An interesting report in the Los Angeles Times shows that a person with super-prime credit scores is more likely to walk away from an underwater mortgage than a person with a subprime credit rating.



Inquiring minds are reading Homeowners who 'strategically default' on loans a growing problem.



Who is more likely to walk away from a house and a mortgage -- a person with super-prime credit scores or someone with lower scores?



Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers.



Among researchers' findings are these eye-openers:



The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year's fourth quarter.

Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they've fallen behind on other accounts.

Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.

Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances.

People who default strategically and lose their houses appear to understand the consequences of what they're doing.

Psychology of the Subprime Strategic Default

losing the only thing I ever had

Psychology of the Superprime Strategic Default



Making Home Affordable

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Additional Links

This fits with recent research from Guiso, Sapienza and Zingales: See

and here is their paper:

Walking Away

Additional Foreclosure Links

Inescapable Conclusion

"The Experian-Wyman study does not try to explore the ethical or legal aspects of mortgage walkaways. But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they'll probably just re-default on them anyway."

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