03 April 2009

Newer Home Loans Defaulting Faster Than Ever

We are now starting to see evidence that defaults are rising substantially on even the newest vintage of loans. I've long suspected that the worst performing home loans are going to be the most recent ones, as the depression picks up steam. Not only are job losses increasing in the broader economy, but the recently purchased homes are winding up under-water almost immediately (i.e. being worth less than the price of the mortgage) when prices are dropping 3% to 5% in a single month. It is the amount of equity which is the biggest predictor of default, and the newest purchases typically have the least equity.

Troubled borrowers continue to default at high rates even on home loans
that have been modified by lenders, according to a government report issued
today. The report also found that an increasing number of borrowers default on
their loans before making a single payment.

Of the borrowers who had loans modified early last year, for example, about
35 percent had missed at least three payments nine months after their loan was
modified. About 57 percent had missed at least one payment.

The report also found that an increasing number of homeowners, about 1.44
percent during the fourth quarter of 2008, are falling
behind before making a single payment on their mortgages.


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