Best Borrowers Defaulting on Mortgage Over Credit Card

It appears as if the best borrowers out there are defaulting on the mortgage more often than the credit card, according to an analysis from Fico, the creator of the heralded Fico score.

Last year, 0.3% of consumers with Fico scores between 760-789, quite high on the 300-850 score range, defaulted on real estate loans, compared with just 0.1% who defaulted on bankcards.

While the numbers are low for both, it’s evident that the housing crisis has had an unprecedented impact on consumer credit behavior, forcing even the most creditworthy to take a hit.

The question is how many of the those mortgage defaults were strategic, meaning they were planned for ahead of time, as a kind of business decision.

And how many were situations where the homeowner was only able to pay everyday bills while the hefty mortgage slipped away?

Overall, bankcard accounts were just 1.6 times more likely to become 90 days delinquent than mortgage loans in 2008 and 2009, a ratio that has been sliced in half since 2005.

With all these increased mortgage defaults, Fico may have to tweak its scoring algorithm to better predict credit risk.

Banks and lenders have already tightened the screws, as only 25% of consumers who were granted a new mortgage in 2008 had credit scores below 700 (what is a good credit score), compared to nearly half in 2005.

But with even the most creditworthy failing to pay the mortgage, it’s evident that credit score alone isn’t sufficient to determine a borrower’s ability or willingness to repay.

Related Topics:

1. New Hope for Borrowers with Little or No Credit Seeking a Mortgage
2. Credit Card Lates Surge as Mortgage Crisis Rolls On
3. Consumers Pay Credit Card Before Mortgage
4. Credit Score Needed for a Mortgage
5. Credit Card Mailers Decline on Mortgage Woes