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Profile: Experian Credit Bureau
Experian Credit Bureau was a participant or observer in the following events:
Research conducted by the Experian credit bureau and the international management consulting group Oliver Wyman reveals an alarming tendency: homeowners with excellent credit are more likely to “strategically default” on their homes than those who are financially strapped. Using an enormous sample of 24 million individual credit files, the study found that those with super prime credit scores are 50 percent more likely to “abruptly and intentionally” dump their mortgage. Researchers found that, with foreclosures, delinquencies, and loan losses at record levels, so-called “walkaways” are at or near the top of the most-discussed real estate finance topics. The Experian-Wyman study group identified specific patterns with strategic defaults. Among its findings:
Strategic default numbers are much higher than industry estimates. For example, 588,000 super-prime credit holders defaulted during 2008, double the number from 2007;
Warning signs, such as non-payment of other debts, are virtually non-existent;
Walkaways often go from perfect payment histories to no mortgage payments whatsoever, in severe contrast with most financially stressed borrowers, who attempt mortgage payments even when delinquent on other credit accounts;
Strategic defaults are located mostly in negative equity markets where home values skyrocketed during the boom before taking a huge dive after 2006. For example, last year in California, strategic defaults were 68 times higher than in 2005; in Florida, they were 46 times higher than in 2005. In most of the rest of the country, walkaways were nine times higher in 2008 than in 2005;
People with large mortgage balances are more likely to walk away. Those with the two highest VantageScore credit ratings (as created by Experian and the other national credit bureaus, Equifax and TransUnion) are far more likely to default than homeowners in lower score categories;
Walkaways seem to understand the consequences of their actions but may view it as a business decision, and the most practical solution under the circumstances.
Although the Experian-Wyman study does not explore the ethical and legal facets of strategic defaults, a major suggestion arising from it is that lenders and loan servicers take steps to spot walkaways in advance to avoid offering them loan modifications, since they will probably default on these as well. [Los Angeles Times, 9/20/2009]
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