New Strategic Defaul Credit Model Being Used By Some Lenders

A topic that just not seem to go away is "Strategic Defaults"  This past week there was a blog written by Lenn Harley about a new "Strategic Default Credit Model"that I have not heard about before, but is apparently being put in place by some Lenders.  This new Credit Model is raising concerns and even some outrage from some of the Realtors that commented on Lenn's blog.

First let's get one thing clear about the definition for "Strategic Defaults" which is nothing more than the politically correct word for stiffing the Lender, and not honoring the Promissory Note that was signed at the time that the Mortgage was given,  A "Strategic Default" is when someone who does not have any financial hardship paying their mortgage decides to just walk away, but not until they have lived there for months without paying a penny, before the Lender forecloses on them.  IT IS NOT someone who defaults on their mortgage because of a financial hardship, like losing their job, or health issues.  These people generally want to keep their home, but can no longer afford the monthly payments do to a situation that is out of their control. Now let's get back to the "Strategic Default Credit Model". 

This new Credit Model is suppose to be a "scoring tool", that Lenders would use in doing a credit review, or to identify potential "Strategic Default" risks.  In Lenn's blog she list six things that Lenders using this new Credit Model would be looking for: 

• "Borrowers who have recently opened new credit prior to stopping mortgage payments."
• "Borrowers who are a fairly recent home buyer/owner."
• "Borrowers with negative equity."
• "Borrowers who appear to be good money managers."
• "Borrowers who stay within the limits of their credit card accounts."
• "Borrowers who pay credit card bills on time."

The concerns that are being raised about this new Credit Model oddly enough are not because the actions of the people who are doing "Strategic Defaults", and bring about the creation of new guidelines and procedures that are going to impact innocent homeowner negatively.  This is where the blame should and needs to be placed.  But instead it is being placed on the evil Lender who are reacting unreasonably in there efforts to not get stuck with more defaults than they already have on their books.  

What I found almost comical is that a couple of the people that commented on Lenn's blog, who have defended "Strategic Defaults" in the past as somehow a smart thing to do, and even an honorable thing to do, are now winning about this new procedure that apparently some Lenders are now putting in place because of "Strategic Defaults".  These same people also criticized me back in August of last year, when I wrote a couple of blogs warning of ramifications that would be imposed as more and more  "Strategic Defaults" are done.

Back then I warned that innocent people were going to be hurt by those who are doing "Strategic Defaults", and sure enough we are seeing more and more guideline changes, and now new proceedures like this new Credit Model.  This will most likely not be the last of what Lenders will put in place to try to prevent "Strategic Defaults" from happening.

A question seems to be how will Lenders use this information?  I don't know, but I feel pretty safe in saying this, it will end up making it harder for people who had nothing to do with "Strategic Defaults" to  obtain new Mortgages.  This is what happens when bad behavior creates a need for a reaction.  It generally always brings about an over reaction from those trying to correct the bad behavior.

Those who are defending these people doing "Strategic Defaults" as some kind of hero, need to look at them for what they really are the villains in this whole situation.  But I am a realist, I know that the blame will be put on the evil Lenders, for trying to prevent more of these "Strategic Default" from happening.

Let me close by thanking Lenn for writing about this new "Strategic Default Credit Model", because if she had not, I probably still would not know about it.  So thank you Lenn even though we are most likely going to disagree about much of what I wrote.

 

 

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