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Some Good Credit Consumers Let Their Home Go

By Sally Maison
Published: Friday, November 6th, 2009

Foreclosure rates reached record high this year but analysts found out that not all homeowners did their best to keep their homes. In fact, some of them deliberately allowed their property to fall into foreclosure, even if they had good credit scores.

Some Good Credit Consumers Let Their Home GoIt may be hard to believe, but some homeowners who showed a strong ability to pay their mortgages back intentionally missed on payments to lose their homes. A report prepared by Experian along with the Oliver Wyman consulting firm, revealed that a number of trends began surfacing since the third quarter of 2008.

Among them is the tendency is people with prime (660 -759) and super-prime (760 -850) credit scores to default on mortgage loans 50 percent more likely than homeowners who are struggling with their credit score.

Industry experts refer to those types of homeowners as strategic defaulters. Consumers who default strategically chose to give up on their mortgage payments because their homes have sunk “underwater.” This means that the value of their homes had gone down a way lower than the amount remaining on their home loan.

The report, likewise, showed that there are people who need help with their debt. These are consumers who pay their mortgage occasionally, which implies that they are stretching their finances to make ends meet during tough economic times. People who use alternating strategies to meet their needs and obligations are referred to by experts as “cash flow managers.”

One third of them try to pay their mortgage debts off within six months after acquiring a major delinquency. Yet another third show that they are unable to meet their payment obligations within that period. These consumers nonetheless try to make their payments 90 days after the due date.

Experts say cash flow managers should be rewarded for their effort, citing them the best candidates for loan modification offers. They add that it is important for lenders to distinguish between strategic defaulters and cash flow managers since it has a huge impact on their business.

As noted by specialists, one possible reason why some people with excellent credit scores choose to default instead of seeking debt help is that they are either too ashamed or too afraid. Experts say that consumers who are about to be foreclosed but are still waiting to find help are making the problem worse for themselves.

When on the verge of foreclosure, consumers are advised to avail the government-sponsored Home Affordable Modification Program. Through it, consumers will be able to get a modification, so they can meet their credit obligations.

Analysts warned consumers that their credit score could go down by the hundreds if they allow their homes to be foreclosed.

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