Strategic Default
By Esther Cho | 04/12/2012
With reports that around 20 percent of mortgages are underwater, about 46 percent of bank risk professionals surveyed by FICO expect to see the volume of strategic defaults in 2012 exceed 2011 levels. Combined with concerns over strategic default are disconcerting results about consumer priorities.
Combined with concerns over strategic default are disconcerting results about consumer priorities. Only 29 percent of bankers said the current generation of homeowners considers their mortgage to be their most important credit obligation, while 49 percent said its not a priority.
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By Carrie Bay | 03/21/2012
An alarming number of homeowners see strategic default as a viable option should their home continue to depreciate. Almost half - 47 percent - of homeowners participating in an online poll from Housing Predictor say they will walk away from their mortgage if falling home values persist. The number of borrowers open to strategic default has risen sharply since the company last surveyed public opinion on the issue. In October 2010, 36 percent of homeowners polled said they would throw in the towel should housing prices continue to drop.
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By Krista Franks Brock | 03/01/2012
Principal reductions have been approached with some reluctance and much debate throughout the industry, but as part of the recent $25 billion settlement with the state attorneys general, the nation's largest servicers have agreed to administer the loss mitigation tactic. Fitch maintains the issue of principal reductions is not a simple "yes" or "no" question, and "if not implemented carefully, a wide-ranging principal reduction program could potentially increase defaults among borrowers who would otherwise remain current."
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By Krista Franks | 01/19/2012
Principal reductions - the merits of which have been debated strongly in recent years - are gaining support from lawmakers. Two congressmen are pushing to subpoena the Federal Housing Finance Agency (FHFA) for its analysis of the potential effects of principal reductions by the GSEs. Reps. Elijah Cummings of Maryland and John Tierney of Massachusetts sent a letter Wednesday to the chairman of the House Oversight Committee urging him to issue a subpoena after several failed attempts to procure the desired information from FHFA.
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By Carrie Bay | 01/12/2012
The performance of private-label residential mortgage-backed securities (RMBS) continues to face many challenges in 2012, with the biggest risk posed by strategic defaults, according to Moody's. The ratings agency says the performance of loan pools backing outstanding RMBS has begun to stabilize, with delinquency levels flat or even dropping as a result of modifications and re-default rates declining. It's the threat of strategic default, particularly in the prime jumbo sector, that has Moody's analysts worried.
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By Carrie Bay | 12/23/2011
Unemployment and other economic difficulties have caused millions of homeowners to involuntarily default on their mortgages, but there are some borrowers who are induced to simply stop making payments because their property value has fallen and they owe more than their home is worth. According to a study commissioned by the Mortgage Bankers Association, oftentimes strategic defaulters are encouraged to walk away at the behest of so-called mavens, or prominent influencers within their social networks.
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By Krista Franks | 11/30/2011
Twenty-one members of Congress sent a letter to Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco calling on him to allow - even encourage - Fannie Mae and Freddie Mac to start reducing principal balances for distressed homeowners. The lawmakers say underwater borrowers pose a greater risk of eventual default. They're advocating for principal writedowns, not "as a kindness to homeowners," but to save taxpayers from future losses.
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By Carrie Bay | 11/04/2011
Private investors in residential mortgage-backed securities (RMBS) comprised of jumbo mortgage loans are dealing with a greater risk of strategic defaults, according to Moody's Investors Service. The company's analysts base this assumption on the fact that jumbo RMBS have large populations of current borrowers with high loan-to-value (LTV) ratios. In contrast, the subprime sector faces the lowest potential for future performance deterioration because its weaker borrowers are already delinquent or have defaulted.
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By Carrie Bay | 10/31/2011
The administration unveiled its revamped Home Affordable Refinance Program (HARP) last week to allow borrowers who owe significantly more than their home is worth take out new loans with lower interest rates. CoreLogic says the impact will be targeted to those markets and local economies that have suffered the most from the housing collapse. The company believes HARP 2.0 will be positive for the GSEs and the origination market, negative for bondholders, and neutral for housing itself because distressed borrowers and shadow inventory are left out of the equation.
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By Carrie Bay | 10/13/2011
FICO announced this week that it has inked deals with four of the country's top 10 mortgage servicers to provide them with its predictive analytics technology to identify borrowers who pose the greatest risk of strategic default. Studies conducted by the University of Chicago Booth School of Business indicate that roughly 35 percent of mortgage defaults are strategic, and FICO estimates this makes strategic defaults more than a $20 billion problem annually.
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