People with good credit more likely to 'strategically default'

09.30.09
By Timothy Jones

While many Americans are trying to stop foreclosure and maintain good credit scores by paying their home loans on time, a recent report shows that the strategy of some people facing economic problems is to do just the opposite and essentially walk away from homes they owe money on.

The report earlier this month from credit bureau Experian and consulting firm Oliver Wyman finds that a surprising number of people are going into "strategic default" because of financial difficulty.

Perhaps more surprisingly, the report finds that the people who are most likely to use a default as a financial strategy are those with good credit scores. According to the study, those in the "superprime" and "prime" categories are 50 percent more likely to go into strategic default than their counterparts with lower credit scores.

For these homeowners, the plan doesn't end at missing a few payments on their mortgage as the report finds that 60 percent of strategic defaulters have their mortgages fall into charge-off within six months.

According to an article from the Washington Post Writers Group, the study found that there were more than 588,000 strategic defaults in 2008 - more than twice the number in the previous year.

Piyush Tantia, a partner at Oliver Wyman partner and a principal researcher of the study, said that the people who go into strategic default are aware of the consequences and generally have a good credit and payment history. But, according to the news outlet, these homeowners see default as the best solution considering their homes are under water.

While thousands of homes across the U.S. have fallen into foreclosure during the recession, it appears that the problem may actually be worse than it seems. A recent report from Amherst Mortgage Insight suggests that there are more than 7 million homes considered to be in "shadow foreclosure" across the country.

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An increasing number of people are walking away from their mortgages in what's being called "strategic defaults"