High FICO Scorers Default on Mortgages Faster Than Bankcards

[bobbyw24]

Reversing a long historic trend, mortgage default risk for consumers with high FICO scores now exceeds their credit card default risk, Minneapolis-based FICO recently reported. The provider of analytics and decision management technology said it uncovered this disturbing trend through observations taken from its subscription service for businesses, FICO Score Trends.

Through its analysis, FICO discovered a parallel rise in mortgage delinquencies for higher-scoring U.S. consumers, and it found recent repayment behavior across the financial services industry has shifted significantly from historical norms. In 2005, bankcard accounts were three times more likely than mortgage loans to become 90 days delinquent, but in 2008 and 2009, bankcard accounts were just 1.6 times more likely to become 90 days delinquent.

The company also found that for borrowers who scored high on the FICO’s 300-850 score range, the level of repayment risk has become greater for real estate loans than for bankcards. In 2009, 0.3 percent of consumers with FICO scores between 760 and 789 defaulted on real estate loans, notably higher than the 0.1 percent who defaulted on bankcards.

http://www.dsnews.com/articles/consumers-with-high-fico-scores-default-on-mortgages-faster-than-bankcards-2010-02-25

[Pants]

I think some people with high fico scores have the ability to trick the system.. They are able to get loans without income verification, are able to get balance transfer deals to other credit cards, can move debt around from one loan to another. Sort of take advantage of the system like they are kiting money.. Some of these people get so wound up in debt, all it takes is one bad month, or one setback and they hit rock bottom very fast.



Reversing a long historic trend, mortgage default risk for consumers with high FICO scores now exceeds their credit card default risk, Minneapolis-based FICO recently reported. The provider of analytics and decision management technology said it uncovered this disturbing trend through observations taken from its subscription service for businesses, FICO Score Trends.

Through its analysis, FICO discovered a parallel rise in mortgage delinquencies for higher-scoring U.S. consumers, and it found recent repayment behavior across the financial services industry has shifted significantly from historical norms. In 2005, bankcard accounts were three times more likely than mortgage loans to become 90 days delinquent, but in 2008 and 2009, bankcard accounts were just 1.6 times more likely to become 90 days delinquent.

The company also found that for borrowers who scored high on the FICO’s 300-850 score range, the level of repayment risk has become greater for real estate loans than for bankcards. In 2009, 0.3 percent of consumers with FICO scores between 760 and 789 defaulted on real estate loans, notably higher than the 0.1 percent who defaulted on bankcards.

http://www.dsnews.com/articles/consumers-with-high-fico-scores-default-on-mortgages-faster-than-bankcards-2010-02-25

[torchbearer]

I think some people with high fico scores have the ability to trick the system.. They are able to get loans without income verification, are able to get balance transfer deals to other credit cards, can move debt around from one loan to another. Sort of take advantage of the system like they are kiting money.. Some of these people get so wound up in debt, all it takes is one bad month, or one setback and they hit rock bottom very fast.

that is kiting, and if you have enough credit cards, you could technically go a long time without paying a balance using the kiting tricks.

[Pants]

They say eventually maxing out credit cards over 50%, Number of credit cards, and number of credit checks will eventually kill a FICO score.. But in my opinion that system is slow and doesn't catch people who are falling into a credit trap fast enough.

When I was young and stupid.. My wife and I had about $34,000 in credit card debt. I think our scores were in the mid-700's.. We were making good incomes at that time to afford the minimum payments. The problem we had was 16 credit cards, 2 car loans, 2 homes, utility bills and a couple of personal loans. There were too many bills to remember, too many different due dates. If a statement never arrived in the mail or misplaced, it didn't get paid. Before I knew it I had 13 late payments on my credit report. My score dropped down to 474. I have been paying off the cards since.. My score is back up to 750.. It took a year to get it back up to 600.. Probably three years to get back up to 700.. I still have 10 lates on my credit report. They are old and probably will fall off in a year or two.


Thank God I decided to pay those cards off when I did... My wife took a 10 grand a year pay cut last year and mine dropped about 20 grand. If I had not paid them off.. I would be in bankruptcy court today.


Usually if your never late, the banks automatically increase your credit lines. If your never late you probably still get many preapproved credit card offers in the mail.. Probably not as many as 5 years ago, but you still get them.




that is kiting, and if you have enough credit cards, you could technically go a long time without paying a balance using the kiting tricks.

[driege]

I think a different factor is at play here. The only way to get out of credit card debt is to go through bankruptcy. People with high fico scores, many of them wealthy, are not going to do this.

However, there is a growing number of people who are walking away from upside down mortgages even though they have the ability to pay. Once you owe the bank more money than your house is worth, you have no incentive to pay the mortgage other than the damage to your credit score. Many people who are perfectly capable of paying mortgages are walking away.

[Pants]

Yep.. I see that happening as well. Didn't the mortgage bankder's association just walk away from a office building they bought? They did a short sale on the building and stiffed the investors by 39 million. Isn't that the pot calling the kettle black? haha

http://timandjulieharris.com/2010/02/08/short-sale-irony-mortgage-bankers-association-short-sales-dc-office-50-loss/

I think the lenders WANT to foreclose on homes. My home lender (taylor, bean, and Whittaker) was shut down by bank regulators. It took me 4 months to figure out where my loan went. Eventually I got a letter from Bank Of America telling me to pay up or they were going to foreclose. Many former customers of TB&W are 90 days late and are in foreclosure because of that mess. Also some have August, September, and October payments missing even though the checks were cash or the autopays cleared the bank.. Bank Of America is accepting no excuses and no exceptions.



I think a different factor is at play here. The only way to get out of credit card debt is to go through bankruptcy. People with high fico scores, many of them wealthy, are not going to do this.

However, there is a growing number of people who are walking away from upside down mortgages even though they have the ability to pay. Once you owe the bank more money than your house is worth, you have no incentive to pay the mortgage other than the damage to your credit score. Many people who are perfectly capable of paying mortgages are walking away.