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How do you treat a strategic defaulter?

As I've mentioned previously on this blog, strategic defaulters have a unique set of characteristics not found among other defaulters. That means traditional account management and collections methods are less effective with them.

So what's a mortgage servicer to do? Segment populations based on the dual dimensions of credit risk and strategic default risk, and craft treatment strategies accordingly.

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Within the current population, the goal is to spot likely strategic defaulters before a delinquency develops, enabling servicers to intervene early. Reaching out with information and incentives to stay current at the right time may help customers avoid making a short-term decision that will negatively impact their long-term financial well-being.

Servicers will want to make customers aware that options other than foreclosure exist. They may provide information on other ways to relieve a mortgage burden, such as a short sale or deed in lieu, or provide for modified loan terms.

Within the delinquent population, the value of implementing a dual-score strategy is the ability to separate likely strategic defaulters from distressed customers. This enables servicers to focus collections strategies and resources to accelerate tailored early-stage treatments. Here, time is of the essence to prevent losses.

For those interested in learning more about treatment strategies, check out the best practices in our Insights paper on strategic default (#50). Or join us at FICO World, where I'll be presenting a session on “Best Practices in Strategic Default” in conjunction with the Loan Value Group.

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