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Saturday, September 19, 2009

A Suprising Finding

The credit reporting company, Experian, wanted to understand the characteristics of the people who walk away from their mortgages. Accordingly, they studied 24 million! credit files they control.

First finding (and a surprise) is that defaults are much, much more widely done than was previously thought. There were 588,000 in 2008, double the 2007 number.

Second finding (no surprise) was that the defaults were concentrated in markets where house prices had risen the most and cratered the most. Hence, California had the most and Florida second most.

Third finding (and a huge surprise!) was completely contrary to conventional wisdom. Most people thought that most of the people walking away from their mortgages were poor people with equally poor credit scores. Not True! Two-thirds of the people who walked away from their mortgages had high incomes and high credit scores. Further, they do it in a precipitous, apparently planned, manner. Lower income folks try very hard to hang onto their homes by making partial payments, making late payments, etc. High score folks simply stop making payments altogether. They seem to understand that their actions will severely affect their credit scores, but figure this is the better course of action now.

The government response to these findings is that lenders should get better at screening such people when they apply for loans.

Geezzzzz...............Is that stupid advice or not? You are the loan officer when this well dressed couple show up to apply for a loan. They have a great credit score (meaning a great credit history) and a significant down payment. Your job is to look deeply into their minds to discover
whether they might walk away from their mortgage at some time in the future depending upon future events that neither of you can foresee or control.

Are you beginning to suspect that the multi-millionaires who run the government in Washington are completely out of touch with how real human beings (you and me) live and behave?

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