Another Study on Strategic Default- When Homeowners Run From Their Homes

marathon-useExperian and Oliver Wyman recently produced a topical report on strategic defaulters — borrowers who default on their mortgages only because the value of their home has declined well below their mortgage balance.
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?

Hint: It’s probably not who you think. New 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 percent more likely to “strategically default” — abruptly and intentionally pull the plug and abandon the mortgage — compared with lower-scoring mortgage borrowers.

Experian, one of the three national credit bureaus, teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected early warning signs, such as nonpayments or late payments on other personal debts.

With foreclosures, delinquencies and loan losses at record levels, strategic defaults and walkaways are among the hottest subjects in residential real estate finance. Unlike earlier academic studies, Experian and Wyman had the ability to tap into credit files over extended periods of years to identify patterns associated with strategic defaults.

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 percent of all serious delinquencies that extended for more than 60 days during the fourth quarter of last year.

• In contrast with most types of mortgage delinquencies, strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. They just suddenly stop. 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. They want to save their houses, not dump them.

• 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 total 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. Loans originated across the country in the pivotal market-turn year of 2006 have produced seven times more walkaways than loans originated during 2004, when property values were still rising.

• Two-thirds of strategic defaulters have only one mortgage — the one they’re walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.

• Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore — a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion — are far more likely to default strategically than people in lower score categories.

• People who default strategically and lose their houses appear to understand the consequences of what they’re doing. According to Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, strategic defaulters “are clearly sophisticated,” based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines until after they bail out on their main mortgages, sometimes in order to draw down more cash on the equity line.

While high scorers have lower overall default rates on all their credit activities than people with lower scores, it’s much more likely that when they stop payments on mortgages, the default is intentional and calculated.

Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said in an interview, but they appear to look at it as a business decision: “Well, I’m $200,000 in the hole on my house, and yes, I’ll damage my credit,” he said of defaulters. But they see it as the most practical solution under the circumstances, and they won’t have to deal with their negative equity albatross any further.

The Experian-Wyman study does not attempt 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.
Part One of Study Here

Foreclosure Mediation is Working in Florida

floridaThe word “horrifying” is not commonly found in reports from government task forces.

Even when the subject is serious, the terminology tends to be sleep-inducing.

Not when it comes to reporting from the frontlines of the foreclosure crisis.

There are so many foreclosures in the legal system that it cannot handle them, reported the Task Force on Residential Mortgage Foreclosure Cases. It was appointed by the Florida Supreme Court, and issued its first report recently.

How bad is it?

– Florida has the worst foreclosure inventory in the nation. Of 3.5 million loans serviced in Florida, 374,134 are in foreclosure. Another 378,031 are delinquent.

– Florida has the most foreclosure starts in the nation. Even when many moratoria were in effect, almost 1 million foreclosures were begun in the first quarter of this year.

– Florida has the third-highest mortgage delinquency rate in the nation.

And the flood shows every sign of increasing. Foreclosures have moved from owners with subprime loans to those with prime loans, often because of loss of jobs or reduced pay.

And Jacksonville is one of the Florida cities that is hardest hit.

The judicial system is crushed with work. Thus, the task force basically suggested taking every step possible to resolve these cases before they hit the courts.

For instance, the task force recommends that mediation be required for all residential homesteaded property, unless the plaintiff and borrower agree otherwise, or unless pre-suit mediation was conducted.

Suggested reforms

Also suggested is referral of the borrower to foreclosure counseling before mediation, early exchange of borrower and lender information and the ability of the plaintiff’s representative to appear at mediation by telephone.

These promise to help, since the settlement rate as a result of mediation is 73 percent, the task force reported.

April Charney, a foreclosure expert with Jacksonville Area Legal Aid Inc., was on the task force. She said there still are some perverse incentives involving securitized loans that can make it more profitable for investors to have foreclosures over settlements.

“It’s a big mess,” she said.

So, while the economy apparently has hit bottom and stabilized, the housing market still looks shaky.

“It’s still not a healthy housing industry when you have one-third of sales coming from foreclosure sales,” said a Deutsche Bank economist in The Wall Street Journal.

The Supreme Court should take the advice of its task force and enforce the rules being suggested, especially mediation.

Foreclosure is painful enough without being dragged through a laborious court process.

The Mortgage Assistance Information and Scam Prevention Act of 2009

nevada titusCongresswoman Dina Titus (NV-D) and Congressman Dennis Cardoza (CA-D) introduced legislation today in the House of Representatives to help struggling homeowners receive valuable information that could help them avoid foreclosure. The Mortgage Assistance Information and Scam Prevention Act of 2009 requires all mortgage servicers who receive incentive payments under federal programs to notify their clients about federal programs for which they may qualify.

“My district in Southern Nevada has been one of the hardest hit by the foreclosure crisis,” Congresswoman Titus said. “To make matters worse, too many people do not know about the resources that are available to help them keep their home. From refinancing options to loan modifications, help is out there, but it can be hard to find. This legislation will ensure that homeowners who are struggling to stay in their home get critical information about the various programs. In addition, this notification will help protect people from shameful scams by providing them with accurate and efficient information.”

