Targeting strategic defaults

As housing prices plummeted, "strategic default" has been coined for homeowners that walk away from their homes despite their ability to pay mortgage payments. Since they have negative equity, they choose to default and get from underneath their homes, though they have the capacity to keep the home.

According to one subscriber to our pre foreclosure data "If a house was mortgaged for $200,000 and it's now worth $100,000, the price has to double, and that's just not practical. Not in the course of a lifetime." It seems that there is a group of homeowners that are persuaded by this logic. Studies from the University of Chicago Booth School of Business indicate that in September 2010, 35% of mortgage defaults were strategic. The phenomena of borrowers that intentionally defaulted on a mortgage was so concerning to Fannie Mae that they announced policy changes aimed at penalizing borrowers that willfully walk away from their mortgage obligations absent a hardship. 

An informative paper from FICO Insights reveals that homes that have lost the most value are twice as likely to default as those whose home have lost the least value. They conclude that 20% of mortgagors represent nearly 70% of of strategic default risk. >Read the full report.

This report states that strategic defaulter tend to be more savvy managers of their credit than the general population, with higher credit scores, lower revoling balances and fewer exceeding limits on their credit cards. Their behavior is distinct from distressed homeowners that cannot afford their house payment. Atpreforeclosuredata.net, we can identify homeowners that are late on their payments, but otherwise have a good bill of financial health.

With strategic defaults accounting for an increasingly growing share of real estate inventory, should real estate professionals target this group of homeowners?

At Homestead Data, we provide early, accurate, and exclusive pre foreclosure data to identify distressed homeowners 30, 60 or 90 days late on mortgage payment. Armed with this insider information, you can be the first to advise troubled borrowers on their options, before their hardship reaches any public file.