WHAT IS A Strategic Default Credit Model? Just another "Product"? Or, something more sinister? Lenders. . . . Come out, come out where ever you are!!

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

WHAT IS A Strategic Default Credit Model?  Just another credit scoring "Product"?  Or, something far more sinister? 

Will we soon see STRATEGIC FORECLOSURES?

Yesterday I got an e-mail from a loan officer friend who sends me information about interest rates, new programs, new products, regulations, etc. on a regular basis. 

This one got my attention.  It describes a new product from FICO.

The Strategic Default Credit Model as described in the announcement, will ALERT a lender if a client (borrower) Lenn"appears" to be a high risk for strategically default on their mortgage loan.

This is described as a "scoring tool", which, to me would indicate that it would be available to lenders as a part of a credit review.  Or, it could be a special "tool" to aggregate and report borrowers identified as STRATEGIC DEFAULT risks.

WHO IS ON THE RADAR AS A STRATEGIC DEFAULT RISK?  (This will suprise you.  It did me.)

*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.

Are lenders buying this new product??  If so, what do they plan to do with it??  My question to the loan officer that sent the announcement to me was. . . .

Is it possible that a person's FICO SCORE could be affected by this scoring scheme???

"WHAT ARE LENDERS GOING TO DO WITH THIS INFORMATION?? A STRATEGIC FORECLOSURE???

INQUIRING MINDS WANT TO KNOW.  I haven't seen anything from ActiveRain loan officer members about this.  However, I have been out with buyers or previewing for six solid days and I'm behind in my ActiveRain time. 

ANYONE OUT THERE WITH MORE INFO???

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Andrea Swiedler 05/25/2011 11:20 AM
  2. Conrad Allen 05/26/2011 12:14 AM
  3. Carol Pease 05/30/2011 09:18 AM
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Rainmaker
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Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

I have several strategic short sales right now where my sellers would meet those parameters just about to a tee. High income. Great credit. Never missed any payments. They are selling because it makes financial sense to do so. All would prefer to keep the property if the lender would do a principal reduction. Of course we know that will never happen.

I can see the value in knowing who these potential "defaulters" are in advance. What they should do is reach out and offer  give them a loan mod that works.

May 26, 2011 02:05 AM #23
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Lenn, I have not heard of or seen this before, but that does not mean that it is not out there.  Having said that it does not surprise me at all that steps like this are being taken, and that several more will be enacted as well.

First I want to make sure that the definition for who I am talking about is well defined.  The comment that I am going to make is not pointed to the now so called "Strategic Short Sale" though I have issues with that as well, but my comment is aimed at the "Strategic Default".  My definition of a "Strategic Default"  is someone who can pay for their mortgage but SIMPLY chooses not to and walks away from the property after living there mortgage free for several months, and stiffing the Lender who lent them the money in good faith.  No one held a gun to their heads and forced them to sign for the loan.  Hopefully it is clear who I am talking about.

Back in August of last year I wrote a couple of blogs addressing this issue, and warned of what would startto happen if people without financial hardship or lack of ability to pay their mortgage, kept on walking away from properties.  It was easy to see that as a result of these "Strategic Default" guideline changes would happen as well as other procedures put in place.  Unfortunately when these things happen it is not the ones that they are aimed at that get hurt (they already walked away form the property and could care less) it is the innocent people, the ones that truly can not afford to continue to pay for the mortgage because of job, life, or medical change in their life, that end up being the victims.

Several people criticized me for making those statements, and defended those that were doing "Strategic Defaults".  Well guideline changes have already started to be put in place to address this, and now apparently this new credit model as well. 

Who will be most affected by all this?  Homeowners that do not have a choice but to do a Short Sale, or to be foreclosed on, and those of us who make our living in this Industry will be affected economically as well.

To think that Lenders were just going to sit back and do nothing is unrealistic and foolish.  The actions are going to have a greater impact on the innocent then those that brought about the action.  And always, always bad behavior only brings about bad reactions.

Sorry for turning the comment into almost a blog, but I will not comment again and as always let you have the last word.

May 26, 2011 04:10 AM #24
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Bryant.  I agree.  Banks could and should do more to relieve the economy of the burden of short sales (process faster) and foreclousre (loss of community value) which makes their short sales even more numerous. 

They are sitting on a pole of profits and government help of which consumers got little.

George.  All I want to know is,

What do they plan to do with the information or "list" produced by this new algorithm??

Will the consumer know that they are "targeted" as a likely defaulter??

The entire thing appears very sinister to me.  More like a secret "sweep" of consumers' non-public information. 

Sadly, it makes my skin crawl.

May 26, 2011 11:43 AM #25
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Hey, Lenn!  I included this post in Last Week's Favorites

May 29, 2011 02:56 AM #26
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Patricia.  Thanks.

May 29, 2011 01:27 PM #27
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Lenn Harley
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Melanie Serrato
Melanie Serrato, Rawlings Realty ~Corona, Norco, Eastvale Ca - Norco, CA
CA Realtor - Corona-Norco-Eastvale Homes

Lenn ~ I recently read about Chase getting ready to offer $25,000 incentives to homeowners to do short sales, would it be too good to be true if this information was used that way?  Catch the ones most likely to walk away, and convince them to do the short sale?  

