Subprime Defaults Soar

In November of 2005, the rate was 6.62%, according to the report by analyst Michael D. Youngblood.

Youngblood said the rate of 10.05% in 2001 “was the trough of the last recession.”

Subprime foreclosures were also on the rise in November, increasing more than 70 percent to 4.13% compared to 2.39% in November of 2005, the Virginia-based said.

Subprime loans in default — meaning the borrowers are 90 days late on their payments and their property is likely to be seized in a foreclosure — grew in November from 10.09% to 9.08 percent in October.

Prime and Alt-A loans are also going through some tough times, according to the FBR report.

The default rate of prime loans rose to .28% in November compared to .20% in the prior year while the foreclosure rate grew from .01% to .11%.

For Alt-A loans the default rate rose 1.51% from .84% while foreclosures grew from 0.10% in November 2005 to 0.69% in November 2006.

“The credit performances of securitized prime, Alt-A and subprime mortgage loans continued to weaken in November from the prior year,” Youngblood wrote in the report.

The Mortgage Bankers Association reported last week that during the third quarter of 2006, delinquency rates for prime loans increased from 2.29% to 2.44%; from 11.70% to 12.56% for subprime; from 12.45% to 12.8% for FHA; and from 6.35% to 6.58% for VA loans.

The largest increase was in subprime ARM loans, which rose from 12.24 percent to 13.22 percent in the quarter, the association said.

And in late January Angelo Mozilo, the CEO of Countrywide Financial, told Wall Street analysts that as many as 50 subprime lenders are going under everyday.

In a report issues in late December the Center for Responsible Lending said 2.2 million American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market.

“In the majority of cases, borrowers receive high-risk loan features, packed into an adjustable rate mortgage with a low start rate that is approved without considering whether the homeowner can afford to pay the loan after the rate rises” the center said in the report.

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: PatCrowley@MortgageDaily.com