Monday, April 25, 2011

FICO Profiles the Strategic Defaulter

As home prices began heading further and further south, the term "strategic default" made its way into industry jargon...and into the minds of lending and servicing professionals already struggling to keep up with large volumes of borrowers who actually can't afford their mortgage payments. It's a fairly new phenomenon that the industry agrees needs addressing, but the problem is, how do you pinpoint a strategic defaulter? The credit assessment firm FICO says it's developed a method, using consumer behavior analytics, that will allow lenders to identify borrowers who might walk away.

They say, as a group, strategic defaulters tend to be more savvy managers of their credit than the general population, with higher FICO scores, lower revolving balances, fewer instances of exceeding limits on their credit cards, and lower retail credit card usage.

All factors point to the fact that strategic defaulters display a different type of credit behavior than distressed consumers who miss payments.