In my own experience with credit cards, when you have any kind of issue with one creditor, they automatically raise your interest rates and cut off your credit with your other creditors, and impact your credit score so that you can't do anything else to address the problem.  I have a feeling it will end up more in this direction than in the former....

Thanks for the info, can't wait to see how this plays out.  

May 29, 2011 05:06 PM #29
Rainmaker
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Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Lenn, strategic short sales are not something I take on for a couple of reasons: (1) unlikely they will be approved by the lender, (2) wastes everyone's (the sellers, buyers, agents, escrow, title, lenders) time, energy and resources.  It's interesting the last two points have to do with credit cards. We are a country dependent on credit.

May 29, 2011 10:55 PM #30
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Melanie.  I believe you are right.  Sadly, this will simply put more people out of their homes.  That, to me, is not a good result for the housing mess.  Principal reduction seems a better way.

Pamela.  If the banks encourage "strategic Short Sales", more will be approved. 

May 29, 2011 11:20 PM #31
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Angelina Clarke
Builder Services Realty, LLC - Tampa Palms, FL

WOW Lynn...this is SCARRY STUFF!!!  It looks like ANYONE could be identified as a strategic defaulter, and what's worse...is now it appears as if they want to punish borrowers for doing the right things.....UGHHH

May 30, 2011 02:42 AM #32
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Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Lenn - Sorry so late to this party. This is a very interesting turn of events. I think the banks are trying desperately to get a handle on something that is really unknowable, namely what is going on inside of someone's head. Uncharted territory, but I seriously doubt that the metrics you describe will work, or at least will finger such a huge group of borrowers as to be totally worthless. It will be fascinating, if disconcerting, to see how they try to use this information.

I called one of my lenders about six months ago to see about the 125% refi offer they sent me every month with my statement. Rental property, underwater, thought it might be worth a look. Turns out they wanted a ridiculous number of points to do the refi, almost what it would have cost me to pay down the principle and then refi at 90%. Made no sense. But the interesting part is, my loan was sold almost immediately to a new servicer. Coincidence?

May 30, 2011 05:14 AM #33
Rainmaker
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Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Lenn, I have seen something on this recently also & it's a gage for them to come up with a watch list of future defaulters.  Seems like profiling if you ask me.  Besides, read the reasons & it's pretty plain that it makes NO SENSE because it's from people that pay on time. Duh? Isn't that the perfect borrower scenario for them?

If they buy into this I have a Ouija board at home & can do all kinds of consulting work for them.  I work cheap so give me a call!  I also predict the weather with absolutely no accuracy & I charge only half of what the guys on TV get currently!  I'm a bargain!

May 30, 2011 05:41 AM #34
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Lori Bowers
La Quinta, CA
The Lori Bowers Group

This is all very sinister. What has America come to? I cannot imagine anyone wanting to lose their home?

May 30, 2011 08:08 AM #35
Rainmaker
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Carol Pease
JP & Associates Realtors - Bastrop, TX
CRS, Broker-Associate 512-721-6320

Hi Lenn:

I saw an article on Friday about how "strategic" defaulters  were not such a bad credit risk.  I'm going to look to see where it was. 

I'm wondering if lenders will use this to deny short sales and increase the foreclosure rates yet again. 

May 30, 2011 09:24 AM #36
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Angelina.  My thought exactly.

Linda.  Of course it was coincidence.  Of course. My mortgage company would love to sell my loan to Fannie, but I won't refinance out of my liber portfolio.

Lyn.  I simply get an uneasy feeling anytime an American citizen can be put on any LIST.

Intero.  BINGO!

Carol.  Good question.

May 30, 2011 11:32 AM #37
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Lenn Harley
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Jan Stevens
Coldwell Banker Pittsburgh - Cranberry Township, PA

This does seem sinister, and the last three items run counter to common sense. If these criteria actually affect credit scores, terrible damage will be done. Thanks for bringing it to our attention!

May 31, 2011 07:20 AM #39
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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Jan.  I agree.  They must have a purpose or plan in mind for this intrusive process.

May 31, 2011 07:27 AM #40
Rainmaker
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Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Lenn, I have heard about this and so it seems that we have finally managed to ensnare EVERYONE into a possible short sale scenario. People with bad credit who are upside down or now, and now people with good credit who are upside down or not. Who's left? What are they going to do with these stats?

It doesn't take a rocket scientist to figure someone who's smart with their money might decide to stragetically short sale their home if their own personal ethics don't dictate otherwise. This is just a way for them to make more money and possibly make the credit situation even worse. Wow.

Sharon

Jun 02, 2011 12:18 PM #41
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
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"someone who's smart with their money might decide to stragetically short sale their home if their own personal ethics don't dictate otherwise."

Sharon.  Curious.  Do you consider a short sale of one's own personal home an unethical decision???

Jun 02, 2011 10:50 PM #42
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