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

 

This has be close to as speechless as I have been in a long time. I cannot fathom the reason behind this. And.. I would love to know what all this means to people who

  • pay their bills on time
  • keep within their credit limits
  • manage money well

I have always thought these are who lenders are looking for these days to lend money to?

Let me not get started on the rest of the list. I am head scratching enough here, seriously. I will be seeing a loan officer from a local lender tomorrow morning, you can bet your bottom dollar that I will be holding his feet to the fire about this asking him about this!

 

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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Andrea Swiedler, Realtor, Southern Litchfield County Real Estate

2017 President, Greater New Milford Board of Realtors

2017 Connecticut Magazine 5 Star Realtor

 

 Search homes for sale in Litchfield County, CT.

 

Coldwell Banker Residential Brokerage

Litchfield County Regional Office,375 Danbury Rd, New Milford, CT 06776

 

© Andrea Swiedler 2009 - 2017

 Always do right. This will gratify some people and astonish the rest. - Mark Twain

Comment balloon 12 commentsAndrea Swiedler • May 25 2011 06:20PM

Comments

Andrea, it appears to me that all of the steps described in Lenn's post would be ones which a set of buyers contemplating simply walking away from their homes via short sale would go through... even though they had the complete ability to continue to make the payments if they wanted to.

They would know that once they chose to default on their mortgage... that credit cards, revolving accounts, car loans, etc would be much more difficult to get... so they "set the stage" for the "strategic default" by getting all of those ducks in a row... so to speak.

If they, the lenders, can show a definite concrete trend of those who have set all those things in motion... to strategically default... it would make sense for them to scrutinize those who fit those parameters.

Now... how this "apprehension" on the lender's part can be done so it does NOT harm those who ARE playing by the rules, and who DO aim to continue to make their house payments... is another question entirely.  Just rambling, here...

Posted by Carolyn Kolba, Keller Williams Realty- Mentor, Ohio (Serving Mentor, and all of Lake County, Ohio) over 7 years ago

From what I've read, lenders will use this scoring model to target homeowners and offer them loan modifications.

And since we all know how wonderful loan modifications turned out to be...

Posted by Marte Cliff, Your real estate writer (Marte Cliff Copywriting) over 7 years ago

Carolyn, and what would they do with that information? The first time the identified home owner is late send a swat team over? I hate to be sarcastic, but seriously... then what?

Marte, before they miss a payment? Of course, I am STILL laughing at the fact you mentioned loan modifications as if it were something real, something tangible, something they actually have done sucessfully. Or rather, laughing with you.

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) over 7 years ago

We know about those who have gone through with a "strategic default."  They have no hardship, no medical crisis, no job loss... they just decide they don't want their house, and stop making their payments.  They stay in the home until forced out... living for free, with us, you and me, indirectly paying for it in higher fees, higher rates, whatever.  They default on their promise of mortgage repayment to the lender, and just call it a "business decision."  Then... everyone else ends up paying for their "dumping" in one way or another.

It really IS a dilemma.  Or course, LOL, we can depend on the lenders not to harm those who deserve no harm... right ?  Seriously, by delineating the factors that mimic those who commit strategic default... the lenders can be more ready for them... and more able to "head them off at the pass."

Posted by Carolyn Kolba, Keller Williams Realty- Mentor, Ohio (Serving Mentor, and all of Lake County, Ohio) over 7 years ago

Andrea, thanks for taking the time to reblog this.  I will be watching for further updates from you after you talk to your lender.  I think I will also send a link to someone I use and ask for them to explain to it me.  Will be interesting to compare the information we receive.

Posted by Suzanne Taylor, Home Sales In Corpus Christi, TX (Ultima Real Estate - Corpus Christi) over 7 years ago

Andrea this is the first that I have heard of this.  If it was something that is being widely used I am sure that I would have heard about it.

Having said that I wrote a blog several months ago about the problems that Strategic Defaults were going to create for those that are Innocent in this whole mess.  Before people defend people who chose not to pay their mortgage, not because they can't pay it, but because they chose to not pay it, they need to consider the rippling effects of those actions.

Again I have not heard about the so called new model, but it would not surprise me at all if lender take actions that will hurt inocent people, because of the bad behavior of others.

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

Carolyn, I understand, and I hate to see the strategic default. But how on earth is this going to work? Identify and then what? And is everyone who falls into these categories at risk to just walk? I think not. But if they miss one payment, or their situation changes, is the bank going to run in and offer to do loan mods? Don't make me laugh about that one!

Suzanne, I will try to get back to update everyone.

George, but so what if they identify these people? Are they going to surround the house with SWAT teams just in case? Offer loan mods? I agree, these strategic defaults are rotten, but to go to this level to try and figure out who is going to do that? Whoever wrote this model and sells it to the lenders is laughing all the way to the bank, or the mattress. I really don't understand this at all. Hope you went to Lenns post and commented to her. And read the comments there!

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) over 7 years ago

Andrea, since I have not seen this before, I don't know the logic behind it. 

I don't think that anyone is in danger of SWAT Teams, but be prepared for Lenders over reacting as the so called Strategic Defaults increase.  Lenders are not just going to sit there and do nothing about it.  I have not been to Lenn's blog, I will probably do that tomorrow.  But I am will to bet that most of those who yelling about this over on her blog, are the same ones that where defending Strategic Defaults on one of her other blogs, and criticizing me when I wrote my blog.

They can't have it both ways.  Bad behavior always promotes bad reactions.

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

great reblog... strategic default seems like an oxymoron to me!

Posted by Sheila Newton Team Anderson & Greenville SC, Selling the Upstate since 1989 (Berkshire Hathaway HomeServices - C. Dan Joyner) over 7 years ago

Hi Andrea-it does not make sense to me-like you said what will they do about it-its news to me

Posted by Tim Peterson, Realtor Safety Training Classes (Wisconsin Realtor Safety and Concealed Carry Classes) over 7 years ago

Hi Andrea, I'll be looking forward to hearing what the lender you are meeting with has to say about this!

Posted by Ann Allen Hoover, CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL (RE/MAX Advantage South) over 7 years ago

Andrea, I've turned down short sales from homeowners who didn't have a problem paying; they just didn't like being upside down.  No hardship, no sale!  Let us know what the lender says.

Posted by Cindy Logan (Mark 1 Real Estate Advisors) over 7 years ago

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