BluefoxToday blog : New Strategic Defaul Credit Model Being Used By Some Lenders

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 whining 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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Who To Call For Your Mortgage Needs In Connecticut:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

Comment balloon 10 commentsGeorge Souto • May 27 2011 02:43PM

Comments

I know I read about it too, and am not sure where. Maybe it WAS Lenn's blog.

But why should ANY OF US be surprised by what ANY bank is doing. Still run at the top by the same crooks that helped caused this mess to begin with. Can you say derivative? Bundling? Keep going......

Posted by Jon Quist, Tucson's BUYERS ONLY Realtor since 1996 (REALTY EXECUTIVES TUCSON ELITE) over 7 years ago

Jon there is plenty of blame to be put on banks, but it should be blame that was cause by them, like super liberal Underwriting Guidelines.  But this blame fall, in my opinion, completely on those that brought about the apparent need for it, those that have done "Strategic Defaults"

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

I definitely do not agree with those doing strategic defaults, but what I don't understand is how a lender or anyone can reasonably predict someone who would do a strategic default.  Why would anyone go buy a home (currently) and then "strategically default" on it?  Those are who are in homes now are the one's who will strategically default, not the one's trying to get into a home. 

It's confusing at best.  I will be interested to see how this turns out.

Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) over 7 years ago

"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"

That's an inconvenient truth!

Bill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) over 7 years ago

George

This has been a good education...and I will stop by Lenn post to read more. It does not surprise me at all that this credit program is being put in place. I suspect we will see more to try to quell strategic defaults.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) over 7 years ago

Brenda, you bring up a good point, unfortunately I do not have an answer for you.  The point that I was trying to make with the blog is that there are Realtors complaining about this new Credit Model and pointing the blame on the Lenders.  That to me is pointing the finger in the wrong direction, and it needs to be pointed at the ones who are responsible for the creation of this new Credit Model, those that have done Strategic Defaults.

Bill "inconvenient" indeed :)

Jeff, I completely agree, and that was one of the points I try to make back in August of last year in the blogs that I wrote back then.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

George - While I too have not seen evidence of any strategic default credit model, it wouldn't surprise me at all to start seeing my lending sources implementing it without notice.  What I have been seeing are more and more stringent guidelines and lender overlays, some of them just absolutely ridiculous.  While I do not long for the days of liberal no guidelines, I do long for some more common sense underwriting.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 7 years ago

Donne, that is what I have been seeing as well, and yes I do think that common sense does need to be brought back into the equation.  But the blame for the need for any changes in the guidelines or this type of credit model has to lay at the feet of those that have made this an issue, those doing Strategic Defaults.  It amazes me that Realtors defending homeowners doing this, do not see this as these homeowners doing anything wrong, and try to pass it off as some kind of business decision.  Since when is purchasing a home to live and raise your family in, a business decision.  Even if some how it was, what business person could staying in business by stiffing the Lenders who provide them with the capitol to carry out their business.

With this kind of values it is no wonder that our country has the problems that it has, and politicians just keep on doing whatever they want. 

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

When I first heard the term strategic default and learned its meaning I was livid. There is no rationalization that excuses breaking a contract because of negative equity. If you can pay, then suck it up like an adult. You have a home to live in, unlike the other folks that can not pay because they no longer have a job or their health. In a word its sickening. In my opinion the government is partly to blame in all of this as well. Look at the examples they set.

Posted by James Quarello, Connecticut Home Inspector (JRV Home Inspection Services, LLC) over 7 years ago

George,

Good one. This entire financial mess is making the "good" borrowers having to carry the rest on their backs. Yet, where did all this start from? Wall Street greed.

Posted by Esko Kiuru over 7 years ago

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