CFPB doubles down against marketing services agreements

CFPB doubles down against marketing services agreements

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Next comes Senate, then looming threat of veto from White House

Overall strategic default on the decline

Recent data shows the percentage of strategic defaults is on the decline, but still account for nearly one-fifth of serious mortgage delinquencies. Furthermore, the share of strategic defaulters in the jumbo mortgage space is actually growing. A study from credit reporting agency Experian and consulting firm Oliver Wyman showed 17% of all 60-plus day mortgage defaults in the second quarter of 2010 were due to strategic default. While this is down from a peak of 20% in the second quarter of 2008, it is more than double the number of strategic defaults in 2006. During boom times in the first half of the last decade, only 4% of defaults were strategic, according to the report. Strategic default applies to borrowers who can afford their monthly mortgage payment, yet opt not to pay it. Once the financial crisis hit in 2007, many home values depleted and left borrowers underwater, meaning their home was worth less than they originally paid for it. According to Experian strategic default is a "problem that won’t really vanish until home prices climb and stay there," according to a statement from the company. Strategic defaults usually occur on homes that are more expensive with borrowers who make a higher annual income, as they are more financially savvy and can take a small hit to their credit score. According to Experian, 33% of delinquent mortgages in the second quarter of 2010 were on homes more than $1 million. In contrast, just 6% of homes originally priced at $50,000 were attributable to strategic default. In the second quarter of 2010, 30% of strategic default borrowers earned more than $150,000 a year. Just 9% earned less than $40,000, according to Experian. Another characteristic of strategic defaulters is the ability to stay current on all other debt obligations including credit cards, auto loans and any other revolving debt. This includes new mortgages. Experian found that 47% of strategic borrowers in the second quarter of 2010 opened a first mortgage on another property in the six months prior to their default. Experian said strategic default will continue to plague the market until home prices rise. "These percentages aren’t likely to decline much unless residential housing prices increase and remain at higher levels," said the report. "Homeowners have to see for themselves that their neighbors' houses are selling for higher prices." Write to Christine Ricciardi.

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