Strategic default has become an urgent and costly problem for lenders. University of Chicago Booth School of Business studies indicate that roughly 35 percent of mortgage defaults are strategic, and FICO estimates this makes strategic defaults more than a $20 billion problem annually.
FICO Labs researchers announced earlier this year that they had developed a method for predicting which borrowers are at greatest risk of strategic default, focusing especially on the six million U.S. homeowners with current-loan-to-value ratios of 120 or higher, making them twice as likely to consider defaulting on their mortgage. FICO’s strategic default prediction algorithms are now being employed by four of the 10 largest U.S. mortgage servicers. FICO estimates the collective benefit of its solution for these servicers could reach $2 billion in the first year.
Additional information on FICO’s strategic default research can be found in the white paper “Predicting Strategic Default,” available for free at www.fico.com/Insights.