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Strategic Default Strategies for Lenders

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Strategic Default Strategies for Lenders Strategic default strategies for lenders Implement more effective strategies and maximize your resources by identifying likely strategic defaulters early Strategic default is not a new phenomenon, but it has become more common in recent years as homeowners continue to find their way out of the economic recession. Faced with negative equity and a slumping housing market, many borrowers are choosing to cease paying their mortgages while staying current on nonmortgage debts. Meanwhile, lenders are trying to identify strategic defaulters in order to set effective strategies. A recent Experian–Oliver Wyman While strategic default behavior has study1 found strategic defaulters slowed from its peak of 20 percent in Combining world-class account for 17 percent of all mortgage 2008, it will continue to be an issue defaults, and 90 percent of strategic for the next few years, given account data and analytics with defaulters stay current on their other management queues and declining more than 30 years obligations — even a year after they’ve home prices. gone delinquent on their mortgage of industry expertise, obligations. This group is the most Profile of strategic defaulters Experian® offers a full suite likely, out of all types of mortgage Several characteristics are associated defaulters, to go into late-stage with strategic default behavior. The of products to help you delinquency, foreclosure or charge-off chart below details some of these manage strategic default. status. Strategic default also remains key characteristics: the most prevalent form of mortgage default among super-prime borrowers. Number of first Consumers who have multiple mortgages are more likely to default on one of them. mortgages › Origination Borrowers with a higher VantageScore® are more likely to strategically default. VantageScore® › Home-equity line Strategic defaulters are more likely to stay current on their home-equity lines prior default behavior › to mortgage default. Origination mortgage Consumers with a higher mortgage origination balance are more likely to balance › strategically default. States such as California and Florida that have suffered more drastic home price Geographic areas › declines than other states tend to have higher rates of strategic default. 1 1Experian–Oliver Wyman Market Intelligence Reports Strategic default in mortgages: Q2 2011 update, June 2011 Help for lenders • Strategic Default IndicatorsSM account management or collections As strategic default remains queues for better treatment strategies, • Premier AttributesSM an ongoing issue for many lenders, as well as for prospecting and account with no substantial relief in sight, it’s • Custom strategic default analysis acquisition to better understand imperative that lenders are able to • Custom strategic default payment behavior prior to extending identify strategic default behavior and mortgage model an offer. set appropriate strategies for borrowers. As illustrated in the table below, these SM Combining world-class data and Strategic Default Indicators six indicators fall into three categories: analytics with more than 30 years Experian has created six Strategic strategic defaulter, cash flow manager of industry experience and expertise, Default Indicators to help lenders and net cash flow manager. Experian® offers the following suite identify suspected strategic default of products to help you manage behavior as early as possible. The strategic default: product also can be used to prioritize Strategic Default IndicatorsSM Description Presence of a continuous mortgage-type delinquency where Strategic defaulter — six months all other nonmortgage trades are current for six months from the date of mortgage delinquency Presence of a continuous mortgage-type delinquency where Strategic defaulter — 12 months all other nonmortgage trades are current for 12 months from the date of mortgage delinquency Presence of any mortgage-type delinquency, continuous or Cash flow manager — six months intermittent, where all other nonmortgage trades are current for six months from the date of mortgage delinquency Presence of any mortgage-type delinquency, continuous or Cash flow manager — 12 months intermittent, where all other nonmortgage trades are current for 12 months from the date of mortgage delinquency Presence of any mortgage-type delinquency that is intermittent and noncontinuous, where all other Net cash flow manager — six months nonmortgage trades are current for six months from the date of mortgage delinquency Presence of any mortgage-type delinquency that is intermittent and noncontinuous, where all other Net cash flow manager — 12 months nonmortgage trades are current for 12 months from the date of mortgage delinquency 2 Premier Attributes The new set of loan modification Premier AttributesSM is the credit attributes is a subset of more than industry’s most robust, accurate 900 attributes that are available Strategic default remains and comprehensive set of credit and capture a variety of consumer attributes that enables organizations behaviors. In addition to the loan the most prevalent form of to make more strategic and data- modification attributes below, driven decisions across the Customer additional attributes are available mortgage default among Life Cycle. Experian credit data that are of benefit in mitigating super-prime borrowers. experts developed a new set of loan mortgage related risk. modification attributes to capture the number and type of loan modification, as well as to identify those that have not been delinquent or derogatory. Loan Modification Attributes Total number of trades under a government loan modification plan Total number of trades under a nongovernment loan modification plan Total number of mortgage-type trades under a loan modification plan Total number of trades under a government loan modification plan never delinquent or derogatory Total number of trades under a nongovernment loan modification plan never delinquent or derogatory Total number of mortgage-type trades under a loan modification plan never delinquent or derogatory 3 Experian’s Decision Sciences team can work with your organization to offer a customized and comprehensive strategic default analysis based on your requirements. Combined with our Strategic Default • Collections your environment and business Indicators, Premier Attributes offers – Use Strategic Default requirements and apply advanced multiple applications across the Indicators to set collection modeling techniques to develop a Customer Life Cycle, including: prioritization strategies custom strategic default model based on your data. The model can be • Prospecting • Analysis and custom models developed to rank order the likelihood – Use Strategic Default Indicators of strategic default behavior for loan – Append Strategic Default to suppress consumers who are Indicators and Premier Attributes modifications and restructuring plans likely to be strategic defaulters for use in analysis and custom by incorporating Strategic Default – Get additional insight from the model development Indicators, Premier Attributes, LTV loan modification attributes and other account-level details to create the most robust model for and other Premier Attributes Custom strategic default analysis your business needs. for criteria Experian’s Decision Sciences team can work with your organization to • Acquisitions Getting started offer a customized and comprehensive Although the strategic default trend – Use Strategic Default Indicators strategic default analysis based on persists throughout the mortgage and Premier Attributes at the time your requirements. With a proven industry, our team of experts can of origination, along with the loan- track record of delivering successful help you navigate the current to-value (LTV) from the client, to consulting engagements, we offer challenges successfully. set strategies world-class data interpretation, analytical consulting services and a To find out more about our strategic • Account management full range of analytical capabilities — default products and services, please – Target potential cash flow from design to interpretation of results. contact us at 1 888 414 1120 or visit managers for loan www.experian.com/strategic-default. modification programs Custom strategic default – Identify likely strategic defaulters mortgage model and develop strategies and offers As one of the foremost modeling that can convince strategic companies, Experian has delivered defaulters to change their more than 1,500 custom models behavior, such as equity-risk worldwide. We can work with agreements and incentive plans your organization to understand 4 Experian 475 Anton Blvd. Costa Mesa, CA 92626 T: 1 888 414 1120 www.experian.com/strategic-default © 2012 Experian Information Solutions, Inc. • All rights reserved Experian and the Experian marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the property of their respective owners. VantageScore® is owned by VantageScore Solutions, LLC. 03/12 • 2000/1125 • 6043-CS.
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