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Why Borrowers Go Delinquent

Freddie analyzes reasons for late payments

April 25, 2007

By MortgageDaily.com staff

An analysis of mortgages managed by Freddie Mac indicates family illness and excessive borrowing are playing a growing role in its delinquencies -- which have declined as the rest of the industry's has soared.

The McLean, Va.-based behemoth findings were based on analysis of performance on its portfolio of 10 million single-family loans from 2001 to 2006. Delinquent loans in Louisiana and Mississippi were excluded from the analysis because of distorted effects resulting from the 2005 hurricanes.

The company noted 90-day delinquency on its own portfolio was just 0.53 percent on Dec. 31, 2006, compared to 0.86 percent nationally reported by the Mortgage Bankers Association.

Rising personal debt and health care costs are impacting a growing number of borrowers, Freddie said.

The report indicated that while delinquencies related to unemployment or income loss accounted for 43 percent of Freddie's delinquencies between 2001 and 2005, the figure had dropped to 36 percent by the end of last year. Conversely, delinquencies due to excessive borrowing rose from 11 percent to 14 percent during the same period. Family illnesses resulted in 21 percent of last year's delinquency while marital difficulties represented 6 percent.

"This analysis underscores the magnitude of difference between Freddie Mac's 0.53 severe delinquency rate and those in the subprime market," Freddie Chief Economist Frank Nothaft said in the announcement. "The uptick in late payments due to excessive debt is potentially troubling because it is independent of economic trends and suggests some borrowers are having a harder time handling their financial obligations than in past years."

The government-sponsored housing enterprise requires its servicers to attempt workout options, including forbearance, according to the press release.

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