One of the things lenders do in evaluating the risk of a potential borrower defaulting on a loan is to consider the p...

Emil-Kunkin on April 19, 2022

Hi,

This is a paradox question, so we are looking for something that explains who mortgage borrowers with high credit scores are more likely to default than other borrowers despite credit scores generally indicating someone's likelihood of repaying,

If mortgages are unusually large, this should impact all borrowers equally, not just those with high credit scores. However, if mortgage lenders ignore other red flags while other lenders do not, this is an explanation. Perhaps for other types of loans lenders would consider if the person recently lost their job, or is facing criminal charges, but mortgage lenders ignore these red flags, focusing only on credit scores for those with high credit scores. This would mean that a number of people with high credit scores but other reasons for defaulting might get loans, while others with these same red flags and lower credit scores would not be approved. This would mean that those with low credit scores would be subject to more rigorous screening, while those with high credit scores would be able to avert such checks.