Interesting article in today's L.A. Times shows that having have high credit score are 50% more likely to bail out of their mortgages without any warning, this compare to lower-scoring homeowners.
These people are up-to-date and have never been late on their payments. The total of defaults in this category in 2008 was 588,000, accounting for 18% of total delinquencies lasting over 60 days in the 4th quarter.
Most distressed borrowers try and make their payments at the expense of other accounts, but these 'strategic' defaulters just stop paying.
These defaults usually take place in negative-equity markets in boom and bust areas such as California where it was 68 times higher than in 2005 and Florida 46 times higher. Two-thirds of these defaulters are walking away from their primary home and have high mortgage balances and are in the highest two credit score categories.
These "strategic" defaulters are extremely deliberate in their thinking. They wait until they have defaulted on their mortgages before they back out of their home equity line of credit, thus drawing more cash on the equity line. They area aware of the damage to their credit, but weigh that against how much they owe on a home that is worth much less.
This is a difficult situation for lenders. If they offer a loan modification, these borrowers may default again. But how on earth do you guard against it?
Buying or selling real estate in Los Angeles can be an overwhelming process. Contact Jane Peters, Los Angeles realtor specializing in absentee owners, out of town buyers, and those who need that extra attention, in order to make the transaction a smooth, trouble-free, and fun experience.
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