Mortgage Defaults by Prime Borrowers Create Demand for Credit Repair Businesses

Coming changes in the way America’s major credit bureaus compute credit scores (see our previous post) is expected to increase demand for credit repair professionals. Credit industry concern about changing consumer attitudes and behavior has prompted an overhaul of the two primary software systems used by U.S. credit bureaus to determine credit risk and assign credit scores. VantageScore 2.0 is scheduled to debut right after the first of the year. Fair Isaacs is still tweaking its software but plans to launch revised FICO score software in early 2011.

Revisions in both systems will make adjustments for the lack of consumer credit responsibility that has plagued the mortgage industry and led to soaring mortgage default rates, even by homeowners with good to excellent credit scores. Just like attitudes about bankruptcy, foreclosure is losing its stigma among financially-stressed Americans. The crash of real estate industry and financial markets that precipitated the recession has caused consumers to reprioritize their financial obligations. To the dismay of mortgage lenders and credit reporting agencies, consumers with higher credit scores are choosing to pay down credit card balances and make timely payments on second mortgages or property-secured lines of credit while falling behind in their primary mortgage payments. Yet consumers consider what they term “strategic defaults” to be an acceptable, even laudatory, method of managing their personal finances.

Credit industry analysts began noticing a change in consumer credit behavior in 2006 when an increasing number of borrowers who enjoyed the highest credit scores began to default on their mortgages. Over the next two years, 90-day delinquencies among the borrowing elite increased by more than 400%, doubling a default risk once considered inviolable. The rise in mortgage defaults among a wealthier consumer population has created tremendous opportunity for credit repair businesses.  Prime borrowers who are contemplating strategic default or who have already taken that step generally do not realize the damaging repercussions default inflicts on credit scores — or how that damage can be repaired.  

Credit repair professionals are in an ideal position to help guide financially-troubled consumers to make decisions that will have the least-damaging impact on their credit score. Credit repair experts have the knowledge and resources to develop a plan of action that will help consumers repair and rebuild their credit score.