COSTA MESA, Calif. — As default rates on mortgages remain high, new analysis is revealing additional insights into different drivers of such defaults. A "Market Intelligence Report" from Experian and New York-based Oliver Wyman examines "strategic defaulters," borrowers who default on their mortgages only because the value of their home has declined well below their mortgage balance. In conducting their analysis, Experian and Oliver Wyman reported they developed a way to estimate the number of strategic defaulters and also uncovered several trends that can provide "important direction for the evolution and enhancement of loan modification programs."
The analysis revealed those in the superprime and prime categories are 50% more likely to engage in strategic default than those with lower credit scores. Furthermore, in examining the distressed borrower population the study found a segment of borrowers that closely mimics strategic defaulters but would be favorable candidates for loan modification-"cash-flow managers." Unlike strategic defaulters, these borrowers continue to make occasional payments on their mortgage, indicating their intention to get out of delinquency.
"While 60% of strategic defaulters are charged-off within six months after serious delinquency, one-third of cash-flow managers cure on their mortgage within six months after serious delinquency and another third remain less than 90 days past due," said Piyush Tantia, partner at Oliver Wyman. "Therefore, cash-flow managers represent the borrowers who would make the best candidates for loan modification offers."
