Mortgage Strategic Defaulters Banking Dilemma
Mortgage Strategic Defaulters
Mortgage strategic defaulters are a phenomenon born of the housing crisis. Bankers define mortgage strategic defaulters as homeowners who have made a conscious choice to let their mortgage go into arrears in favor of paying other bills. These people are not necessarily people who have given up on the financial system or people in debt so hopelessly that they can never get straight. Many of them have made the choice to keep their credit card payments current while putting off mortgage payments until better times arrive…or the sheriff is at the door. Most have taken out additional credit cards proving their awareness of the difficulties mortgage default will cause to their credit. Reliable estimates show that 20 percent of troubled mortgages are held by mortgage strategic defaulters.
Mortgage Strategic Defaulters Categorized
The driving force behind mortgage strategic defaulters is the large disparity between the amount owed on the mortgage and the value of their home. Typically mortgage strategic defaulters have jobs, even good jobs. They still use credit and in every way act like prime consumers. Many have taken out additional credit cards in anticipation of looming financial disaster. Analytic models used by bankers segment them into three separate and distinct groups.
- Low Risk: These people are very likely just going through a bad patch. Their financial woes may not be their own fault. If they were sick they will get better. If they lost their job they may find a new, even better, job soon. Bankers who deal with people they judge to be in this category will use kid gloves in order to retain what had been a good customer. A heavy handed approach will lose the loan and the business of a person whose gratitude may make them a loyal customer far into the future.
- Medium Risk: These are customers who are in a lot of trouble but are still fighting the good fight. They may self cure but probably won’t. Treat them right for a reasonable period of time and hope for the best.
- High Risk: These clients have neither the ability nor the will to self cure. Why waste time on them?
Communicating with Lender
From the mortgage strategic defaulters point of view the tone of the communication with the lender will go far in the lengths to which the lender will go to work through their difficulties. Banks are faced with fierce competition for new business. Banks want to think there is good faith on the debtor’s part. Bankers must distinguish between stalling tactics and good faith. Does the consumer want to come in from the rain?
A sincere desire to re-group will be met with cooperation. Because the bank’s collection department has limited resources it will concentrate its efforts on the medium risk group. This group is seen as an opportunity for a win-win situation up to a point. Staying as a member in good standing in that group requires constant communication and realistic plans. Once lenders determine that it’s time to cut their losses they seldom look back.