Jump to content
House Price Crash Forum
Sign in to follow this  
canny man

The Risk Models Were Even More Wrong

Recommended Posts

Fascinating survey results in the US. They are discussing strategic defaults and find that people who abruptly and intentionally abandon their mortgages often have high credit scores, in stark contrast with most financially distressed borrowers.

This implies that the risk models were even more wrong than they have been proven so far.

http://www.latimes.com/classified/realesta...0,2560658.story

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.

* 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.

Share this post


Link to post
Share on other sites
Guest P-Diddly

Yikes!!!

Don't the majority of Alt-A etc resets happen in 2010/2011?

This would figure with this being a white collar recession. A cousin is one. Bought slap bang at the top of the market in LA, $650,000 for a 2 bed house. Lost his job last year.

Share this post


Link to post
Share on other sites

OK, apart from this bit.

* 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.

What? :lol:

What else would they be if they were not primary dwellings, de-facto if they are not primary dwellings they are second homes or investment punts. Are there any other forms of ownership - banana homes, homes intended to become spaceships, shrines?

So, we have a situation where the sub-primes are trying to pay unpayable mortgages, they really have swallowed the whole nine yards about the property racket.

Share this post


Link to post
Share on other sites
Guest happy?
Fascinating survey results in the US. They are discussing strategic defaults and find that people who abruptly and intentionally abandon their mortgages often have high credit scores, in stark contrast with most financially distressed borrowers.

This implies that the risk models were even more wrong than they have been proven so far....

In an economy where the debt cannot be pursued once the property is abandoned there is no financial incentive to continue paying once it becomes uneconomic to do so. There is however, every incentive to ensure you lend on the conservative side of risk - provided you understand what that risk is there should be no problem.

Generalising, those who are financially sub-prime are likely to be less financially savvy and less economically mobile than those with a large wedge of cash in their back pocket - hence sub-prime customers remain committed to their debts long after others have abandoned the homestead.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.