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In this dismal housing market, homeowners with good credit and no late payments are making what appears to be a strategic decision to walk away when their home's value falls below what's owed.

"The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," concludes a report on research by Experian, the credit agency, and Oliver Wyman, a management consultant company.

The better their credit rating, the more likely homeowners were to default, the report found. The trend was most pronounced where prices have fallen furthest: Florida and the West, especially California.

The finding -- that 588,000 borrowers appear to have strategically defaulted in 2008, a 128% increase from the year before -- surprised the researchers. Piyush Tantia, who conducted the research for Oliver Wyman, and Charles Chung of Experian spotted the trend while analyzing 24 million credit files to see what they could learn about mortgage delinquency.

Foreclosure as a financial strategy

Strategic defaulters stand out among "underwater" mortgages (recently estimated at more than a quarter of all home loans) the researchers said, because they:

  • Pay all their bills consistently and on time until abruptly stopping mortgage payments with no attempt to get current again.
  • Keep current on other debts after defaulting on the mortgage.
  • Keep up payments on home equity lines of credit, sometimes drawing out cash, before defaulting on both the first mortgage and credit line.

This "sophisticated" combination of moves and timing suggests borrowers are employing foreclosure as a calculated financial strategy, said Tantia and Chung.

They conclude that 18% of the borrowers with mortgages 60 days past due in the fourth quarter of 2008 were acting strategically, up from 3% -- "barely noticeable," the report says -- in late 2004. Most defaults, however, are driven by financial distress. Defaults due to troubled finances grew from 31% to 51% of loans in the same time frame.

Broken taboo

It appears that the more money people feel they're losing, the more likely they are to bolt. Owners with smaller loans were less likely to strategically default, even when facing the same percentage of loss.

For example, "once you hit the $200,000-and-up loan size in California, you start to see about 33% strategic defaults," said Tantia. A similar pattern, with 18% to 20% strategic defaults and lower loan amounts, plays out in the rest of the country: "This tells us that the threshold probably is a dollar value and not a percentage."