4S Ranch Allied Gardens Alpine Baja Balboa Park Bankers Hill Barrio Logan Bay Ho Bay Park Black Mountain Ranch Blossom Valley Bonita Bonsall Borrego Springs Boulevard Campo Cardiff-by-the-Sea Carlsbad Carmel Mountain Carmel Valley Chollas View Chula Vista City College City Heights Clairemont College Area Coronado CSU San Marcos Cuyamaca College Del Cerro Del Mar Descanso Downtown San Diego Eastlake East Village El Cajon Emerald Hills Encanto Encinitas Escondido Fallbrook Fletcher Hills Golden Hill Grant Hill Grantville Grossmont College Guatay Harbor Island Hillcrest Imperial Beach Imperial Valley Jacumba Jamacha-Lomita Jamul Julian Kearny Mesa Kensington La Jolla Lakeside La Mesa Lemon Grove Leucadia Liberty Station Lincoln Acres Lincoln Park Linda Vista Little Italy Logan Heights Mesa College Midway District MiraCosta College Miramar Miramar College Mira Mesa Mission Beach Mission Hills Mission Valley Mountain View Mount Hope Mount Laguna National City Nestor Normal Heights North Park Oak Park Ocean Beach Oceanside Old Town Otay Mesa Pacific Beach Pala Palomar College Palomar Mountain Paradise Hills Pauma Valley Pine Valley Point Loma Point Loma Nazarene Potrero Poway Rainbow Ramona Rancho Bernardo Rancho Penasquitos Rancho San Diego Rancho Santa Fe Rolando San Carlos San Marcos San Onofre Santa Ysabel Santee San Ysidro Scripps Ranch SDSU Serra Mesa Shelltown Shelter Island Sherman Heights Skyline Solana Beach Sorrento Valley Southcrest South Park Southwestern College Spring Valley Stockton Talmadge Temecula Tierrasanta Tijuana UCSD University City University Heights USD Valencia Park Valley Center Vista Warner Springs

FICO to Help Banks Target Strategic Defaulters

Credit analysis firm FICO announced this week that it has formed relationships with four of the nation’s top ten loan servicers to help identify borrowers with a high risk of “strategic default.” In such a situation, a borrower who is otherwise able to make mortgage payments decides it is in their best financial interest to stop payment and to allow a property to be foreclosed by a lending bank. These individuals make up approximately 35% of all borrowers delinquent on payments. The four participants were not named in the announcement.

FICO focuses on customers who have loan-to-value ratios of 120% or more, as individuals who owe far more than their homes are worth are less likely to consider the property a sound investment. With home values down across San Diego County 5.88% compared to a year ago, the number of homeowners with negative equity continues to climb. Not surprisingly, San Diego foreclosure rates remain higher than the rest of the nation.

Strategic defaulters tend to have a higher overall credit score and carry less credit card debt, FICO reports. One of its suggestions to lenders trying to convince borrowers to continue paying on loans absent any equity incentive is to remind borrowers of the credit damage they can incur. A foreclosure can cause a consumer’s credit score to fall 150 points or more, and lending giant Fannie Mae announced last year that it will bar loans to any borrower with a foreclosure on record for seven years from the foreclosure date. It’s hoped that the fear of a lower credit rating and subsequent loss of borrowing power will cause consumers to continue pouring money into “upside-down” homes as long as they are able to do so.

Another tactic suggested is the establishment of a single point of contact for delinquent borrowers, instead of putting them on an auto-dialer system where they receive random collection calls from an individual unfamiliar with their account or situation. FICO recommends these case managers be trained “to engage in a pragmatic, rational discussion that corresponds to and joins with the thinking process in which these customers are already engaged.” The company indicates that sophisticated borrowers who maintain strong credit profiles are more likely to view a loan in terms of their own financial benefit, rather than as a moral obligation to a bank.

FICO says that the algorithms it has developed to help banks identify potential strategic defaulters both behind on payments and who are still current could provide a collective benefit for its clients of up to $2 billion in the first year of the program alone.

Here's something you might be interested in.
Submit a free classified
or view all

Previous article

San Diego aggressive rollerbladers return in strength

Big Wheels invade Balboa Park, Liberty Station
Next Article

Short boards easier to manuever

Wetsuit gets stuck to my body

Credit analysis firm FICO announced this week that it has formed relationships with four of the nation’s top ten loan servicers to help identify borrowers with a high risk of “strategic default.” In such a situation, a borrower who is otherwise able to make mortgage payments decides it is in their best financial interest to stop payment and to allow a property to be foreclosed by a lending bank. These individuals make up approximately 35% of all borrowers delinquent on payments. The four participants were not named in the announcement.

FICO focuses on customers who have loan-to-value ratios of 120% or more, as individuals who owe far more than their homes are worth are less likely to consider the property a sound investment. With home values down across San Diego County 5.88% compared to a year ago, the number of homeowners with negative equity continues to climb. Not surprisingly, San Diego foreclosure rates remain higher than the rest of the nation.

