High Credit Scores Linked to Strategic Defaults on Mortgages
People with higher credit scores are more likely to strategically default on their mortgage loans, according to research by credit bureau Experian and consulting firm Oliver Wyman. After reviewing 24 million credit files, researchers found that homeowners who had high credit scores when they applied for a mortgage were 50% more likely to intentionally walk away from their homes and stop paying on mortgage loans than borrowers with lower scores.
Walking Away from Home Loans
As housing values have plummeted in some areas, an increasing number of homeowners have decided to bail on their mortgages, allowing their homes to go into foreclosure. That’s because many of these people are unwilling to continue paying on a home loan that exceeds the value of their property. In 2008, there were 588,000 strategic mortgage defaults, more than double the number in 2007.
Mortgage Payments End Abruptly
The Experian-Wyman research found that strategic defaulters often make an abrupt about face from having perfect payment histories to not paying at all. Contrast that with distressed borrowers, who often try to continue making payments on their mortgage even if they’re struggling to pay other bills. Other findings from the research include:
- Two-thirds of folks who strategically default are walking away from mortgages on their primary home
- People who own more than one property are also more likely to give up on their mortgage loans
- People with higher balances on their mortgage loans are more likely to default on purpose than those with lower balances
Some Calculated Decisions
People with higher credit scores who walk away from their mortgages also seem to understand the consequences, including the fact that they’ll take a huge hit to their credit scores. Apparently many of these people see abandoning a home loan as a business decision. In many cases, they are savvy enough to delay defaulting on home equity lines of credit until after they’ve walked away from their principal mortgage. That can allow them to take cash out of the home equity loan first.
Modify or Refinance Mortgage
If you’re struggling to make mortgage payments, there are better options than walking away on purpose. Look for free quotes to see if you qualify to refinance your mortgage. You can also seek help through the government’s mortgage loan modification plan.
Tags: home equity loan, home loan, mortgage, mortgage loans, mortgages
