Borrowers who engage in "strategic defaults" after their home’s value has plummeted tend to be more savvy about credit than the population at large, with higher FICO scores, lower revolving debt balances, and lower retail credit card usage.

That’s according to a study by Fair Isaac Corp., developer of the FICO score, which says it’s helping lenders identify borrowers who are most likely to engage in strategic defaults.

In a strategic default, "underwater" borrowers who owe more on their mortgage than their home is worth stop paying their mortgage — not because they can’t afford the monthly payments, but because they don’t believe their home will regain its value anytime soon.

Home-price declines have left 11.1 million homeowners underwater, according to a study released in March by loan data aggregator CoreLogic. Studies by the University of Chicago Booth School of Business have estimated that 31 percent of mortgage defaults in March 2010 were strategic, up from 22 percent in March 2009.

Borrowers who engage in "strategic defaults" after their home’s value has plummeted tend to be more savvy about credit than the population at large, with higher FICO scores, lower revolving debt balances, and lower retail credit card usage.

That’s according to a study by Fair Isaac Corp., developer of the FICO score, which says it’s helping lenders identify borrowers who are most likely to engage in strategic defaults.

In a strategic default, "underwater" borrowers who owe more on their mortgage than their home is worth stop paying their mortgage — not because they can’t afford the monthly payments, but because they don’t believe their home will regain its value anytime soon.

Home-price declines have left 11.1 million homeowners underwater, according to a study released in March by loan data aggregator CoreLogic. Studies by the University of Chicago Booth School of Business have estimated that 31 percent of mortgage defaults in March 2010 were strategic, up from 22 percent in March 2009.

Fair Isaac has also been studying the impacts of mortgage delinquencies, short sales, foreclosures and bankruptcies on credit scores.

"There’s no significant difference in score impact" between a short sale and a foreclosure, the company said in a blog post about its studies.

Looking at three "representative profiles" of consumers with scores of 680, 720, and 780, FICO found that those with the best credit scores took the greatest hit on their scores when falling behind or defaulting on a mortgage, and also took the longest to rebuild their scores.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×