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.