02/26/10 Baltimore, Maryland – FICO, the outfit that computes your vaunted “credit score,” has just noticed that consumers with high scores are more likely to default on their mortgages than their credit cards.
Last year, the firm says, folks with FICO scores of 760 or higher defaulted on real estate loans at three times the pace they defaulted on plastic.
This shouldn’t be any surprise to FICO. We noticed a few days ago that the number of consumers current on their cards but delinquent on their mortgages exploded by 50% in the year after Lehman went belly up. FICO has access to this data in real time.
But it appears flabbergasted by this development, marveling in the first paragraph of a press release that “most credit cards are unsecured credit and mortgages are secured by real estate.”
Earth to FICO: If you’re in an underwater home, why wouldn’t you commit strategic default and use the difference between a mortgage payment and rent on a similar home to pay down those cards? You might not even have to move if your mortgage lender doesn’t want to follow through on foreclosure and book the loss!
Still, FICO’s CEO told Bloomberg TV he’s stunned the phenomenon isn’t limited to subprime: “Now we’re starting to see at the high end of the marketplace people with good FICO scores having serious delinquency problems.”
There’s a hint of panic in the man’s words, as if he senses his entire business model is going down the toilet. Good riddance. Millions of mortgages were issued in the last decade on the basis of nothing more than the “score” issued by this company, which reveals exactly nothing about a borrower’s income, or how his debt load compares to his income. FICO wasn’t the cause of the housing bubble, just a trifling enabler.
Regards,
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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Only surprises those who cling to “old values” and nobody under 50……
Houses are for speculation; credit cards are for “living”!
HaHa!!
How many under 760 have real estate loans?
A bubble is a bubble and people are people-if they are too far under water, they are going to walk away. It doesn’t matter if they’re subprime or prime. It doesn’t matter if they have/had great credit or poor credit. It doesn’t matter if they have/had great paying jobs or poor paying jobs. It doesn’t matter if the have a GED or Ph.D. They’re too far in the hole and can’t dig out… and since there’s no debtors prison and all is forgiven after 7 years, what’s stopping them from walking away?