Strategic defaults a bad plan for credit report

Strategic defaults are a bad plan for credit reports. Some homeowners who have fallen on hard times may have considered defaulting on their mortgages on purpose, but many companies have vowed to prevent borrowers that do so from getting a new home loan.

Fannie Mae recently announced that it will do the same, locking out borrowers from gettinga home loan for seven years after a strategic default, according to the Wall Street Journal. Strategic defaults often happen when a homeowner who has the ability to pay for the home or doesn’t complete a foreclosure-alternative in good faith. This is often because the value of their home has slipped below what they owe on it.

The Journal says that 24 percent of homes across the country fall into this category. These "underwater homes" tend to be found in areas of high concentration. The report also cited a Morgan Stanley study that said 12 percent of defaults in February were strategic.

Defaults and foreclosures can torpedo a credit score, and will stay on a credit report for up to seven years, the report said.

In May, Freddie Mac expressed similar concerns over strategic defaults, saying that those who do it risk undermining their own neighborhoods by driving down property values.