Widespread acceptance of strategic defaults a risk to lenders

Should Consumers Be Able to Walk Away From There Mortgage?

The economic recession changed a number of perceptions about the ways consumers and banks interact, and one particular altered perspective may put many bank executives on alert. According to a recent survey, a significant segment of the American population feels it is acceptable for distressed homeowners to simply walk away from an outstanding mortgage balance without suffering any consequences.

Research firm JZ Analytics polled 1,026 Americans online in September, finding that 32 percent of consumers believe strategic defaults should be a more widely accepted way for homeowners to deal with their mortgage debt. In fact, 13 percent of Americans will likely intentionally walk away from their home loan, according to the results. That percentage equates to 28 million consumers.

Though banks could pursue actions against homeowners who strategically default, the mere implication that a large segment of the population has become increasingly comfortable with this strategy is troubling to many banking executives. The survey suggested that consumer distrust of the banking system is a large motivator for many who consider strategic defaults to be a legitimate resolution.

Many also voiced less concern with having lower credit scores or with the concept of intentionally misstating personal information in order to receive a loan. Ultimately, these results demonstrate how crucial it is for lenders to refine origination processes to better vet potential applicants.The news also impresses the value of sophisticated portfolio management software, which can arm lenders with the data needed to assess customer behaviors.

By relying on origination software to pull applicant information from alternative data sources, lenders can get at the root of an applicant’s creditworthiness. In addition, customer management software with automated decisioning capabilities can help lenders identify the riskiest clients in a portfolio, offering the opportunity to proactively combat these risks before they become a significant threat.

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