Strategic defaults doubled in 2008

WASHINGTON Oct. 1, 2009 A study of 24 million credit files by national credit bureau Experian and consulting company Oliver Wyman finds that homeowners with high credit scores are 50 percent more likely to deliberately walk away from a mortgage than lower-scoring borrowers.

The industry calls these strategic defaults, and their numbers grew to 588,000 in 2008 double the total in 2007 and well beyond most earlier estimates.

The study determined:

Strategic defaulters tend to go straight from paying their mortgages dependably to not paying at all. Strategic defaulters are heavily concentrated in negative-equity markets like California and Florida. Two-thirds of strategic defaulters have only one mortgage. Most likely to default are homeowners with large balances and the highest credit ratings.

Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters are clearly sophisticated and look on the decision to default as a business strategy.

Well, Im $200,000 in the hole on my house, and yes, Ill damage my credit, Tantia says defaulters admit. But they see the credit hit as a less onerous choice to their long-term bottom line than continuing to own the house.

Source: Washington Post Writers Group, Kenneth R. Harney (09/27/2009)