Strategic defaulters tend to have a higher overall credit score and carry less credit card debt, FICO reports. One of its suggestions to lenders trying to convince borrowers to continue paying on loans absent any equity incentive is to remind borrowers of the credit damage they can incur. A foreclosure can cause a consumer’s credit score to fall 150 points or more, and lending giant Fannie Mae announced last year that it will bar loans to any borrower with a foreclosure on record for seven years from the foreclosure date. It’s hoped that the fear of a lower credit rating and subsequent loss of borrowing power will cause consumers to continue pouring money into “upside-down” homes as long as they are able to do so.

Another tactic suggested is the establishment of a single point of contact for delinquent borrowers, instead of putting them on an auto-dialer system where they receive random collection calls from an individual unfamiliar with their account or situation. FICO recommends these case managers be trained “to engage in a pragmatic, rational discussion that corresponds to and joins with the thinking process in which these customers are already engaged.” The company indicates that sophisticated borrowers who maintain strong credit profiles are more likely to view a loan in terms of their own financial benefit, rather than as a moral obligation to a bank.

FICO says that the algorithms it has developed to help banks identify potential strategic defaulters both behind on payments and who are still current could provide a collective benefit for its clients of up to $2 billion in the first year of the program alone.

Sponsored
Here's something you might be interested in.
Submit a free classified
or view all
Comments
1

"One of its suggestions to lenders trying to convince borrowers to continue paying on loans absent any equity incentive..."

Perhaps it would behoove "potential strategic defaulters" to form groups (one for each major loan servicer) to negotiate for those equity incentives. The threat of strategic default en masse would make for a good stick/BATNA.

Oct. 13, 2011

Sign in to comment

Sign in

Ask a Hipster — Advice you didn't know you needed Big Screen — Movie commentary Blurt — Music's inside track Booze News — San Diego spirits Classical Music — Immortal beauty Classifieds — Free and easy Cover Stories — Front-page features Drinks All Around — Bartenders' drink recipes Excerpts — Literary and spiritual excerpts Feast! — Food & drink reviews Feature Stories — Local news & stories Fishing Report — What’s getting hooked from ship and shore From the Archives — Spotlight on the past Golden Dreams — Talk of the town Letters — Our inbox [email protected] — Local movie buffs share favorites Movie Reviews — Our critics' picks and pans Musician Interviews — Up close with local artists Neighborhood News from Stringers — Hyperlocal news News Ticker — News & politics Obermeyer — San Diego politics illustrated Outdoors — Weekly changes in flora and fauna Overheard in San Diego — Eavesdropping illustrated Poetry — The old and the new Reader Travel — Travel section built by travelers Reading — The hunt for intellectuals Roam-O-Rama — SoCal's best hiking/biking trails San Diego Beer — Inside San Diego suds SD on the QT — Almost factual news Sheep and Goats — Places of worship Special Issues — The best of Street Style — San Diego streets have style Surf Diego — Real stories from those braving the waves Tin Fork — Silver spoon alternative Under the Radar — Matt Potter's undercover work Unforgettable — Long-ago San Diego Unreal Estate — San Diego's priciest pads Your Week — Daily event picks
4S Ranch Allied Gardens Alpine Baja Balboa Park Bankers Hill Barrio Logan Bay Ho Bay Park Black Mountain Ranch Blossom Valley Bonita Bonsall Borrego Springs Boulevard Campo Cardiff-by-the-Sea Carlsbad Carmel Mountain Carmel Valley Chollas View Chula Vista City College City Heights Clairemont College Area Coronado CSU San Marcos Cuyamaca College Del Cerro Del Mar Descanso Downtown San Diego Eastlake East Village El Cajon Emerald Hills Encanto Encinitas Escondido Fallbrook Fletcher Hills Golden Hill Grant Hill Grantville Grossmont College Guatay Harbor Island Hillcrest Imperial Beach Imperial Valley Jacumba Jamacha-Lomita Jamul Julian Kearny Mesa Kensington La Jolla Lakeside La Mesa Lemon Grove Leucadia Liberty Station Lincoln Acres Lincoln Park Linda Vista Little Italy Logan Heights Mesa College Midway District MiraCosta College Miramar Miramar College Mira Mesa Mission Beach Mission Hills Mission Valley Mountain View Mount Hope Mount Laguna National City Nestor Normal Heights North Park Oak Park Ocean Beach Oceanside Old Town Otay Mesa Pacific Beach Pala Palomar College Palomar Mountain Paradise Hills Pauma Valley Pine Valley Point Loma Point Loma Nazarene Potrero Poway Rainbow Ramona Rancho Bernardo Rancho Penasquitos Rancho San Diego Rancho Santa Fe Rolando San Carlos San Marcos San Onofre Santa Ysabel Santee San Ysidro Scripps Ranch SDSU Serra Mesa Shelltown Shelter Island Sherman Heights Skyline Solana Beach Sorrento Valley Southcrest South Park Southwestern College Spring Valley Stockton Talmadge Temecula Tierrasanta Tijuana UCSD University City University Heights USD Valencia Park Valley Center Vista Warner Springs
Close