSNews.com, Dr. Andrew Jennings, chief analytics officer at the Minneapolis-based FICO and head of FICO Labs said, "Strategic defaults are bad for lenders and investors, they're bad for the homeowners who elect to default and they're bad for neighborhoods and cities. Preventing them is in the interests of everyone involved."

You can read the entire article at DSNews.com by using this link.