“I have long maintained that until our foreclosure problems are resolved, there will be no resolution to the economic downturn,” said Congressman Cardoza, whose district in Central California similarly faces some of the highest foreclosure rates in the country. “This bill is a significant step in aiding those who have fallen prey to refinance scams or simply could be spared a difficult foreclosure with adequate information and resources.”

Under the bill, mortgage servicers who are participating in a number of federal programs would have to notify each of their mortgage holders and include instructions on ways to receive available federal assistance. With the number of scams on the rise, homeowners would have reliable information about legitimate federal services, and be less likely to turn to fraudulent alternatives.
Full Text of the Bill

NV Supreme Court Holds First Swearing-In of Foreclosure Mediation Mediators

Was2503561The Nevada Supreme Court will hold swearing-in ceremonies for the first appointed Nevada Foreclosure Mediation Program mediators at the Supreme Court courtrooms in Las Vegas and Carson City. The ceremonies will be held in Las Vegas on Tuesday, Sept. 8 at 2:30 p.m. Regional Justice Center in the 17th Floor Supreme Court courtroom and in Carson City on Monday, Sept. 21 at 1:30 p.m. in the Supreme Court courtroom.

On August 19, 2009, the Supreme Court appointed 97 mediators following training in Las Vegas and Reno in early August: Addison, Matthew
Agosti, Deborah
Angaran, Jack
Apple, Robert
Atwood, Adrienne
Baker, James
Belcove-Shalin, Janet
Berry, Bob
Bloom, Janette
Blumenfeld, Stewart
Broussard, Carolyn
Buchanan, Bill
Buyer, Dennis
Candace, Carlyon
Cashill, Pat
Chase, Kelly
Christensen, Thomas
Chubb, Janet
Clouser, Justin
Cohen, Larry
Conboy, Anita
Crabb, Yangcha P
Crowley, Margaret
David, Ira
Drobkin, Ileana
Eisenberg, David
Ellsworth, Keen
England, Kathleen
Enzenberger, Robert F
Estes, Robert
Fischer, David R
Gang, Leonard
Garcia-Mendoza, Eva
Gaston, Robert
Gould, Dean
Greiner, Jill
Griffin, Michael
Gugino, Salvatore
Hamilton, David
Hamilton, Paul
Hammer, Bill
Hardy, Del
Hoppe, Craig
Huston, David
Jimmerson, James
Kaufman, Jerry
King, Patrick
Kirst, Paul
Klein, Mark
Kunin, Israel “Ishi”
Lamboley, Paul
Loveland, Bryce C
Mancino, Renee
Martin, Patrick
McDade, Carlos
McKnight, Pat
Meador, Shawn
Mikrut, Denise
Miley, Edward
Moas, Royi
Monks, Robert
Moody, Todd L
Neu, Michael C
Newberry, Tara
Nitz, Dana
Nork, Bill
Olsen, Phil
Pagni, Albert
Parnell, Rick
Paustian, Kathleen
Pergament, Ira
Reed, Nathaniel
Richitt, Paul
Richwine, Jerry
Roitman, Howard
Saint-Aubin, Robert F.
Schofield, Paul
Scotti, Richard
Segel, M Nelson
Shipman, Maddy
Shirinian, Ara
Singer, Michael
Stephens, David
Stoebling, Dave
Stromberg, Leah
Sullivan, Mike
Tanksley, Thomas J
Terry, Jack
Trautmann, Susan G
Trost, Janet
Turner, Bill
Wasick, David
Weaver, Robert
Weise, Cathy
Welsh, Darren
Winking, Larry
Worrel, Carolyn
The mediators are already being assigned the first cases. The first mediation currently is scheduled for Sept. 10.

Foreclosure Mediation for 750.00 Flat Rate

Sun PhotoSTOUT LAW FIRM 794-4411
If you want to stay in your home, Mediation may result in a mortgage loan negotiation so that you can keep your home; or if you are upside down on your mortgage and are considering walking away from your home, Mediation may result in preserving your credit, obtaining more time in your house to arrange to move out, and preventing your lender from suing you for a deficiency judgment after your home is sold.


$750 Flat Rate:

– We work with you to schedule the time, place and date of the Mediation session;
– We evaluate your mortgage documents, financial situation and your personal goals (loan modification or leaving the home);
– We work with you to develop a negotiation strategy to meet your goals;
– We prepare the pre-mediation legal documents and submit them to lender’s attorney or representative, and a copy to mediator;
– An attorney from our office attends the mediation session with you and negotiates a final settlement; and
– We prepare the final settlement documents and obtain signatures from all parties for a final legally binding resolution.
– Any post-mediation work is billed separately.
The Mediator will require a $200.00 fee for their services.

Call Stout Law Firm for a free consultation 702-794-4411